Timberline Resources Corp - Annual Report: 2021 (Form 10-K)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☒ |
| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended September 30, 2021 | ||
OR | ||
☐ |
| 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)
Delaware |
| 82-0291227 |
(State of other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
101 East Lakeside Avenue |
|
|
Coeur d’Alene, Idaho |
| 83814 |
(Address of Principal Executive Offices) |
| (Zip Code) |
(208) 664-4859
(Registrant’s Telephone Number, including Area Code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered |
Common Stock, $0.001 par value | TLRS TBR |
|
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: None
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o No x
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes o No x
Indicate by check mark whether the Registrant (1) has filed all reports required by Section 13 or 15(d) of the Securities Exchange Act of 1934 (“Exchange Act”) during the preceding 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. Yes x No o
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 (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o
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 definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated filer o |
Non-accelerated filer x | Smaller reporting company ☒ Emerging Growth Company ☐ |
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. o
Indicate by check mark whether the Registrant is a shell company, as defined in Rule 12b-2 of the Exchange Act. Yes ☐ No x
As of March 31, 2021, the aggregate market value of the voting and non-voting shares of common stock of the registrant issued and outstanding on such date, excluding shares held by affiliates of the registrant as a group, was $11,172,349. This figure is based on the closing sale price of $0.23 per share of the Registrant’s common stock on March 31, 2021 on the OTCQB.
Number of shares of Common Stock outstanding as of December 20, 2021: 139,696,022
Documents incorporated by reference: To the extent herein specifically referenced in Part III, portions of the Registrant's definitive Proxy Statement for the 2021 Annual General Meeting of Shareholders filed with the Securities and Exchange Commission pursuant to Regulation 14A on March 4, 2021.1
TABLE OF CONTENTS
2
COVID-19
In March 2020, COVID-19 was declared a pandemic by the World Health Organization and the Centers for Disease Control and Prevention. Its rapid spread around the world and throughout the United States prompted many countries, including the United States, to institute restrictions on travel, public gatherings and certain business operations. These restrictions did not significantly disrupt economic activity in Timberline Resource’s business.
As of September 30, 2021, the pandemic had not materially impacted the Registrants’ financial statements. However, if the severity of the COVID-19 pandemic continues, the negative financial impact due to limitations in conducting geologic field work and exploration activities could be significantly greater in future periods. In addition, the economic disruptions caused by COVID-19 could adversely impact the impairment risks for certain long-lived assets and equity method investments. Timberline Resources evaluated these impairment considerations and determined that no such impairments occurred as of September 30, 2021.
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 September 30, 2021, there were no material adverse impacts on the Company’s operations due to COVID-19.
As of September 30, 2021, Timberline Resource’s available liquidity is approximately $3,300,000. 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.
3
Unless otherwise indicated, any reference to “Timberline”, or “we”, “us”, “our”, etc. refers to Timberline Resources Corporation and/or all its subsidiaries, including Staccato Gold, BH Minerals, Wolfpack US, Lookout Mountain LLC and Talapoosa Development Corp.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K and the exhibits attached hereto contain “forward-looking statements” within the meaning of the various provisions of the Securities Act of 1933, as amended (the “Securities Act”), and the Securities Exchange Act of 1934 (the “Exchange Act”). Such forward-looking statements concern the Company’s anticipated results and developments in its operations in future periods, planned exploration and development of its properties, plans related to its business and other matters that may occur in the future. These statements relate to analyses and other information that 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 tonnage and grade of mineralization and reserves;
·forecasts of future gold and silver prices, anticipated expenditures and costs in our operations;
·planned exploration activities and the anticipated timing and results of exploration activities;
·planned 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 and its anticipated outcome;
·plans and anticipated timing regarding production dates;
·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 results to differ from those expressed or implied by the forward-looking statements, including, without limitation, risks related to:
·our limited operating history;
·our ability to continue as a going concern and to fund our operations;
·a history of losses and our expectation of continued losses;
·the geological risk of mineral exploration;
·properties being in the exploration or, if warranted, development stage;
·bringing our projects into production;
·legislative and administrative changes to mining and environmental laws;
·land reclamation requirements and costs;
·mineral exploration and development activities being inherently hazardous;
·our insurance coverage for operating risks;
·cost increases for our exploration and development projects;
·shortages of skilled personnel, equipment and supplies adversely affecting our ability to operate;
·mineral resource and economic estimates;
·the metallurgical characteristics of current resources and future discoveries;
·fluctuation of prices for precious and base metals, such as gold, silver and copper;
·competition in the mineral exploration industry;
·title and rights in our mineral properties;
4
·integration issues with acquisitions;
·our shares trading on the Over-the-Counter markets and market conditions generally;
·joint ventures and partnerships;
·potential conflicts of interest of our management;
·dependence on key management;
·our Eureka and other acquired growth projects;
·our business model;
·evolving corporate governance standards for public companies;
·our Canadian regulatory requirements; and
·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” of this Annual Report. 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 required by law.
We qualify all the forward-looking statements contained in this Annual Report by the foregoing cautionary statements.
5
PART I
Note to U.S. Investors Regarding Mineral Reserve and Resource Estimates
Certain of the technical reports referenced in this Annual Report 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 in accordance with Canadian National Instrument 43-101 – Standards of Disclosure for Mineral Projects (“NI 43-101”) and the Canadian Institute of Mining, Metallurgy and Petroleum (the “CIM”) – CIM Definition Standards on Mineral Resources and Mineral Reserves, adopted by the CIM Council, as amended. As a reporting issuer in Canada, we are required to prepare reports on our mineral properties in accordance with NI 43-101. We reference those technical reports in this Annual Report for informational purposes only, and such reports are not incorporated herein by reference. "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. Investors are cautioned not to assume that any part or all of mineral deposits in the above categories will ever be converted into reserves.
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 for 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.
ITEM 1. DESCRIPTION OF BUSINESS
Incorporation and Early History
We were incorporated in the State of Idaho in August 1968 under the name Silver Crystal Mines, Inc., to engage in the business of exploring for precious metal deposits and advancing them toward production. We ceased exploration activities during the 1990’s and became virtually inactive. In December 2003, a group of investors purchased 80-percent of the issued and outstanding common stock from the then-controlling management team. In January 2004, we affected a one-for-four reverse split of our issued and outstanding shares of common stock and increased the number of our authorized shares of common stock to 100,000,000 with a par value of $0.001.
In February 2004, our name was changed to Timberline Resources Corporation. Since the reorganization, we have been in an exploration stage evaluating, acquiring, and exploring mineral prospects with potential for economic deposits of precious and base metals. We define a prospect as a mining property, the value of which has not been determined by exploration. In August 2008, we reincorporated into the State of Delaware pursuant to a merger agreement approved by our shareholders.
In July 2007, we closed our purchase of the Butte Highlands Gold Project. In October 2008, we announced that we had agreed to form a 50/50 joint venture at the Butte Highlands Project. In July 2009, we finalized the joint venture agreement with Highland Mining, LLC (“Highland”) to create Butte Highlands JV, LLC (“BHJV”). Under terms of the joint venture agreement, development began in the summer of 2009, with Highland funding all mine development costs through development. Both Timberline’s and Highland’s 50-percent share of costs were to be paid out of net proceeds from future mine production. On January 29, 2016, we executed a Member Interest Purchase Agreement (the “Purchase Agreement”) with New Jersey Mining Company pursuant to which we sold all of our 50% interest in BHJV.
In June 2010, we closed our acquisition of Staccato Gold Resources Ltd. (“Staccato Gold”), a Canadian-based resource 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 Staccato’s flagship gold exploration project (“Lookout Mountain”), and several other projects at various stages of exploration in the Battle Mountain/Eureka gold trend in north-central Nevada, along with Staccato Gold’s wholly owned U.S. subsidiary, BH Minerals USA, Inc. (“BH Minerals”).
In August 2014, we closed our acquisition of Wolfpack Gold (Nevada) Corp. (“Wolfpack US”), a U.S. company and a wholly-owned subsidiary of Wolfpack Gold Corp., a Canadian-based resource company (“Wolfpack Gold”), 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 in Nevada.
6
On March 17, 2015 Timberline signed a definitive option agreement to purchase 100% ownership in the Talapoosa Project in Nevada from Gunpoint Exploration Ltd. (Gunpoint). The Talapoosa Project is located in western Nevada and contains a resource of over 1 million ounces of gold. Under terms of the agreement Timberline paid Gunpoint $300,000 in cash and 2,000,000 shares of common stock on signing the agreement and was required to pay $10,000,000 (“Option Payment”) within 30 months of the agreement date to acquire 100% ownership, subject to significant contingent payments if the price of gold traded above US $1,600 per ounce for extended periods in the five (5) ensuing years. On October 26, 2016, the agreement was amended to extend the option exercise period to March 31, 2019 with the following schedule: payment of $1,000,000 and 1,000,000 common shares of the Company by March 31, 2017, payment of $2,000,000 and 1,000,000 common shares by March 31, 2018, and a final payment of $8,000,000 and 1.5 million common shares by March 31, 2019. Timberline chose to not make the required payment due on March 31, 2018, and, therefore, the Agreement was terminated, resulting in a $3.2 million write off of a loss on abandonment of mineral rights.
In May 2018, we entered into a definitive agreement to acquire ownership interests in two joint venture agreements in Nevada from Americas Gold Exploration, Inc (“AGEI”). The acquisition included a 73.7% interest in the Paiute property joint venture with Nevada Gold Mines LLC (“Nevada Gold”), and the opportunity to earn up to 65% ownership in the Elder Creek joint venture with McEwen Mining, Inc. The acquisition of the two joint venture ownership interests, at Elder Creek with McEwen Mining and at Paiute with Nevada Gold, from AGEI closed on August 14, 2018 for consideration of ten million shares of our common stock and five million warrants to purchase shares of our common stock. An additional five million warrants with the same terms were issued to AGEI contingent upon certain achievements. Upon closing, we became the operator at both of these joint venture projects.
Timberline undertook exploration of the Elder Creek property during 2018 and 2019 including drilling of eight test holes. Based on the positive results of those test holes, the Company entered discussions with a third party aimed at assigning its option and joint venture agreement on the property in exchange for funding, such that Timberline would have retained a minority interest. The proposed agreement required the consent of McEwen Mining, which was not successfully obtained prior to the June 30, 2020 anniversary deadline for payment of holding costs and continuation of the agreement. McEwen Mining was unwilling to renegotiate the agreement and consent to the assignment to a third party, therefore Timberline elected to terminate the agreement on the anniversary date, resulting in a $1.2 million write off of the carrying value of the project.
During the year ended September 30, 2019, the Company recognized an abandonment expense of $48,500 relating to two patented mining claims at in the New York Canyon area of the Eureka property on which the Company had ceased making advance royalty payments.
On June 28, 2019, we entered into a Limited Liability Company Agreement (the “LLC” and the “LLC Agreement”) with PM & Gold Mines, Inc. (“PM&G”) for the advanced exploration, and if determined feasible, the development of the Lookout Mountain Gold Project, a significant portion of the Company’s broader Eureka property located on the southern end of the Battle Mountain-Eureka Trend near Eureka, Nevada. PM&G was a private firm incorporated in Nevada with an interest to explore and advance gold projects to production. The LLC Agreement called for PM&G to fund exploration and development activities in two stages for earned equity in the project. Timberline was to contribute certain claims that constituted the Lookout Mountain Project and adjacent historical Oswego Mine area to the LLC in exchange for its ownership position.
Concurrent with completion of the LLC Agreement, PM&G also participated in a private placement and acquired 3,367,441 shares, or 4.99%, of our common shares. The placement included the right of PM&G to maintain its position in Timberline by pro-rata participation in future financings. The initial interests in the LLC were 51% PM&G and 49% Timberline, subject to PM&G’s contribution to the LLC in the form of an earn-in. Timberline would manage the project through at least the initial stage of investment, at which time PM&G would have been vested at 51% ownership. PM&G retained the right to manage all subsequent activities with or without Timberline’s participation.
Under terms of the LLC Agreement, PM&G committed to $3,000,000 of work expenditure during each of the first two years following the agreement effective date of June 28, 2019. PM&G committed $755,605 towards the first-year obligation due on June 28, 2020, but failed to deliver sufficient capital to meet the required first year investment. Under the terms of the agreement, after written notice and a 30-day cure period, PM&G did not cure the matter and thereby resigned from the LLC Agreement giving up all claims and rights to the property.
Overview of Our Mineral Exploration Business
We are a mineral exploration business and, if and when we establish mineral reserves, a development company. Mineral exploration is essentially a research activity that does not produce a product. Successful exploration often results in increased project value that can be realized through the optioning or selling of the claimed site to larger companies. We acquire properties which we believe have potential to host economic concentrations of minerals, particularly gold and silver. These acquisitions have and may take the form of unpatented mining claims on federal land, or leasing claims or private property
7
owned by others. An unpatented mining claim is an interest that can be acquired in the mineral rights on open lands of the federally-owned public domain. Claims are staked in accordance with the Mining Law of 1872, recorded with the federal government pursuant to laws and regulations established by the Bureau of Land Management (the Federal agency that administers America’s public lands), that grant the holder of the claim a possessory interest in the mineral rights, subject to the paramount title of the United States.
We perform geological work to identify specific drill targets on the properties, and then collect subsurface samples by drilling to confirm the presence of mineralization (the presence of economic minerals in a specific area or geological formation). We may enter into option and joint venture agreements with other companies to fund further exploration and/or development work. It is our plan to focus on assembling a high-quality group of gold and silver exploration prospects using the experience and contacts of the management group. By such prospects, we mean properties that may have been previously identified by third parties, including prior owners such as exploration companies, as mineral prospects with potential for economic mineralization. Often these properties have been sampled, mapped and sometimes drilled, usually with indefinite results. Accordingly, such acquired projects will either have some prior exploration history or will have strong similarity to a recognized geologic ore deposit model. We place geographic emphasis on the western United States, and Nevada in particular.
The focus of our activity has been to acquire properties that we believe to be undervalued, including those that we believe to hold previously unrecognized mineral potential. Properties have been acquired through the location of unpatented mining claims (which allow the claimholder the right to mine the minerals without holding title to the property), or by negotiating lease/option agreements. Our President and CEO, Patrick Highsmith, our Vice President Exploration, Dr. Steven Osterberg, and our CFO, Ted Sharp, as well as our Directors, have experience in evaluating, staking and filing unpatented mining claims, and in negotiating and preparing transactional agreements in connection with those mining claims, including option and JV or mineral lease agreements.
The geologic potential and ore deposit models have been defined and specific drill targets identified on the majority of our properties. Our property evaluation process involves using geologic fieldwork to perform an initial evaluation of a property. If the evaluation is positive, we seek to acquire it, either by staking unpatented mining claims on open public domain, or by leasing or optioning the property from the owner of private property or the owner of unpatented claims. Once acquired, we then typically make a more detailed evaluation of the property. This detailed evaluation involves expenditures for exploration work which may include rock and soil sampling, geologic mapping, geophysics, trenching, drilling, or other means to determine if economic mineralization is present on the property.
Portions of our mineral properties at September 30, 2021 are owned by third parties and leased to us, or carry a financial commitment from us, as outlined in the following table:
Property Name | Third Party | Number of Claims | Area | Agreements/ Royalties |
Lookout Mountain (Eureka) | Rocky Canyon Mining Company | 373 | 6,368 acres | 3.5% NSR + 1.5% NSR capped at $1.5 million (excludes Trevor and Dave claims); 20-year lease term commencing June 1, 2008; annual advanced royalty payment of $72,000.
|
Silverado | Silver International | 10 | 100 | 1% NSR + $10,000 Annual lease payment |
Seven Troughs | Slash, Inc. | 302 | 4,030 | 2% NSR; 50-year lease term commencing December 31, 1975; no annual lease payments;
|
Paiute (ICBM JV with LAC Minerals) | Nevada Gold Mines by assignment from LAC Minerals (USA) LLC
| 65 | 1,343 acres | ICBM Joint Venture Earn-in; 60% ownership for $300,000 work commitment with standard dilution thereafter; historical expenditures by ICBM and Timberline combined bring current Timberline ownership to 76.1%. |
8
In the case of properties deemed to be of higher risk due to higher cost exploration or those that host commodities of lesser interest to Timberline (such as base metals), we may choose to present them to larger companies for strategic partnerships. Our strategy is intended to maximize the abilities and skills of the management group, conserve capital, and provide superior leverage for investors.
For our gold and silver prospects where drilling costs are reasonable and the likelihood of success seems favorable, we will undertake our own drilling. The target depths, the tenor of mineralization on the surface, and the general geology of the area are all factors that determine the risk as calculated by us in conducting a drilling operation. Mineral exploration is a research and development activity and is, by definition, a high-risk business that relies on numerous untested assumptions and variables. Accordingly, we make our decisions on a project-by-project basis. We do not have any steadfast formula that we apply in determining the reasonableness of drilling costs in comparison to the likelihood of success, i.e., in determining whether the probability of success seems “favorable.”
Our Competition
The mineral exploration industry is intensely competitive in all phases. In our mineral exploration activities, we compete with many companies possessing greater financial resources and technical facilities than we do for the acquisition of mineral concessions, claims, leases, and other mineral interests as well as for the recruitment and retention of qualified employees, including mining engineers, geologists, and other skilled mining professionals. We use consultants and compete with other mining companies for the man hours of consulting time required to complete our studies. We also compete with other mining companies for exploration and development equipment and services. We must overcome significant barriers to enter into the business of mineral exploration as a result of our limited operating history.
We cannot assure the reader that we will be able to compete in any of our business areas effectively with current or future competitors or that the competitive pressures faced by us will not have a material adverse effect on our business, financial condition, and operating results.
Our Offices and Other Facilities
We currently maintain our administrative office at 101 East Lakeside Ave., Coeur d’Alene, ID 83814. The telephone number is (866) 513-4859 (toll free) or (208) 664-4859. We also maintain warehouse space in Eureka, NV 89316.
Our Employees
We are an exploration company and currently have 2 full-time employees. Management engages independent consultants under contract arrangements as necessary to execute on company strategies at the current early exploration stage of our work and expects to hire staff and additional management as necessary for implementation of our business plan.
Regulation
The exploration and mining industries operate in a legal environment that requires permits to conduct virtually all operations. These permits are required by local, state, and federal government agencies. Federal agencies that may be involved include: the U.S. Forest Service (USFS), Bureau of Land Management (BLM), Environmental Protection Agency (EPA), National Institute for Occupational Safety and Health (NIOSH), the Mine Safety and Health Administration (MSHA), and the Fish and Wildlife Service (FWS). Individual states also have various environmental regulatory bodies, such as Departments of Ecology. Local authorities, usually counties, also have control over mining activity. The various permits address such issues as prospecting, development, production, labor standards, taxes, occupational health and safety, toxic substances, air quality, water use, water discharge, water quality, noise, dust, wildlife impacts, as well as other environmental and socioeconomic issues.
Prior to receiving the necessary permits to explore or mine, a mine operator must comply with all regulatory requirements imposed by all governmental authorities having jurisdiction over the project area. Very often, in order to obtain the requisite permits, the operator must have its land reclamation, restoration, or replacement plans pre-approved. Specifically, the operator must present its plan as to how it intends to restore or replace the affected area. Often all or any of these requirements can cause delays or involve costly studies or alterations of the proposed activity or time frame of operations, in order to mitigate impacts. All of these factors make it more difficult and costlier to operate and have a negative and sometimes fatal impact on the viability of the exploration or mining operation. Finally, it is possible that future changes in these laws or regulations could have a significant impact on our business, causing those activities to be economically re-evaluated at that time. For a more detailed discussion of governmental and environmental regulatory requirements applicable to our mineral exploration business see the section titled “Description of Properties - Overview of Regulatory, Economic and Environmental Issues” below.
9
Reclamation
We generally are required to mitigate long-term environmental impacts of prospecting and drilling activities, which are normally minor but may require contouring, re-sloping and re-vegetating roads and drill sites. Similarly, the greater impacts of mining and mineral processing operations must also be mitigated by stabilizing, contouring, re-sloping and re-vegetating various portions of a site after operations are completed. These reclamation efforts are conducted in accordance with detailed plans, which must be reviewed and approved by the appropriate regulatory agencies, and may require us to remit cash to pay for reclamation bonds. Should we cease operations without performing the required reclamation, these bonds would cover the cost of reclamation activities to be performed by the regulatory agency.
The Commodities Market
The prices of gold and silver have fluctuated during the last several years, with the prices of gold and silver falling to their lowest levels in the past several years in 2015 and early 2016, before rebounding. In 2017, gold traded between approximately $1,151 and $1,346 per ounce. In 2018, gold traded between approximately $1,175 and $1,355 per ounce. In 2019, gold traded between approximately $1,270 and $1,547 per ounce. In 2020, gold traded between approximately $1,474 and $2,067 per ounce. The price of gold was $1,943 per ounce in January 2021, but traded considerably lower during the year, reaching as low as $1,683 per ounce in March 2021, before rising back up to approximately $1,769 at the time of this writing. All of these gold prices are based on the London PM Fix Price per troy ounce of gold in U.S. dollars.
In 2017, silver traded between approximately $15.22 and $18.56 per ounce. In 2018, silver traded between approximately $13.97 and $17.52 per ounce. In 2019, silver traded between approximately $14.38 and $19.42 per ounce. In 2020, silver traded between approximately $12.01 and $28.89 per ounce. The price of silver was $27.27 per ounce in January 2021, and it continued to climb, reaching a peak of over $29 per ounce in February 2021, before settling back down to approximately $24 at the time of this writing. All of these silver prices are based on the London Fix Price per troy ounce of silver in U.S. dollars.
Seasonality
Seasonality in Nevada is not a material factor to our operations. Certain surface exploration work may need to be conducted when there is no snow on the ground, but it is not a material issue.
ITEM 1A. RISK FACTORS
An investment in an exploration stage mining company such as ours involves an unusually high degree of risk, known and unknown, present and potential, including, but not limited to the risks enumerated below.
Failure to successfully address the risks and uncertainties described below could have a material adverse effect on our business, financial condition and/or results of operations, and the trading price of our common stock may decline and investors may lose all or part of their investment. We cannot assure you that we will successfully address these risks or other unknown risks that may affect our business.
Estimates of mineralized material are forward-looking statements inherently subject to error. Although mineralization and reserve estimates require a high degree of assurance in the underlying data when the estimates are made, unforeseen events and uncontrollable factors can have significant adverse or positive impacts on the estimates. Actual results will inherently differ from estimates. The unforeseen events and uncontrollable factors include: geologic uncertainties including inherent sample variability, metal price fluctuations, variations in mining and processing parameters, and adverse changes in environmental or mining laws and regulations. We cannot accurately predict the timing and effects of variances from estimated values.
Risks Related to Our Company
Our ability to operate as a going concern is in doubt.
The audit opinion and notes that accompany our consolidated financial statements for the year ended September 30, 2021, disclose a ‘going concern’ qualification to our ability to continue in business. The accompanying consolidated financial statements have been prepared under the assumption that we will continue as a going concern. We have incurred losses since our inception. We have sufficient cash to fund normal operations and meet all of our obligations for the next 12 months. As of the date of this report, we have working capital of $3,170,019. However, we are an exploration company with exploration programs that require significant cash expenditures. A significant drilling program, such are those we have planned, can result in depletion of cash and return us to a position of insufficient cash to support normal operations for 12 months.
10
Full disclosure of the going concern qualification appears in Part II, Item 7 - Financial Condition and Liquidity, and also in the notes to the financial statements (See Note 2 – Summary of Significant Accounting Policies.)
We have a limited operating history on which to base an evaluation of our business and prospects.
Although we have been in the business of exploring mineral properties since our incorporation in 1968, we were inactive for many years prior to our new management in 2004. Since 2004, we have not yet established any mineral reserves. As a result, we have not had any revenues from our exploration activities. While we have had a wholly-owned drilling services subsidiary which has generated revenues in past fiscal years, we no longer own that business. In addition, our operating history has been restricted to the acquisition and exploration of our mineral properties, and this does not provide a meaningful basis for an evaluation of our prospects if we ever determine that we have a mineral reserve and commence the construction and operation of a mine. Other than through conventional and typical exploration methods and procedures, we have no additional way to evaluate the likelihood of whether our mineral properties contain any mineral reserves or, if they do that they will be operated successfully. As a result, we are subject to all of the risks associated with developing and establishing new mining operations and business enterprises including:
·completion of feasibility studies to verify reserves and commercial viability, including the ability to find sufficient gold reserves to support a commercial mining operation;
·the timing and cost, which can be considerable, of further exploration, preparing feasibility studies, permitting and construction of infrastructure, mining, and processing facilities;
·the availability and costs of drill equipment, exploration personnel, skilled labor, and mining and processing equipment, if required;
·compliance with environmental and other governmental approval and permit requirements;
·the availability of funds to finance exploration, development, and construction activities, as warranted;
·potential opposition from non-governmental organizations, environmental groups, local groups, or local inhabitants which may delay or prevent development activities;
·potential increases in exploration, construction, and operating costs due to changes in the cost of fuel, labor, power, materials, and supplies; and
·potential shortages of mineral processing, construction, and other facilities-related supplies.
The costs, timing, and complexities of exploration, development, and construction activities may be increased by the location of our properties and demand by other mineral exploration and mining companies. It is common in exploration programs to experience unexpected problems and delays during drill programs and, if warranted, development, construction, and mine start-up. Accordingly, our activities may not result in profitable mining operations and we may not succeed in establishing mining operations or profitably producing metals at any of our properties. There is no history upon which to base any assumption as to the likelihood that we will prove successful, and we can provide investors with no assurance that we will generate any operating revenues or ever achieve profitable operations.
We have a history of losses and expect to continue to incur losses in the future.
We have incurred losses since inception and expect to continue to incur losses in the future. We incurred the following net losses during each of the following periods:
·$4,707,815 for the year ended September 30, 2021
·$3,377,091 for the year ended September 30, 2020; and
·$1,657,283 for the year ended September 30, 2019
We had an accumulated deficit of approximately $68.3 million as of September 30, 2021. We expect to continue to incur losses unless and until such time as one of our properties enters into commercial production and generates sufficient revenues to fund continuing operations. We recognize that if we are unable to generate significant revenues from mining operations and dispositions of our properties, we will not be able to earn profits or continue operations. At this early stage of our operation, we also expect to face the risks, uncertainties, expenses, and difficulties frequently encountered by companies at the start-up stage of their business development. We cannot be sure that we will be successful in addressing these risks and uncertainties and our failure to do so could have a materially adverse effect on our financial condition.
Risks Associated with Mining and Exploration
All of our properties are in the exploration stage. There is no assurance that we can establish the existence of any mineral reserve on any of our properties in commercially exploitable quantities. Until we can do so, we cannot earn any revenues from these properties, and if we do not do so, and are unable to joint venture or sell the properties, we will lose all of the
11
funds that we expend on exploration. If we do not discover any mineral reserve in a commercially exploitable quantity, our business could fail.
We have not established that any of our mineral properties contain any mineral reserves according to recognized reserve guidelines, nor can there be any assurance that we will be able to do so. A mineral reserve is defined by the SEC in its Regulation S-K subpart 1300 as that part of a mineral deposit, which could be economically and legally extracted or produced at the time of the reserve determination. The probability of an individual prospect ever having a "reserve" that meets the requirements of the SEC's Regulation S-K subpart 1300 is remote. Even if we do eventually discover a mineral reserve on one or more of our properties, there can be no assurance that they can be developed into producing mines to extract those minerals. Both mineral exploration and development involve a high degree of risk, and few properties that are explored are ultimately developed into producing mines.
The commercial viability of an established mineral deposit will depend on a number of factors including, by way of example, the size, grade, and other attributes of the mineral deposit, the proximity of the mineral deposit to infrastructure such as a smelter, roads, a point for shipping, government regulation, and market prices. Most of these factors will be beyond our control, and any of them could increase costs and make extraction of any identified mineral deposit unprofitable.
Mineral operations are subject to applicable law and government regulation. Even if we discover a mineral reserve in a commercially exploitable quantity, these laws and regulations could restrict or prohibit the exploitation of that mineral reserve. If we cannot exploit any mineral reserve that we might discover on our properties, our business may fail.
Both mineral exploration and extraction require permits from various foreign, federal, state, provincial, and local governmental authorities and are governed by laws and regulations, including those with respect to prospecting, mine development, mineral production, transport, export, taxation, labor standards, occupational health, waste disposal, toxic substances, land use, environmental protection, mine safety, and other matters. Regarding our future ground disturbing activity on federal land, we will be required to obtain a permit from the US Forest Service or the Bureau of Land Management prior to commencing exploration. There can be no assurance that we will be able to obtain or maintain any of the permits required for the continued exploration of our mineral properties or for the construction and operation of a mine on our properties at economically viable costs. If we cannot accomplish these objectives, our business could face difficulty and/or fail.
We believe that we are in compliance with all material laws and regulations that currently apply to our activities, but there can be no assurance that we can continue to do so. Current laws and regulations could be amended, and we might not be able to comply with them, as amended. Further, there can be no assurance that we will be able to obtain or maintain all permits necessary for our future operations, or that we will be able to obtain them on reasonable terms. To the extent such approvals are required and are not obtained, we may be delayed or prohibited from proceeding with planned exploration or development of our mineral properties.
Environmental hazards unknown to us, which have been caused by previous or existing owners or operators of the properties, may exist on the properties in which we hold an interest. In past years, we have been engaged in exploration in northern Idaho, which is currently the site of a Federal Superfund cleanup project. Although we are no longer involved in this or other areas at present, it is possible that environmental cleanup or other environmental restoration procedures could remain to be completed or mandated by law, causing unpredictable and unexpected liabilities to arise. At the date of this Annual Report, we are not aware of any environmental issues or litigation relating to any of our current or former properties.
Future legislation and administrative changes to the mining laws could prevent us from exploring our properties.
New state and U.S. federal laws and regulations, amendments to existing laws and regulations, administrative interpretation of existing laws and regulations, or more stringent enforcement of existing laws and regulations, could have a material adverse impact on our ability to conduct exploration and mining activities. Any change in the regulatory structure making it more expensive to engage in mining activities could cause us to cease operations.
Regulations and pending legislation governing issues involving climate change could result in increased operating costs, which could have a material adverse effect on our business.
A number of governments or governmental bodies have introduced or are contemplating regulatory changes in response to various climate change interest groups and the potential impact of climate change. Legislation and increased regulation regarding climate change could impose significant costs on us, our venture partners, and our suppliers, including costs related to increased energy requirements, capital equipment, environmental monitoring and reporting, and other costs to comply with such regulations. Any adopted future climate change regulations could also negatively impact our ability to compete with companies situated in areas not subject to such limitations. Given the political significance and uncertainty around the impact
12
of climate change and how it should be dealt with, we cannot predict how legislation and regulation will affect our financial condition, operating performance and ability to compete. Furthermore, even without such regulation, increased awareness and any adverse publicity in the global marketplace about potential impacts on climate change by us or other companies in our industry could harm our reputation. The potential physical impacts of climate change on our operations are highly uncertain and would be particular to the geographic circumstances in areas in which we operate. These may include changes in rainfall and storm patterns and intensities, water shortages, changing sea levels, and changing temperatures. These impacts may adversely impact the cost, production, and financial performance of our operations.
If we establish the existence of a mineral reserve on any of our properties in a commercially exploitable quantity, we will require additional capital in order to develop the property into a producing mine. If we cannot raise this additional capital, we will not be able to exploit the reserve, and our business could fail.
If we do discover mineral reserves in commercially exploitable quantities on any of our properties, we will be required to expend substantial sums of money to establish the extent of the reserve, develop processes to extract it, and develop extraction and processing facilities and infrastructure. There can be no assurance that a mineral reserve will be large enough to justify commercial operations, nor can there be any assurance that we will be able to raise the funds required for development on a timely basis. If we cannot raise the necessary capital or complete the necessary facilities and infrastructure, our business may fail.
Land reclamation requirements for our properties may be burdensome and expensive.
Although variable depending on location and the governing authority, land reclamation requirements are generally imposed on mineral exploration companies (as well as companies with mining operations) in order to minimize long-term effects of land disturbance. Reclamation may include requirements to control dispersion of potentially deleterious effluents and re-establish pre-disturbance land forms and vegetation.
In order to carry out reclamation obligations imposed on us in connection with our potential development activities, we must allocate financial resources that might otherwise be spent on further exploration and development programs. We plan to set up a provision for our reclamation obligations on our properties, as appropriate, but this provision may not be adequate. If we are required to carry out unanticipated reclamation work, our financial position could be adversely affected.
Mining exploration and development are inherently hazardous and subject to conditions or events beyond our control, which could have a material adverse effect on our business and plans.
Mining and mineral exploration involves various types of risks and hazards, including:
·environmental hazards;
·power outages;
·metallurgical and other processing problems;
·unusual or unexpected geological formations;
·personal injury, flooding, fire, explosions, cave-ins, landslides, and rock-bursts;
·inability to obtain suitable or adequate machinery, equipment, or labor;
·metals losses;
·fluctuations in exploration, development, and production costs;
·labor disputes;
·unanticipated variations in grade;
·mechanical equipment failure; and
·periodic interruptions due to inclement or hazardous weather conditions.
These risks could result in damage to, or destruction of, mineral properties, production facilities, or other properties, personal injury, environmental damage, delays in mining, increased production costs, monetary losses, and possible legal liability.
13
Mineral exploration and development is subject to extraordinary operating risks. We do not currently insure against these risks. In the event of a cave-in or similar occurrence, our liability may exceed our resources, which would have an adverse impact on our Company.
Mineral exploration, development, and production involve many risks, which even a combination of experience, knowledge, and careful evaluation may not be able to overcome. Our operations will be subject to all the hazards and risks inherent in the exploration, development and production of minerals, including liability for pollution, cave-ins or similar hazards against which we cannot insure or against which we may elect not to insure. Any such event could result in work stoppages and damage to property, including damage to the environment. We do not currently maintain any insurance coverage against these operating hazards. The payment of any liabilities that arise from any such occurrence could have a material adverse impact on our Company.
Increased costs could affect our financial condition.
We anticipate that costs at our projects that we may explore or develop will frequently be subject to variation from one year to the next due to a number of factors, such as changing ore grade, metallurgy, and revisions to mine plans, if any, in response to the physical shape and location of the ore body. In addition, costs are affected by the price of commodities such as fuel, rubber, and electricity. Such commodities are at times subject to volatile price movements, including increases that could make production at certain operations less profitable. A material increase in costs at any significant location could have a significant effect on our profitability.
A shortage of equipment and supplies could adversely affect our ability to operate our business.
We are dependent on various supplies and equipment to carry out our mining exploration and, if warranted, development operations. Any shortage of such supplies, equipment, and parts could have a material adverse effect on our ability to carry out our operations and, therefore, limit or increase the cost of production.
Estimates of mineralized material are subject to evaluation uncertainties that could result in project failure.
Our exploration and future mining operations, if any, are and would be faced with risks associated with being able to accurately predict the quantity and quality of mineralized material within the earth using statistical sampling techniques. Estimates of any mineralized material on any of our properties would be made using samples obtained from appropriately placed trenches, test pits, and underground workings and intelligently designed drilling. There is an inherent variability of assays between check and duplicate samples taken adjacent to each other and between sampling points that cannot be reasonably eliminated. Additionally, there also may be unknown geologic details that have not been identified or correctly appreciated at the current level of accumulated knowledge about our properties. This could result in uncertainties that cannot be reasonably eliminated from the process of estimating mineralized material. If these estimates were to prove to be unreliable, we could implement an exploitation plan that may not lead to commercially viable operations in the future.
Mineral prices are subject to dramatic and unpredictable fluctuations.
We expect to derive revenues, if any, from the eventual extraction and sale of precious metals such as gold and silver. The price of those commodities has fluctuated widely in recent years, and is affected by numerous factors beyond our control, including international, economic and political trends, expectations of inflation, currency exchange fluctuations, interest rates, global or regional consumptive patterns, speculative activities and increased production due to new extraction developments, and improved extraction and production methods. The effect of these factors on the price of precious metals, and, therefore, the economic viability of any of our exploration projects, cannot accurately be predicted.
The mining industry is highly competitive and there is no assurance that we will continue to be successful in acquiring mineral claims. If we cannot continue to acquire properties to explore for mineralized material, we may be required to reduce or cease exploration activity and/or operations.
The mineral exploration, development, and production industry is largely fragmented. We compete with other exploration companies looking for mineral properties and the minerals that can be produced from them. While we compete with other exploration companies in the effort to locate and license mineral properties, we do not compete with them for the removal or sales of mineral products from our properties if we should eventually discover the presence of them in quantities sufficient to make production economically feasible. Readily available markets exist worldwide for the sale of gold and other mineral products. Therefore, we will likely be able to sell any gold or mineral products that we identify and produce.
14
There are hundreds of public and private companies that are actively engaged in mineral exploration. A representative sample of exploration companies that are similar to us in size, financial resources, and primary objective include such publicly traded mineral exploration companies as Allegiant Gold Ltd. (AUAU.V), NuLegacy Gold Corp (NUG.V), First Vanadium Corp (FVAN.V), Adamara Minerals Corp. (ADZ.V), Comstock Mining Inc. (LODE).
Many of our competitors have greater financial resources and technical facilities. Accordingly, we will attempt to compete primarily through the knowledge and experience of our management. This competition could adversely affect our ability to acquire suitable prospects for exploration in the future. Accordingly, there can be no assurance that we will acquire any interest in additional mineral properties that might yield reserves or result in commercial mining operations.
Third parties may challenge our rights to our mineral properties, or the agreements that permit us to explore our properties may expire, if we fail to timely renew them and pay the required fees.
In connection with the acquisition of our mineral properties, we sometimes conduct only limited reviews of title and related matters, and obtain certain representations regarding ownership. These limited reviews do not necessarily preclude third parties from challenging our title and, furthermore, our title may be challenged as defective. Consequently, there can be no assurance that we hold good and marketable title to all of our mining concessions and mining claims. If any of our concessions or claims were challenged, we could incur significant costs and lose valuable time in defending such a challenge. These costs or an adverse ruling with regards to any challenge of our titles could have a material adverse effect on our financial position or results of operations. There can be no assurance that any such disputes or challenges will be resolved in our favor.
We are not aware of challenges to the location or area of any of our mining claims. There is, however, no guarantee that title to the claims will not be challenged or impugned in the future.
Acquisitions and integration issues may expose us to risks.
Our business strategy includes making targeted acquisitions. Any acquisition that we make may be of a significant size, may change the scale of our business and operations, and may expose us to new geographic, political, operating, financial, and geological risks. Our success in our acquisition activities depends on our ability to identify suitable acquisition candidates, negotiate acceptable terms for any such acquisition and integrate the acquired operations successfully with our own. Any acquisitions would be accompanied by risks. For example, there may be significant decreases in commodity prices after we have committed to complete the transaction and have established the purchase price or exchange ratio; a potential mineralized property may prove to be below expectations; we may have difficulty integrating and assimilating the operations and personnel of any acquired companies, realizing anticipated synergies and maximizing the financial and strategic position of the combined enterprise and maintaining uniform standards, policies and controls across the organization; the integration of the acquired business or assets may disrupt our ongoing business and our relationships with employees, customers, suppliers, and contractors; and the acquired business or assets may have unknown liabilities which may be significant. If we choose to use equity securities as consideration for such an acquisition, existing shareholders may suffer dilution. Alternatively, we may choose to finance any such acquisition with our existing resources. There can be no assurance that we would be successful in overcoming these risks or any other problems encountered in connection with such acquisitions.
Joint ventures and other partnerships in relation to our properties may expose us to risks.
We have in the past, and may in the future, entered into joint ventures or other partnership arrangements with other parties in relation to the exploration, development, and production of certain of the properties in which we have an interest. Joint ventures can often require unanimous approval of the parties to the joint venture or their representatives for certain fundamental decisions such as an increase or reduction of registered capital, merger, division, dissolution, amendments of constating documents, and the pledge of joint venture assets, which means that each joint venture party may have a veto right with respect to such decisions which could lead to a deadlock in the operations of the joint venture or partnership. Further, we may be unable to exert control over strategic decisions made in respect of such properties. Any failure of such other companies to meet their obligations to us or to third parties, or any disputes with respect to the parties' respective rights and obligations, could have a material adverse effect on the joint ventures or their properties and, therefore, could have a material adverse effect on our results of operations, financial performance, cash flows, and the price of our common stock.
15
Risks Related to Our Company
Minimal staffing may be reasonably likely to materially affect the Company’s internal control over financial reporting
With a very limited staff, it is difficult to maintain appropriate segregation of duties in the initiating and recording of transactions, thereby creating a segregation of duties weakness. Due to the significance of segregation of duties to the preparation of reliable financial statements, this weakness may result in more than a remote likelihood that a material misstatement or lack of disclosure within the annual or interim financial statements not be prevented or detected.
Conflicts of Interest
Certain of our officers and directors may be or become associated with other businesses, including natural resource companies that acquire interests in mineral properties. Such associations may give rise to conflicts of interest from time to time. Our directors are required by Delaware’s General Corporation Law to act honestly and in good faith with a view to our best interests and to disclose any interest, which they may have in any of our projects or opportunities. In general, if a conflict of interest arises at a meeting of the board of directors, any director in a conflict will disclose his interest and abstain from voting on such matter or, if he does vote, his vote will not be counted.
We have not adopted any separate formal corporate policy regarding conflicts of interest; however, other corporate governance measures have been adopted, such as creating a directors’ audit committee requiring independent directors. Additionally, our Code of Ethics does address areas of possible conflicts of interest. As of the date of filing of this report, we had two independent directors on our board of directors (Leigh Freeman and Pamela Saxton). We have formed three committees to ensure our legal compliance. We established an independent audit committee consisting of two independent directors, both of whom were determined to be “financially literate” and one of whom was designated as the “financial expert.” We also formed a compensation committee comprised entirely of independent directors and a corporate governance and nominating committee, a majority of which is comprised of independent directors. At this time, we feel that these committees and our Code of Ethics provide sufficient corporate governance for our purposes.
Dependence on Key Management Employees and Contractors
Our ability to continue our exploration and development activities and to develop a competitive edge in the marketplace depends, in large part, on our ability to attract and maintain qualified key management personnel. Competition for such personnel is intense, and there can be no assurance that we will be able to attract and retain such personnel. Our development now and in the future will depend on the efforts of key management figures such as Patrick Highsmith, Steven Osterberg, Donald McDowell and Ted Sharp. The loss of any of these key people could have a material adverse effect on our business. In this regard, we have attempted to reduce the risk associated with the loss of key personnel and have obtained directors and officers insurance coverage. In addition, our shareholders have approved our 2015 Stock and Incentive Plan and 2018 Incentive Plan so that we can provide incentives for our key personnel.
We may not realize the benefits of Eureka, Paiute, Seven Troughs and other acquired growth projects.
As part of our strategy, we will continue existing efforts and initiate new efforts to develop gold and other mineral properties. We have three such project areas, including Eureka, Paiute and Seven Troughs. A number of risks and uncertainties are associated with the development of these types of projects, including political, regulatory, design, construction, labor, operating, technical and technological risks, and uncertainties relating to capital and other costs and financing risks. The failure to successfully develop any of these initiatives could have a material adverse effect on our financial position and results of operations.
As part of our business model, we pursue a strategy that may cause us to expend significant resources exploring properties that may not become revenue-producing sites.
Part of our business model is to pursue a strategy which includes significant exploration activities, such as proposed exploration and, if warranted, development at the Eureka, Paiute, and the Seven Troughs Projects. Because of the nature of exploration for precious metals, a property’s exploration potential is not known until a significant amount of geologic information has been generated. We may spend significant resources exploring and developing the projects and gathering certain geologic information only to determine that the project is not capable of being a revenue-producing property for us.
16
Our business is subject to evolving corporate governance and public disclosure regulations that have increased both our compliance costs and the risk of noncompliance, which could have an adverse effect on our stock price.
We are subject to changing rules and regulations promulgated by a number of governmental and self-regulated organizations, including the SEC, the Public Company Accounting Oversight Board (“PCAOB”) and the Financial Accounting Standards Board. These rules and regulations continue to evolve in scope and complexity, and many new requirements have been created in response to laws enacted by Congress, making compliance more difficult and uncertain. For example, on July 21, 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) with increased disclosure obligations for public companies and mining companies in the United States. Our efforts to comply with the Dodd-Frank Act and other new regulations have resulted in, and are likely to continue to result in, increased general and administrative expenses and a diversion of our management’s time and attention from operating activities to compliance activities.
We are required to comply with Canadian securities regulations and are subject to additional regulatory scrutiny in Canada.
We are a “reporting issuer” in the Canadian provinces of British Columbia and Alberta. As a result, our disclosure outside the United States differs from the disclosure contained in our SEC filings. Our reserve and resource estimates disseminated outside the United States are not directly comparable to those made in filings subject to SEC reporting and disclosure requirements, as we generally report reserves and resources in accordance with Canadian practices. These practices are different from the practices used to report reserve and resource estimates in reports and other materials filed with the SEC. It is Canadian practice to report measured, indicated, and inferred resources, which are generally not permitted in disclosures filed with the SEC. In the United States, mineralization may not be classified as a “reserve” unless the determination has been made that the mineralization could be economically and legally produced or extracted at the time the reserve determination is made. United States investors are cautioned not to assume that all or any part of measured or indicated resources will ever be converted into reserves. Further, “inferred resources” have a great amount of uncertainty as to their existence and as to whether they can be mined legally or economically. Disclosure of “contained ounces” is permitted disclosure under Canadian regulations; however, the SEC only permits issuers to report “resources” as in-place tonnage and grade without reference to unit measures. Accordingly, information concerning descriptions of mineralization, reserves, and resources contained in disclosures released outside the United States may not be comparable to information made public by other United States companies subject to the reporting and disclosure requirements of the SEC.
We are also subject to increased regulatory scrutiny and costs associated with complying with securities legislation in Canada. For example, we are subject to civil liability for misrepresentations in written disclosure and oral statements. Legislation has been enacted in these provinces which creates a right of action for damages against a reporting issuer, its directors and certain of its officers in the event that the reporting issuer or a person with actual, implied, or apparent authority to act or speak on behalf of the reporting issuer releases a document or makes a public oral statement that contains a misrepresentation or the reporting issuer fails to make timely disclosure of a material change. We do not anticipate any particular regulation that would be difficult to comply with. However, failure to comply with regulations may result in civil awards, fines, penalties, and orders that could have an adverse effect on us.
Risks Associated with Our Common Stock
Our stock price has been volatile and your investment in our common stock could suffer a decline in value.
Our common stock is quoted on the OTCQB Market (“OTCQB”) and traded on the TSX Venture Exchange (“TSX-V”). The market price of our common stock may fluctuate significantly in response to a number of factors, some of which are beyond our control. These factors include price fluctuations of precious metals, government regulations, disputes regarding mining claims, broad stock market fluctuations, and general economic conditions in the United States and Canada.
We do not intend to pay any dividends on shares of our common stock in the near future.
We do not currently anticipate declaring and paying dividends to our shareholders in the near future, and any future decision as to the payment of dividends will be at the discretion of our board of directors and will depend upon our earnings, financial position, capital requirements, plans for expansion, and such other factors as our board of directors deems relevant. It is our current intention to apply net earnings, if any, in the foreseeable future to finance the growth and development of our business.
17
Investors’ interests in our Company will be diluted and investors may suffer dilution in their net book value per share, if we issue additional employee/director/consultant options or if we sell additional shares and/or warrants to finance our operations.
We have not generated material revenue from exploration since the commencement of our exploration stage in January 2004. In order to further expand our company and meet our objectives, any additional growth and/or expanded exploration activity may need to be financed through sale and issuance of additional shares, including, but not limited to, raising finances to explore our properties. Furthermore, to finance any acquisition activity, should that activity be properly approved, and depending on the outcome of our exploration programs, we may also need to issue additional shares to finance future acquisitions, growth and/or additional exploration programs at any or all of our projects or to acquire additional properties. We may also in the future grant to some or all of our directors, officers, insiders, and key employees options to purchase our common shares and stock unit awards as non-cash incentives. The issuance of any equity securities could, and the issuance of any additional shares will, cause our existing shareholders to experience dilution of their ownership interests.
If we issue additional shares or decide to enter into joint ventures with other parties in order to raise financing through the sale of equity securities, investors' interests in our Company will be diluted and investors may suffer dilution in their net book value per share depending on the price at which such securities are sold. As of September 30, 2021, there are also outstanding options and warrants granted that are exercisable into 82,551,319 common shares. If all of these options and warrants were exercised, the underlying shares would represent approximately 37.1% of our issued and outstanding shares. If all of these options and warrants are exercised and the underlying shares are issued, such issuance will cause a reduction in the proportionate ownership and voting power of all other shareholders. The dilution may result in a decline in the market price of our shares.
We are subject to the continued listing criteria of the TSX and our failure to satisfy these criteria may result in delisting of our shares of common stock.
Our shares of common stock are currently listed on the TSX-V. In order to maintain the listing, we must maintain certain share prices, financial, and share distribution targets, including maintaining a minimum amount of shareholders’ equity and a minimum number of public shareholders. In addition to objective standards, the TSX-V may delist our securities if, in their discretionary opinion: (i) our financial condition and/or operating results appear unsatisfactory; (ii) it appears that the extent of public distribution or the aggregate market value of the security has become so reduced as to make continued listing on TSX-V inadvisable; (iii) we sell or dispose of principal operating assets or cease to be an operating company; (iv) we fail to comply with the listing requirements of the TSX-V; (v) our shares of common stock sell at what the TSX-V considers a “low selling price” and if we fail to correct this via a reverse split of shares after notification by the TSX-V; or (vi) any other event occurs or any condition exists which makes continued listing on the TSX-V, in their opinion, inadvisable.
If the TSX-V delists our shares of common stock, investors may face material adverse consequences, including, but not limited to, a lack of trading market for our securities, reduced liquidity, decreased analyst coverage of our securities, and an inability for us to obtain additional financing to fund our operations.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2. DESCRIPTION OF PROPERTIES
We have acquired mineral prospects for exploration in Nevada mainly for target commodities of gold and silver, and formerly copper. The prospects are held by both patented and unpatented mining claims owned directly by us or through legal agreements conveying exploration and development rights to us. Most of our prospects have had a prior exploration history, which is typical in the mineral exploration industry. Most mineral prospects go through several rounds of exploration before an economic ore body is discovered, and prior work often eliminates targets or points to new ones. Also, prior operators may have explored under a completely different commodity price structure or technological regime. Mineralization which was uneconomic in the past may be ore grade at current market prices when extracted and processed with modern technology.
Nevada Gold Properties
The Company currently controls three mineral properties in Nevada including Eureka, Paiute, and Seven Troughs (Figure 1).
18
Eureka Project (Battle Mountain/Eureka Trend)
We acquired the Eureka Project as part of our acquisition of Staccato Gold Resources Ltd. (“Staccato Gold”) and its wholly owned subsidiary, BH Minerals USA, Inc. (“BH Minerals”), in June 2010. Eureka comprises an area of approximately 16,000 acres (>
The Eureka Project is situated in the southern part of the Eureka mining district, within T19N, R53E and unsurveyed T17N and T18N, and R53E. The property is also within the bounds of the United States Geological Survey (“USGS”) 1:24,000-scale 7.5-minute topographic series maps of the Pinto Summit and Spring Valley Summit quadrangles.
Property Description
The Eureka Project (Figure 2) includes the Lookout Mountain, Windfall and Oswego Trends. Mineralization generally occurs along north-to-south trending zones of gold mineralization, each approximately 3 to 4 miles (4.8-6.5 km) in strike length. Each of these mineralized zones is open and will require additional in-fill and step-out drilling. There are also other early-stage prospects on the property.
Historical production of gold in the district included approximately 112,000 oz at the Windfall Mine, which began operation in 1975 (Russell, 2005). An additional 17,700 oz of gold was produced from the Lookout Mountain Pit which operated in 1987 (Cargill, 1988, Jonson, 1991).
Timberline pays federal and county claim maintenance fees on the Eureka Project. The federal claim fees are due to the BLM before September 1 of each year, and the remainder is due to Eureka County on November 1 of each year. All unpatented mining claims on the Eureka property have been located under the General Mining Laws of the United States on US Bureau of Land Management (“BLM”) managed lands.
19
Figure 1. Timberline Project Locations
20
Figure 2. Timberline’s Eureka Project Area and Gold Occurrences
21
The following table summarizes the claims and royalties for the Eureka Project:
Table 1 - Eureka Project Claim and Royalty Summary
Property Name & Agreements/Royalties | Type of Claim | Number of Claims | Area |
Lookout Mountain Mining lease and agreement dated August 22, 2003, and amended on June 1, 2008, between Timberline and Rocky Canyon Mining Company; 3.5% Net Smelter Return (NSR) royalty + 1.5% NSR royalty capped at $1.5 million (excludes Trevor and Dave claims); 20-year lease term commencing June 1, 2008; annual advanced royalty payment of $72,000.
| Unpatented
| 373 | 6,368 acres |
Trail Timberline holds title | Unpatented | 30 | 620 acres |
South Ratto Timberline holds title; 4% NSR | Unpatented | 108 | 1,850 acres |
Hoosac North Amselco 4% NSR | Unpatented | 192 | 3,100 acres
|
Little Rosa (Hoosac royalty applies) | Patented | 1 | 7 acres |
Rambler (North Amselco royalty applies) | Patented | 1 | 7 acres |
TLRat Timberline holds title | Unpatented | 5 | 72 acres |
Silverado/TL 12 1%-3% NSR | Unpatented | 47 | 947 acres |
Secret Canyon/Oswego Timberline holds title. (Includes 2 mill sites on Syracuse 1 & 2) 0 – 3% NSR | Unpatented | 111 | 1,488 acres |
Secret Canyon 1% NSR | Patented | 6 | 36 acres |
Windfall Timberline holds title; 4% NSR | Patented | 13 | 165 acres |
New York Canyon Timberline holds title; 4% NSR | Unpatented | 45 | 862 acres |
Q Claims Timberline holds title | Unpatented | 104 | 2,149 acres |
|
|
|
|
Total Unpatented Lode Claims |
| 1,015 | 17,456 acres |
Total Patented Lode Claims |
| 21 | 215 acres |
Grand Total of Claim Holdings |
| 1,036 | 17,671 acres |
We have the right to explore and develop the Lookout Mountain target subject to a mining lease and agreement dated August 22, 2003 with Rocky Canyon Mining amended on June 1, 2008. The lease term was extended to 20 years on June 1, 2008, and thereafter for as long as minerals are mined on the project. Advance royalty payments are $6,000 per month, or $72,000 per year. Pursuant to the amended lease, annual minimum exploration expenditures of $250,000 were required for five years commencing on June 1, 2008, and an additional expenditure of $250,000 was required before June 1, 2016, for a total minimum work commitment of $1,500,000. Timberline has fulfilled the work commitment on the Lookout Mountain target. A
22
3.5% NSR royalty, plus a 1.5% NSR royalty capped at $1.5 million (excludes Trevor and Dave claims) exists on the Lookout Mountain claims.
During the year ended September 30, 2012, Timberline acquired the Windfall patented claims in a transaction of cash and shares valued at $500,000. There is a 4% NSR royalty on these claims.
The Secret Canyon/Oswego, South Ratto, and New York Canyon claim groups are owned by Timberline, subject to royalty agreements. NSR royalties of 2% exist on the projects for claims located within one mile of the Windfall Patented claims. A small portion of the Heiro-Syracuse claim group is subject to an additional 1% NSR royalty.
The Hoosac and North Amselco claims are owned by Timberline and were under lease to Royal Crescent Valley, LLC, a subsidiary of Royal Gold, Inc. until July 2021, at which time the lease was terminated by Royal Crescent Valley, LLC. Until the termination of the lease in July 2021, Royal Gold continued to maintain BLM lease payments and Eureka County fees on the Hoosac and North Amselco claim groups.
Accessibility, Physiography, Climate and Infrastructure
U.S. Highway 50 passes to the east of the Eureka Project and access is gained by heading south out of Eureka on U.S. Highway 50 and connecting with unpaved local roads, some of which are periodically maintained by Eureka County. The turnoff for the New York Canyon claim group is about a half mile south of Eureka on U.S. Highway 50 and is an unpaved road running up New York Canyon on the east side of the claim group.
The Windfall group and the northern parts of the Hoosac and Lookout Mountain groups are accessed by the Windfall Canyon Road and its westward extension (the former haul road for the Lookout Mountain Mine), which turns southwest off U.S. Highway 50 approximately 2 miles south of Eureka. This road is of uncommon quality and scale for rural Nevada due to its construction as a mine haul road at considerable cost in 1980s dollars.
The southern parts of the Eureka Project are accessed by traveling approximately 8 miles south of Eureka on U.S. Highway 50 to South Gate, then 1 mile south-southwest on the Fish Creek Valley Road to the unimproved Secret Canyon Road, then northwest to the southern part of the Hoosac claims. Approximately 2 miles from South Gate on the Fish Creek Valley Road, a turnoff to the west and northwest on the Ratto Canyon Road accesses the southern portion of the Lookout Mountain group. Many dirt tracks within the Eureka property allow additional access.
Terrain on the Eureka Project is rugged, with high ridges, steep canyons, and narrow valleys. Elevations range from 7,000 to 9,000 feet (2,100-2,400 m). Ridges show abundant bedrock exposures, slopes and valleys are typically covered by soil and alluvium. Sagebrush abounds in lower-elevation areas while juniper and piñon pine cover the higher elevations. Grasses and shrubs grow on the highest ridge tops. The climate of the project area is semi-arid with the area receiving moderate winter snows and occasional summer thunderstorms, with heavy rain from time to time during otherwise hot and dry summers. In winter, access is not maintained off the paved roads and November snow commonly lingers until April.
Summer temperatures usually consist of many consecutive days over 90º F (32.2º C), and temperatures can reach as high as 100º F (37.8° C) or more. Winter temperatures generally range from as cold as below 0º F (-17.8ºC) to, more commonly, in the 20º to 35ºF (-6.67º to 1.7 º C) range. Precipitation amounts vary from year to year, averaging about 10.0 inches (25.4 cm) for the area. Several feet of snow may accumulate on the property during the winter months.
The Eureka Project is situated in north-central Nevada in an area with established mining infrastructure. Transmission power lines serve Eureka from the north. All essential services such as food and lodging are available in Eureka, including dockage for shipments of heavy equipment. A small airport at Eureka is available for private air transport. Railroad access is also available in the area. The gold mines of north-central Nevada continue to produce a significant portion of the world’s gold, and skilled miners and mining professionals are available in Eureka, and 100 miles to the north in Carlin, Elko, and Spring Creek. Permitting a mining operation in Nevada has been a process with which local, state, and federal regulators are very familiar and generally cooperative.
Summary of Modern Exploration by Timberline Resources: 2010-2020 (See below for historic summaries)
Timberline acquired Staccato Gold in 2010 as management believed that the Eureka Project had excellent potential for continued exploration success. Based on the work of previous companies and by Timberline, gold mineralization at the Lookout Mountain target is currently defined over a structural corridor that extends up to 4.3 miles (7 kilometers) in strike length. This structure hosts several areas of drill-indicated gold, and the potential for discovery of additional mineralization in this corridor is strong. The Lookout Mountain mineralization itself is open for expansion at depth and along strike. Regionally,
23
several other target areas also exist where historical production and exploration have occurred, but only limited systematic exploration has been conducted.
The Lookout Mountain target area has been mapped and sampled, including a detailed program conducted over the main mineralized areas. The principal objectives of the mapping and sampling program were to characterize offsets along the main mineralized fault zones, identify orientations of mineralized cross structures intersecting the main structural zones, and follow up on soil geochemical anomalies. The mapping program, combined with surface sampling and acquisition of historical data, provided a clearer understanding of the structures along the Ratto Ridge and Windfall areas, as well as identified several significant new exploration target areas.
Over 400 historic drill holes were reviewed along Ratto Ridge at Lookout Mountain to develop geologic cross sections and plans for the entire Lookout Mountain Deposit. The Timberline team built geologic grade shells and constructed a 3-D model of the geology based on the results of historical drill re-logging and mapping efforts. This new work led to an updated mineral resource estimate that resolved past technical issues and provided a basis for potentially advancing the property following additional drilling.
From 2010 through 2013, the exploration work programs totaled approximately $9,000,000 on the Eureka Project. The programs delivered sufficient data to prepare a mineral resource estimate at Lookout Mountain and prepared a technical report compliant with NI 43-101, conduct initial gold recovery studies, initiate environmental baseline investigations, better understand the controls of mineralization, and to outline additional exploration drill targets. In summary, these objectives were met in the 2010-2013 exploration by completion of the following:
·16,675 feet (5,083 m) of core drilling focused primarily for metallurgical and geotechnical scoping studies;
·46,965 feet (14,315 m) of RC drilling directed primarily at resource in-fill and definition drilling, and;
·Additional testing activities, including metallurgical testing on core samples, channel sampling and bulk sampling within the historic Lookout Mountain pit, identification of additional exploration targets on the Eureka property outside of the main Lookout Mountain Deposit area, and drilling and construction of additional groundwater monitoring wells.
An initial technical report entitled, Technical Report on the Lookout Mountain Project, Eureka County, Nevada, USA, compliant with NI 43-101 (“2011 Technical Report”), was completed on May 2, 2011. The Technical Report was prepared by Mine Development Associates (“MDA”) of Reno, Nevada under the supervision of Michael M. Gustin, Senior Geologist, who is a qualified person under NI 43-101. The Technical Report details mineralization at the Lookout Mountain Deposit. In addition, significant exploration potential was noted.
The mineral resource was modeled and estimated by MDA by statistical evaluation of available drill data utilizing geologic interpretations provided by Timberline. The geologic interpretations were used to constrain gold mineral domains on vertical cross sections spaced at 50- to 100-foot intervals across the extent of the Lookout Mountain mineralization. The cross sections were rectified to the mineral-domain interpretations on level plans spaced at 10-foot intervals, allowing the geostatistical analysis of the modeled mineralization to aid in the establishment of estimation parameters, and interpolating grades into a three-dimensional block model.
The final drill results of the 2011 exploration program were successfully incorporated into the updated mineral resource and NI 43-101 compliant “Updated Technical Report on the Lookout Mountain Project, Eureka County, Nevada, USA” issued by MDA on May 31, 2012 (“2012 Technical Report”). As a result of the 2011 exploration program, the mineralized zone at Lookout Mountain was successfully extended 600 feet (183m) to the south of the existing mineral deposit, and mineralization was also expanded along the west margin of the deposit. Results from Lookout Mountain, and from the South Adit area, significantly increased the reported mineralization at the Lookout Mountain Deposit.
Assay results from drilling during the 2012 and 2013 exploration program were incorporated into another update to the resource and NI 43-101 compliant “Updated Technical Report on the Lookout Mountain Project, Eureka County, Nevada, USA” issued by MDA on April 11, 2013 (“2013 Technical Report”).
The Lookout Mountain Deposit is a large “Carlin-type” gold system with a defined gold resource (see Updated Technical Report on the Lookout Mountain Project, MDA, Effective March 1, 2013, filed on SEDAR April 12, 2013) and drill-indicated mineralization which extends over a north-to-south trend of approximately 3 miles (>
24
Table 2. Lookout Mountain Gold Resource (1)(2)(3)
Resource Category | Tons | Tonnes | Gold (opt) | Gold (g/t) | Gold Ounces |
Measured | 3,043,000 | 2,761,000 | 0.035 | 1.200 | 106,000 |
Indicated | 25,897,000 | 23,493,000 | 0.016 | 0.549 | 402,000 |
Measured & Indicated | 28,940,000 | 26,254,000 | 0.018 | 0.617 | 508,000 |
|
|
|
|
|
|
Inferred | 11,709,000 | 10,622,000 | 0.012 | 0.411 | 141,000 |
Notes:
(1)0.006 opt (0.21 g/t) cut-off applied to oxidized material to capture mineralization potentially available to open pit extraction and heap leach processing. 0.030 opt (1.03 g/t) cut-off applied to unoxidized material to capture mineralization potentially available to open pit extraction and lower heap leach recoveries or sulfide processing.
(2)Rounding may cause apparent discrepancies.
(3)The effective date of the Lookout Mountain updated gold resource is February 20, 2013.
The full MDA Resource Estimate with various cut-off grades can be seen at:
http://timberlineresources.co/wp-content/uploads/2015/07/LookoutMt_-43-101_2013.pdf.
Gold mineralization near the historic open pit at Lookout Mountain (Figure 3) includes 19 intercepts ranging from 0.146 to 2.250 opt gold (5.02 to 77.14 g/t) (see Table 3 and news releases dated July 10, 2018 and Dec 1, 2020 at http://timberlineresources.co/press-releases). The mineralization is associated with extensive zones of fault breccias, collapse breccias, and with orpiment and realgar (arsenic sulfides) which are commonly found in many major Carlin-type gold deposits.
Exploration activities at the Eureka Project, including Lookout Mountain, were curtailed during 2014, as a result of the limited availability of capital. To reduce ongoing expenses, the Company consolidated the Elko field office into our Eureka facility and limited the exploration program. The limited program did, however, include geochemical waste rock environmental characterization, independent metallurgical testing, continued monitoring of water quality, and definition of hydrologic work plans. In addition, low-cost geologic mapping, and stratigraphic and structural analyses continued in selected detailed areas. These activities resulted in identification of new targets characterized by anomalous mineralogy and trace element geochemistry as indicators of possible gold mineralization.
In fiscal 2015, Timberline drilled three holes at Lookout Mountain to confirm a previously recognized partial drill intercept of higher-grade gold mineralization at depth in the water well “orpiment discovery zone” (Figure 3). This higher-grade mineralization is associated with the previously defined resource zone of near-surface, gold mineralization. The geology in the holes stratigraphically correlates well with gold intercepts occurring in mineralized, variably carbonaceous collapse breccias similar to previous gold intercepts in the pyritic Dunderberg Shale-Hamburg Dolomite contact zone. The four intercepts are thought by Timberline geologists to be mineralogically consistent with higher-grade occurrences as recognized in many deeper levels of Carlin-type systems. Highlights of the 2015 Lookout Mountain drilling included 65 feet (19.8 m) @ 0.09 opt gold (3.09 g/t), including 25.2 feet (7.7 m) @ 0.146 opt gold (5.02 g/t) in BHSE-171. In addition, three intercepts of >3 g/t gold over lengths of up to 50 feet (>Table 3).
25
Figure 3. Lookout Mountain Geology and High-Grade Gold Zone Including Drilling through FY 2021
26
Table 3. Representative High-Grade Gold Drill Intercepts from the Lookout Mountain Gold Resource Area
Drill Hole | From | Length (feet)(1) | Gold | From (meters) | Length (meters)(1) | Gold | |
| |||||||
BH05-01 | 270 | 65 | 0.344 | 82.3 | 19.8 | 11.79 |
|
including | 275 | 25 | 0.641 | 83.8 | 7.6 | 21.98 |
|
BH05-03 | 193 | 3 | 2.24 | 58.8 | 1.0 | 76.8 |
|
BH06-02 | 445 | 27 | 0.36 | 135.7 | 8.2 | 12.4 |
|
BH06-07 | 406 | 92 | 0.217 | 123.8 | 28 | 7.44 |
|
BH06-10 | 0 | 50 | 0.537 | 0 | 15.2 | 18.4 |
|
BH06-13 | 148 | 3 | 1.47 | 45.1 | 0.9 | 50.3 |
|
BH06-13 | 385 | 25 | 0.277 | 117.4 | 7.5 | 9.51 |
|
BH06-16 | 0 | 33 | 0.376 | 0 | 10 | 12.9 |
|
BHSE-029C | 391 | 58 | 0.349 | 119.2 | 17.7 | 12 |
|
BHSE-032 | 140 | 10 | 0.425 | 42.7 | 3 | 14.6 |
|
BHSE-034 | 135 | 5 | 0.46 | 41.2 | 1.5 | 15.8 |
|
BHSE-037C | 222 | 1 | 0.81 | 67.7 | 0.3 | 27.8 |
|
BHSE-064 | 130 | 20 | 0.093 | 39.62 | 6.09 | 3.19 |
|
BHSE-066 | 85 | 15 | 0.144 | 25.91 | 4.57 | 4.95 |
|
BHSE-066 | 290 | 15 | 0.249 | 88.39 | 4.57 | 8.53 |
|
BHSE-067 | 170 | 15 | 0.106 | 51.82 | 4.57 | 3.63 |
|
BHSE-076 | 20 | 140 | 0.042 | 6.1 | 42.67 | 1.43 |
|
including | 25 | 10 | 0.336 | 7.62 | 3.05 | 11.52 |
|
BHSE-096 | 105 | 205 | 0.043 | 32 | 62.48 | 1.48 |
|
including | 120 | 30 | 0.109 | 36.58 | 9.14 | 3.73 |
|
BHSE-102 | 135 | 95 | 0.055 | 41.15 | 28.96 | 1.89 |
|
including | 195 | 10 | 0.384 | 59.44 | 3.05 | 13.15 |
|
BHSE-104 | 110 | 175 | 0.034 | 33.53 | 53.34 | 1.18 |
|
including | 220 | 20 | 0.356 | 67.05 | 6.1 | 12.19 |
|
BHSE-126C | 31 | 15 | 0.965 | 9.5 | 4.6 | 33.1 |
|
BHSE-151C | 501 | 36 | 0.106 | 152.7 | 10.9 | 3.63 |
|
Including | 506 | 9 | 1.039 | 154.23 | 2.62 | 35.63 |
|
BHSE-176 | 70 | 50 | 0.294 | 21.34 | 15.24 | 10.09 |
|
BHSE-186 | 15 | 20 | 0.152 | 4.57 | 6.1 | 5.21 |
|
BR-1 | 35 | 40 | 0.424 | 10.7 | 12.2 | 14.5 |
|
BR-1 | 65 | 10 | 1.32 | 19.8 | 3.1 | 45.1 |
|
BR-19 | 35 | 10 | 0.37 | 10.7 | 3 | 12.7 |
|
BR-19 | 65 | 10 | 1.32 | 19.8 | 3.1 | 45.1 |
|
BR-19 | 220 | 15 | 0.323 | 67.1 | 4.6 | 11.1 |
|
BR-19 | 385 | 65 | 0.319 | 117.4 | 19.8 | 10.9 |
|
BR-26 | 440 | 20 | 0.323 | 134.2 | 6 | 11.1 |
|
EFL-4 | 95 | 5 | 0.27 | 29 | 1.5 | 9.3 |
|
EFL-5 | 0 | 5 | 0.25 | 0 | 1.5 | 8.6 |
|
LM-05 | 0 | 65 | 0.259 | 0 | 19.8 | 8.9 |
|
LM-13 | 10 | 5 | 0.36 | 3.1 | 1.5 | 12.3 |
|
27
RTC-201 | 0 | 46 | 0.317 | 0 | 14 | 10.9 |
|
RTC-201 | 57 | 8 | 0.504 | 17.4 | 2.4 | 17.3 |
|
RTR-020 | 20 | 5 | 0.52 | 6.1 | 1.5 | 17.8 |
|
RTR-044 | 0 | 65 | 0.338 | 0 | 19.8 | 11.6 |
|
RTR-044a | 0 | 10 | 0.29 | 0 | 3.1 | 9.94 |
|
RTR-044a | 85 | 5 | 0.31 | 25.9 | 1.5 | 10.6 |
|
RTR-048 | 180 | 5 | 0.4 | 54.9 | 1.5 | 13.7 |
|
RTR-049 | 110 | 5 | 4.76 | 33.5 | 1.6 | 163 |
|
RTR-049 | 240 | 10 | 0.82 | 73.2 | 3 | 28.1 |
|
RTR-059 | 95 | 10 | 0.6 | 29 | 3 | 20.6 |
|
RTR-071 | 0 | 45 | 0.283 | 0 | 13.7 | 9.71 |
|
RTR-095 | 25 | 40 | 0.368 | 7.6 | 12.2 | 12.6 |
|
RTR-098 | 0 | 45 | 0.37 | 0 | 13.7 | 12.7 |
|
RTR-133 | 235 | 15 | 0.507 | 71.7 | 4.5 | 17.4 |
|
RTR-134 | 415 | 55 | 0.35 | 126.5 | 16.8 | 12 |
|
RTR-153 | 30 | 30 | 0.325 | 9.2 | 9.1 | 11.1 |
|
RTR-153 | 240 | 5 | 0.36 | 73.2 | 1.5 | 12.3 |
|
RTR-156 | 55 | 5 | 0.3 | 16.8 | 1.5 | 10.3 |
|
RTR-159 | 15 | 10 | 0.25 | 4.6 | 3 | 8.57 |
|
RTR-163 | 60 | 5 | 0.92 | 18.3 | 1.5 | 31.5 |
|
RTR-180 | 365 | 10 | 0.34 | 111.3 | 3 | 11.7 |
|
RTR-181 | 265 | 70 | 0.265 | 80.8 | 21.3 | 9.09 |
|
RTR-190 | 475 | 50 | 0.329 | 144.8 | 15.3 | 11.3 |
|
RTR-191 | 440 | 45 | 0.557 | 134.2 | 13.7 | 19.1 |
|
RTR-258 | 500 | 10 | 0.41 | 152.4 | 3.1 | 14.1 |
|
(1) Drill thickness – True widths of drill intercepts have not been determined |
| ||||||
(2) opt: oz gold / ton; g/t: grams/tonne |
| ||||||
Timberline also completed a six-hole RC drill program on the Windfall target in 2015. The drilling successfully tested the on-strike, offset, and down-dip extensions of gold mineralization that was previously mined at Windfall. The drill holes were completed over a strike length of approximately 3,000 feet (914 m) and intersected gold mineralization consistent with that reported from historic drilling in the area, highlighted by drill hole BHWF-40, which intersected 80 feet (24.9 m) at 0.09 opt (3.09 g/t) of gold including a subsection of 20 feet (6.1 m) @ 0.26 opt (8.91 g/t) of gold.
During the continued difficult commodities environment of fiscal year 2016 and 2017, the Company did not complete drilling or field exploration activities on the Eureka Project. However, the Company used this time to secure 19 historical mine-related workings including shafts, adits, and trenches to ensure public safety in compliance with State of Nevada Abandoned Mine Lands regulations. In addition, with field reviews, a reconciliation of BLM and Nevada state bond calculations with actual disturbed acreage was subsequently completed in early fiscal year 2017.
During fiscal year 2018, we completed further internal geologic review of high-grade (>5 g/t and up to 77 g/t) gold mineralization that is associated with extensive zones of fault and gouge breccias, as well as carbonaceous collapse-breccia (Table 3). This geologic review led to design and completion of a detailed gravity survey around Lookout Mountain and further analysis of historical geophysical survey data. The survey defined a low-density gravity low anomaly approximately 1.25 miles (2 km) in diameter and bounded and cut by several complex internal structures. The west margin of the anomaly is coincident with jasperoid alteration and gold mineralization of the Lookout Mountain resource. The gravity anomaly is recognized to correlate well with features noted in an airborne magnetics survey and geologic mapping. Major structures identified by magnetics and geologic mapping bound the gravity anomaly.
28
Three lines of shallow historical (1992) induced polarization/resistivity (IP) data at Lookout Mountain define three north-to-south trending anomalies which are partially coincident with the high-grade gold drill intercepts and fault structures. In addition, a single line of historical controlled source audio magneto-telluric (CSAMT) data which crosses the Lookout Mountain open-pit area was also reviewed in concert with the Timberline gravity data. The gravity data correlates well with structures identified in the CSAMT and with magnetic signatures and geologic mapping. In particular, the CSAMT data identify a high-resistivity feature spatially associated with jasperoid along the west boundary of an area of low resistivity interpreted to be a graben. The graben’s west boundary is extensively drilled and is approximately coincident with the existing north-to-south trending gold resource at Lookout Mountain. The central portion of the graben contains a large, high-resistivity anomaly, which had been tested locally on the west side by only four previously noted closely spaced holes (BHSE-152, -171, -172, -173) at the water well orpiment discovery zone, all of which contain relatively high-grade gold.
Additional field work in 2018 was also completed at the Windfall target. Work focused on collection of 40 rock chip samples in and between the historical Rustler, Windfall, and Paroni Pits. Highlights included 10 samples with greater than 0.029 opt (1.0 g/t) and 6 greater than 0.088 opt (3.0 g/t) gold, up to a maximum of 0.382 opt (13.1 g/t) gold. In total, 17 samples assayed greater than 0.007 opt (0.250 g/t), documenting the extensive zone of gold mineralization. These pits produced approximately 115,000 oz of gold from oxidized, near-surface ore and were among the first heap-leach mining operations in Nevada.
At the Oswego trend, results of 2018 surface rock chip sampling and geologic mapping identified high-grade gold exploration targets near the historic Oswego Mine. The Timberline team collected 54 rock samples along the Oswego Trend, including high-grade gold at the Road Cut target and high-grade silver and gold at the Geddes-Bertrand target. Most notably, 9 grab samples were collected at approximately 20 feet (6 m) spacing over a 180-foot (55 m) section of road cut along a steeply dipping, strongly mineralized fault zone (the Road Cut Target). The interval averaged 0.36 opt (12.4 g/t) gold. The Road Cut Target sits approximately 2,000 feet (610 m) east of the major graben-bounding fault structure associated with the Lookout Mountain gold resource.
These results are particularly encouraging because of the relatively close proximity of the Road Cut occurrence to structures associated with the Lookout Mountain deposit. The occurrence of wide-spread gold and silver mineralization over such a large area, encompassing the Lookout Mountain and Oswego Trends, suggests the existence of a robust large-scale mineralizing system.
During fiscal year 2019, limited field activities occurred during the first part of the year due to capital constraints. Field activities were later re-initiated upon entering into the Lookout Mountain LLC Agreement with PM&G to fund advancement of the Lookout Mountain target with an initial focus on the high-grade mineralization in the historic open pit area. Initial work entailed a continuation of re-logging of drill core in the vicinity of the Lookout Mountain resource, where past core and rotary drilling had partially delineated an area of high-grade (defined as drill hole intercepts of ≥ 0.10 opt or >, Carlin-style gold mineralization in an around the historic Lookout Mountain Pit. These high-grade targets were based on 48 drill intercepts of ≥0.25 opt (8.6 g/t) and 64 intercepts of 0.10 – 0.25 opt (3.4 – 8.6 g/t) identified from previous drilling. The high-grade gold target area initially had a strike length of approximately 500 feet (>constrained at least in part by stratigraphy and zones of decalcified collapse breccias. The breccias locally contain the minerals orpiment and realgar (arsenic sulfides).
In addition to relogging historical drill core, a professional land survey was completed in the Lookout Mountain pit area by a Nevada licensed land surveyor. The work was designed as part of a QAQC assessment of historical drill collar data with results to facilitate advancing the project spatial controls to standards required for mine planning, resource modelling and engineering.
Based on the 2019 geologic reviews, the joint venture team designed an initial drill plan to further advance the Lookout Mountain Target during FY 2020. This plan included approximately 8,000 ft (>was designed to test the geologic continuity of the stratiform and structurally-controlled high-grade mineralization beyond the limits of the resource. In addition, planned in-fill RC drilling was designed to target gaps in the existing resource drilling, as well as offset and confirm historic drill intercepts from rotary and RC drilling.
Also, in early FY2020, the Company filed with the BLM an amended work plan to the 2009 BLM Plan of Operations for Lookout Mountain. The amended work plan amendment proposed bonding with an additional 9 acres of proposed disturbance beyond the existing 28 acres of disturbance. With the increased bond, construction of up to 249 drill sites and 28,657 feet of road access focused in the immediate area of the historic Lookout Mountain open pit will be permitted. The work plan was subsequently approved in 2020.
29
During the third quarter of FY 2020, PM&G resigned from the joint venture as a result of failing to meet the minimum earn-in investment requirements. As a result, the planned drill program did not take place. Upon completion of a corporate financing in August 2020, the Company submitted additional bond capital of $246,013 to the BLM in preparation for drilling at the Lookout Mountain target, which took place during late FY2020 and early FY2021.
Exploration by Timberline Resources 2021
During late 2020 and early 2021, Timberline announced drill results confirming new areas of high-grade gold inside the existing resource and to the east in the Water Well Zone (WWZ) (see Company news releases December 1, 2020 and January 7, 2021). Much of the Lookout Mountain gold resource is associated with a significant alteration zone and related collapse brecciation along the east-dipping Footwall Fault (Figure 4). The host stratigraphy dips east beyond the resource area and was later discovered to be mineralized in the Water Well Orpiment Discovery Zone (WWZ) (see Company news releases dated April 20, 2015 and January 7, 2021). East of that mineralization, high-angle faults cut the stratigraphy and down drop the section progressively to the east. This structural corridor is termed the Graben Zone and the faults within it may be related to mineralization in the WWZ and deeper geophysical anomalies (See Figures 4 and 6). The strong IP (chargeability) anomaly within the Graben Zone stretches for more than 2 km north – south.
Geophysics
The Timberline team applied geophysics in conjunction with geologic mapping and 3D modeling to develop targets beyond the resource area for testing in the 2021 drill program. During the quarter ending June 30, 2021, Zonge Geosciences, Inc. (Zonge) completed a CSAMT survey along four lines totaling 19 line-kilometers. The four survey lines transect six major target areas on the Eureka Project: (1) Water Well Zone; (2) West Lookout; (3) Oswego; (4) Rocky Canyon; (5) the gap between South Lookout and the South Adit Zone; and (6) Windfall. These data are expected to provide enhanced insights into the alteration, structural geology, and stratigraphy of the rocks in three dimensions. This will be helpful in interpreting how best to drill in some of the newer target areas. It will also improve understanding how the three major trends on the property are related, the Windfall, the Oswego, and the Lookout Trends. Processing, analysis, and interpretation of the CSAMT data are on-going and will be integrated with new IP data and recent geologic mapping.
After completing the CSAMT survey, Zonge also completed a new 25 line-kilometer IP survey focused on the Windfall target. The IP survey built on the very successful work conducted during late 2020 and included multiple lines in the Windfall target area (Figures 5 - 7). The electrical geophysical surveys during 2020 and 2021 were significant for several reasons. The expertise of skilled contractors in the collection and interpretation of the data provided Timberline with both geological and targeting information. Given the scale of the Eureka Project and the many gold occurrences and prospects, Timberline geologists are working continuously to rate and rank the various targets to prioritize the exploration effort from season to season.
As shown in Figure 6, the resistivity of the rocks at Windfall can be used to interpret major changes in rock type, as well as the presence of faults. Dolomite and quartzite, for instance, typically appear as highly resistive rock units, whereas shale and clay-rich rocks often appear much less resistive to the electrical current applied in an IP survey. IP surveys also provide a measure of chargeability (Figure 7), which can be very useful in mapping the presence of sulfide minerals (pyrite) and organic carbon (graphite). The Company has considerably upgraded its geophysical database during 2020 and 2021. This work has been helping to drive drill targeting at both the Lookout and Windfall Targets.
Geochemistry
The gold systems at the Eureka Project often come to the surface where faults and altered rocks can be expressed in gold and pathfinder elements detectable in soils. Each of the three major trends at Eureka is reflected in gold anomalies in existing soil geochemical data (Figure 8), but the northern portion of the property position was never covered by previous workers.
During the summer of 2021, Timberline completed a soil geochemical survey across unsurveyed areas of the property. The survey began with an orientation survey to test sampling and analytical methodology over an area of known mineralization. Systematic sampling commenced after a period of training and completion of the orientation survey. Ultimately, the sampling team collected approximately 900 samples, mostly in the northeastern part of the claim block. The new sampling augments the existing geochemical coverage across the projected northern extensions of the three gold trends on the property. Samples were submitted to ALS Global Laboratory for analysis by state-of-the-art ultra-trace level technology, which is likely to yield much more robust and comprehensive data than seen in previous surveys. The soil geochemistry survey is expected to provide high-resolution data that will support future drill targeting.
At the time of this writing, the new geochemical data is still awaiting interpretation.
30
Drilling
RC drilling commenced in mid-July 2021 and five holes (1,409 meters) were completed before the end of the fiscal year (BHSE-193 – 197). Three of these holes were aimed at expanding the WWZ mineralization to the north, including the northernmost hole, which was collared more than 200 meters from previous high-grade intercepts. Two additional holes were drilled on the western side of the resource and farther southwest on a new exploration target (Figure 9).
Figure 4. Eureka Project Geophysical Surveys in 2020 - 2021
31
Figure 5. The Windfall Trend within the Eureka Project Showing Drilling and Historic Open Pits
Subsequent to the end of the fiscal year, Timberline reported results of the first five holes drilled during 2021. Each of the three new drill holes in the WWZ intersected a significant thickness of gold mineralization at the base of the Dunderberg Shale, where it was expected to occur. These results grew the WWZ appreciably, more than doubling the surface projection “footprint” of the gold mineralization.
The most significant new intercepts in these holes included:
·10.67 meters (m) at 2.36 grams per tonne (g/t) gold from 301.8m depth in BHSE-194;
oincluding 6.01m at 2.98 g/t gold;
·16.76m at 1.74 g/t gold from 257.6m depth in BHSE-195;
oincluding 3.05m at 4.56 g/t gold;
·19.81m at 1.38 g/t gold from 248.4m depth in BHSE-193.
32
Figure 6. Line 4366200N Resistivity Section with Geologic Interpretation
Figure 7. Line 4366200N Chargeability Section with Geologic Interpretation
At the time of this writing, one reverse circulation drill continues work at the WWZ and Oswego Targets and one diamond core rig is at work testing targets in the WWZ. Additional assays are expected to be reported early in calendar year 2022.
The WWZ was a focus of considerable work in 2020 and 2021 because the gold grades are higher than the Lookout Mountain Resource, including a high-grade intercept from drill hole BHSE-187 reported in January 7, 2021. Seven holes passed through the entire thickness of the WWZ host horizon. In those holes, it averaged 18.9m thick with an average gold grade of 2.22 g/t. There were several intervals within those holes ranging from 3 to 7.7m thick in which the gold grade was higher than 4.5 g/t (Table 4). The expanded footprint of the zone, if demonstrated to have continuity, has the potential to significantly grow the Lookout Mountain Resource.
33
Figure 8. Eureka Project Geochemical Surveys in 2021
The WWZ occupies a favorable horizon at the basal contact of the Dunderberg Shale with the Hamburg Dolomite (Figure 10). At this horizon, Timberline geologists have noted significant multi-staged collapse brecciation that likely accounts for the development of porosity and permeability. The mineralizing fluids exploited this horizon, evidenced by associated intense silicification, sulfidation, and carbonaceous replacement. The resulting jasperoid contains abundant fine sooty pyrite and oftentimes, the arsenic sulfide minerals orpiment and realgar. The shale and limestone above the gold mineralization often demonstrate calcite veining that passes into zones of argillic alteration. The dolomite below the contact is usually pervasively oxidized, weakly mineralized and decalcified and, in many areas, completely “sanded” by removal of all interstitial calcite. Jasperoid is present as irregular pods and masses of silicification along the contact with the Dunderberg Shale, replacing beds and forming locally cross-cutting veins and veinlets.
34
As the rock units also dip to the east, the mineralization in the WWZ is downdip of the main resource. From the cross-sectional view, the WWZ is open downdip to the east and it will likely tie into the main resource area updip to the west, but more drilling is needed. The Dunderberg host horizon is well understood and the 2021 drilling has successfully intercepted mineralization approximately where expected. However, the controls on the higher-grade gold in the WWZ are not yet understood. More drilling is needed to infill the WWZ and test various targets that may host the higher-grade part of the system. The WWZ remains open to the northwest, north, south, and east . Several more holes are planned during FY 2021 to test the zone on all sides.
Figure 9. Lookout Mountain Gold Resource Area and Graben Zone with Major Faults, IP anomalies, and 2021 Planned Drill Holes in Target Areas
35
A north-south long section view of the WWZ is shown in Figure 11. In this perspective, the drilled intercepts of the WWZ now span approximately 220 meters from south to north, more than double the long axis of the mineralization defined by the 2020 drilling. And the WWZ mineralization remains open to the north and south. The remainder of the 2021 drill program includes several holes testing the zone to the north, south, and west. At least three of the remaining holes in the area are planned to be drilled with core.
The gold mineralization in the WWZ is consistent with the geochemistry of Carlin-type gold deposits. It is generally highly enriched in arsenic, antimony, and thallium, but it is low in silver and only weakly enriched in zinc and lead. Mineralization is also very consistent once passing into the WWZ, rarely including gold grades of individual samples below 1.0 g/t.
Table 4. Summary of Drillhole Intercepts in the Water Well Zone (2015 - 2021)
Significant intercepts based on a cutoff grade of 0.5 g/t Au
Drill Hole | From | Length (feet)(1) | Gold | From (meters) | Length (meters)(1) | Gold | |
| |||||||
BH06-04 | 892 | 12.8 | 0.064 | 271.90 | 3.90 | 2.19 |
|
BHSE-152(3) | 1025 | 15 | 0.138 | 312.40 | 4.57 (at TD) | 4.72 |
|
BHSE-171 | 990 | 85 | 0.074 | 301.75 | 25.91 | 2.54 |
|
including | 990 | 55 | 0.099 | 301.75 | 16.76 | 3.41 |
|
including | 1020 | 20 | 0.159 | 310.90 | 6.10 | 5.46 |
|
BHSE-172 | 895 | 160.3 | 0.095 | 272.80 | 48.85 | 3.26 |
|
including | 900 | 40 | 0.142 | 274.32 | .19 | 4.88 |
|
BHSE-173 | 935 | 65 | 0.067 | 284.99 | 19.81 | 2.29 |
|
including | 950 | 30 | 0.085 | 289.56 | 9.14 | 2.91 |
|
BHSE-187 | 875 | 85 | 0.064 | 266.70 | 25.91 | 2.18 |
|
including | 875 | 25 | 0.131 | 266.70 | 7.62 | 4.49 |
|
BHSE-193 | 815 | 65 | 0.040 | 248.4 | 1219.80 | 1.38 |
|
including | 815 | 15 | 0.061 | 248.4 | 4.60 | 2.10 |
|
BHSE-194 | 990 | 35 | 0.069 | 301.8 | 10.70 | 2.36 |
|
including | 990 | 15 | 0.093 | 301.8 | 4.57 | 3.20 |
|
BHSE-195 | 850 | 45 | 0.059 | 259.1 | 13.7 | 2.02 |
|
including | 885 | 10 | 0.133 | 269.75 | 3.05 | 4.56 |
|
italics - diamond core hole (BH06-04 and BHSE-172, BHSE-173) |
|
| |||||
(1) Drill thickness – True widths of drill intercepts have not been determined |
| ||||||
(2) opt: oz gold / ton; g/t: grams/tonne |
| ||||||
36
Figure 10. Lookout Mountain Geologic Cross Section and Schematic Gold Targets
Figure 11. Long Section through Water Well Zone Looking West
37
Historic Exploration: 2005 to 2010 (Staccato Gold)
Staccato Gold (“Staccato”) advanced exploration of the Eureka Project and completed drilling between 2005 and 2007, and in follow-up initiated a comprehensive work program in June 2008 which included geologic modeling of all drilling results. This modeling included structural and stratigraphic controls to mineralization, additional density determinations, and new drilling and metallurgical test data. Results of this work were incorporated into subsequent exploration work completed since 2008.
From 2005 to 2007, core drilling programs at Lookout Mountain completed by Staccato Gold provided data to better define stratigraphy in the higher-grade breccia-hosted gold zones at the Lookout Mountain pit and discovered new areas of mineralization. The core drilling program demonstrated the stratabound nature of gold mineralization in thick zones of collapse breccia within the Ratto Ridge structural zone. Former Timberline director, David Mathewson, was a consulting geologist for Staccato during this period, leading much of the core logging and development of the geological model at Lookout Mountain. Metallurgical and other technical characteristics of known mineralization were also investigated at Lookout Mountain.
An exploration Plan of Operations was prepared by Staccato and was approved in 2009 by the BLM and the State of Nevada Department of Environmental Protection (“NDEP”) for the Lookout Mountain Trend. The Plan of Operations called for approximately 266 acres of disturbance that can be accessed for use in a phased approach and covers the entire structural corridor. The Plan of Operations allowed ground disturbance to complete additional infill, metallurgical, and exploration drilling necessary to advance the development of the Lookout Mountain Deposit and other targets along the trend.
In October 2009, Staccato also initiated work at the Windfall Target including detailed mapping and sampling programs and completed a ten-hole drill program totaling 8,030 feet (2,448 m). The drilling program focused on testing the extent of gold mineralization below the Windfall and Rustler open pits, located approximately 3 miles northeast of the main Lookout Mountain mineralized area.
Results from the surface mapping program, review of historical production and geologic maps, and drilling indicated that high-grade gold is locally controlled within cross structures cutting the main Windfall fault zone, at the contact between the Hamburg Dolomite and Dunderberg Shale. The 2009 drill program tested approximately 3,600 feet (1,097 m) of strike length of the Windfall fault zone with wide spaced drilling. The Windfall fault zone is part of an extensive mineralized structural trend which extends for over 17,000 feet (5,182 m) based on historical data.
All holes in the 2009 exploration program encountered thick intercepts of low-grade gold (holes 5–12) or anomalous gold mineralization (holes 13 and 14) within the Windfall fault zone. The offset and exploration holes as drilled define the Windfall Fault as a 150 to 200-foot (46 – 61 m) wide zone striking roughly north-to-south and dipping approximately 60 degrees to the east, containing two or more significant zones of mineralization.
Five of the ten holes were drilled as offsets to follow up on the high-grade gold intercept drilled in hole 4, which intersected 75 feet (23 m) at 0.153 opt gold, and five other holes were drilled to test the strike and dip extent of the Windfall fault zone. Several thick intercepts of gold mineralization were returned, including 135 feet (41 m) at 0.011 opt gold in hole 7, 135 feet (41 m) at 0.016 opt gold in hole 8, 115 feet (35 m) at 0.010 opt gold in hole 9, and 100 feet (30.5m) at 0.018 opt gold in hole 11.
A secondary hanging wall structure identified by the mapping program was also encountered in drill holes 7, 8, 11, and 13 and is characterized by strong silicification and decalcification of Windfall Formation and Dunderberg Shale in the hanging wall side of the fault, with Dunderberg Shale and Hamburg Dolomite on the footwall side. Drilling indicates a down to the east offset of the Dunderberg – Hamburg contact. This secondary structure represents an attractive and untested target at depth.
Historical Exploration: 1970s to 1990s
The reader should note that discussions in this document pertaining to assay results and concentrations of gold mineralization span many years and reporting standards have changed considerably over that time. References to historical reports of assay results or the grade (concentration) of gold mineralization may cite results in troy ounces of gold per short ton of rock, which will be abbreviated “opt”. More recent gold assay or concentration data will be reported in this document as grams of gold per tonne (metric) of rock, which will be abbreviated “g/t”. In most cases when discussing modern data, we make an effort to cite the unit conversion, which is on the basis of 1.00 opt = 34.286 g/t. We may also cite other historic work in the original US customary system of units, but modern work will be reported in metric units with conversions to US customary in most instances.
38
On the Windfall, Hamburg Ridge, and New York Canyon claim groups, Bill Wilson of the Idaho Mining Corp, then Windfall Venture, later Norse-Windfall, initiated reconnaissance mapping, soil and rock chip sampling, trenching, and drilling in the early 1970s. He noted that the original underground Windfall Mine, which was discovered in 1908 and produced approximately 65,000 tons of “invisible gold” mineralized rock grading 0.368 opt, was a Carlin-type sediment-hosted disseminated gold occurrence. Wilson’s work emphasized the east side of Hamburg Ridge and the Windfall Trend, where he drilled conventional air rotary holes. The drill holes were generally from 50 to 250 feet deep. Six of Wilson’s original forty-three Z-holes intersected gold mineralization exceeding 0.02 opt gold. This success led to infill drilling and the development of the Windfall open pit mine in 1975, and soon thereafter, the Rustler and Paroni open pit mines. Gold was extracted in a heap-leach operation from sanded and silicified dolomite and silicified shale.
No geologic maps exist from this period other than a few maps compiled from USGS work. Although many drill hole location maps are archived in the files of Century Gold Corp., the coordinates for many drill hole collars are not available, very few collars are visible in the field, and assay data from infill drilling is poorly documented.
Significant exploration on the Eureka property occurred during the drilling programs mounted during the 1980s and 1990s. The table below summarizes historic drilling by company, era, and focus of their exploration. These data are compiled from historic company reports and, in many cases, have been at least partially validated with the presence of drill cuttings or core in the Company’s inventory. These drilling programs were conducted concurrent with and guided by geologic mapping, geochemical rock and soil sampling programs, and air and ground geophysics. Geological mapping and geochemical programs were very successful in discovering target areas characterized by permissive structures and traces of gold with arsenic, antimony, and mercury anomalies in soil and rock.
Table 5. Summary of Historic Drilling on Eureka Project
Company | No. Drill Holes | Period | Target Area |
Norse-Windfall | 63 | 1970s – 1980s | Hoosac/Windfall |
Amselco | 8 | Mid-1980s | |
Tenneco | 18 | 1989-1991 | |
Pathfinder | 18 | 1993 | |
Pathfinder/Cambior | 36 | 1995-1996 | |
Amselco | 296 | 1978-1985 | Lookout Mountain |
Windfall Group | 20 | 1986 | |
EFL Gold Company | 10 | 1990 | |
Barrick Gold | 40 | 1992-1993 | |
Echo Bay | 70 | 1994-1995 |
The methods of collection and analyses of some historical soil and rock samples were not always available in the data, but it is likely that the samples were collected, documented, prepared, and analyzed to the standards of professional diligence and analytical techniques applicable at the time. The importance of a geochemical-geological exploration approach is evidenced by the fact that the drilling of many such anomalies resulted in significant indications of disseminated gold mineralization. The Windfall, Rustler, and Paroni Deposits on the Windfall claims and the Lookout Mountain Deposit were discovered by drilling soil and rock anomalies in permissive structural and stratigraphic settings. Drill testing of several geochemical anomalies in permissive geological settings has also resulted in the discovery of several additional promising zones of gold mineralization on the Hamburg Ridge, Windfall, and Lookout Mountain claim groups. As yet, these zones have not been fully tested.
Amselco Exploration began exploring the Lookout Mountain project in 1978, conducting extensive geologic mapping, soil and rock sampling and an initial 15-hole reverse circulation (“RC”) drilling program which tested gold mineralization along the Ratto Ridge Fault and associated geochemical anomalies and jasperoids developed along the north-to-south trending Ratto Ridge. This drilling discovered significant sediment-hosted disseminated gold mineralization at depth. Amselco drilled 296 holes between 1978 and 1985, also discovering five areas of gold mineralization along Ratto Ridge which contain partially developed gold resources. These areas are located at South Lookout Mountain, Pinnacle Peak, Triple Junction, South Ratto Ridge, and South Adit. In 1986, while Amselco was in process of becoming BP Minerals, Amselco management optioned the Lookout Mountain Deposit to a joint venture of three companies, which then owned Norse-Windfall Mines.
In 1990, EFL Gold Mines took bulk samples from the floor of the Lookout Mountain pit. These samples returned assay values ranging from 0.10 to 0.135 opt gold. EFL also drilled nine holes, two of which penetrated 500 feet (152 meters) into the floor of the pit, that showed both oxide and sulfide gold mineralization.
39
During the period 1992-1993, Barrick Gold completed geologic mapping, took more than 500 soil samples to expand and fill in Amselco’s soil grid, and drilled 42 widely spaced holes, primarily along Ratto Ridge. Drilling targeted favorable stratigraphy at depth near fault intersections. Nevada Gold discovered that geochemical anomalies were apparently controlled by E-NE and N-NW to NW trending cross structures which intersect the north-to-south trending Ratto Ridge Fault. Much of the Nevada Gold work focused on the potential in Cambrian Dunderberg Shale and Hamburg Dolomite east of the Ratto Ridge Fault, and potential in the Devonian Nevada Group, especially the Bartine Limestone west of the fault. Outcrops of Bartine Limestone in the area show weak gold mineralization, strong alteration, and anomalous pathfinder element geochemistry. Nevada Gold drilled 42 holes to a maximum depth of approximately 1,300 feet (400 meters) and encountered several gold intercepts.
Work by Barrick Gold also included airborne and ground geophysics and a stratigraphic and geochemical study in conjunction with geologic mapping to develop and prioritize several target areas. Approximately 800 rock samples were collected and had high-quality multi-element analyses at MB Associates in California and Activation Laboratories in Canada. However, their work on the various geological and geochemical targets, or additional drilling in areas of known mineralization previously discovered by Amselco, apparently found insufficient mineralization to meet Barrick Gold’s objectives. It should be noted that the potential for mineralization west of the Ratto Ridge was not significantly explored during this period.
Echo Bay (1993-95) not only worked Ratto Ridge but also acquired additional ground to the north, south, and southwest. They conducted mapping, sampling, and scattered drilling in the area, exploring deep high-grade potential in the Cambrian Dunderberg Shale and Hamburg Dolomite, and testing Devonian Nevada Group targets west of the Ratto Ridge Fault. Echo Bay drilled several promising holes, including drill hole EBR 27, which intersected 110 feet (34 m) grading 0.043 opt gold in the Dunderberg, and drill hole EBR-9 which intersected 115 feet (35 m) grading 0.043 opt gold in the Nevada Group. Offsets of EBR-9 found 90 feet grading 0.028 opt gold, and another hole, which was lost before reaching planned depth, found 45 feet (14 m) of 0.024 opt gold. Further offsets of EBR-9 and several widely spaced holes averaging 1,000 feet (305 m) deep (EBR 15, 16, 17, 18, and 20) found some anomalous gold along Ratto Ridge but no major intercepts. Eventually, the Echo Bay project totaled 104 RC holes. Faced with depletion of budgets with no significant exploration success, the decline in gold prices and large land payments, Echo Bay decided to drop the property.
Elder Creek Project
In May 2018, Timberline entered into a Purchase and Sale Agreement with America’s Gold Exploration Inc. (AGEI) to purchase the latter’s rights, title and interest in, to, and under the Elder Creek Joint Venture (JV Agreement) with a subsidiary of McEwen Mining (McEwen) in regards to the Elder Creek Project. On August 14, 2018, we finalized the acquisition of the Elder Creek property as part of a two-property acquisition from Americas Gold Exploration Inc. The Elder Creek property is located in northern Nevada, 8 miles west-northwest of Battle Mountain in Lander and Humboldt Counties immediately west of Battle Mountain. The project lies within the Battle Mountain mining district, covers approximately 9,600 acres (15 miles square) and includes 583 unpatented lode mining claims.
The underlying Elder Creek JV with McEwen granted Timberline the right to earn up to a total of 65% ownership in two stages for total expenditure of $5.1M over 6 years by December 31, 2023. Upon completion of the 65% earn-in expenditures, if McEwen elected to participate, the parties would form a joint venture, and each party would contribute to further exploration spending according to their ownership interest. If McEwen declined to participate at 65%, the agreement included industry-standard dilution to a 2% NSR royalty.
Following acquisition of the project from AGEI in mid-2018, Timberline completed a NI43-101 Technical Report on the Elder Creek Copper-Gold Project providing a comprehensive description of the project. In 2018 and 2019, the Company tested two priority copper-gold targets by completing 10 km of IP surveys, seven RC drill holes totaling 5,290 ft (1,613m), and one core hole drilled to a depth of 1,497 ft (456 m). The geophysical anomalies suggested the presence of extensive sulfides, which was later confirmed by drilling that encountered abundant disseminated sulfides and local structurally-controlled semi-massive sulfides. The associated copper mineralization occurred variably as both copper oxides and sulfides along with molybdenum, silver, and variable gold.
Timberline management considered the initial geophysical and drilling program at Elder Creek to be encouraging and to validate the potential for a significant porphyry copper-gold system on the property. However, the next phases of exploration and development at Elder Creek would have been very capital intensive, so the Company sought to bring in a major company partner to farm into its rights under the agreement with McEwen Mining. As of November 2019, the search had resulted in a potential agreement with a major company. However, the proposed agreement required the consent of McEwen Mining, which was not obtained prior to the June 30, 2020 anniversary deadline for payment of holding costs. McEwen Mining was unwilling to renegotiate the agreement and consent to the assignment to a third party, therefore Timberline elected to terminate the agreement on the anniversary date.
40
On June 30, 2020, Timberline opted not to make the required payment of the BLM and county fees to McEwen. As a result, pursuant to the terms of the McEwen JV agreement, the agreement terminated on July 9, 2020. As a result of the termination of the agreement, operations of the Elder Creek Project reverted back to McEwen and we retain no interest. A loss of $1,218,715 was recognized for the quarter ended June 30, 2020 due to management’s decision to terminate the agreement concurrent with the non-remittance of the required payment at the end of the quarter, this to focus our exploration resources on Lookout Mountain. The entire investment in Elder Creek was expensed in fiscal 2020.
Paiute Project
The Paiute Project (formerly referred to as the ICBM Project) is located 6.5 miles due west of Battle Mountain, in the Battle Mountain Mining District, Lander and Humboldt Counties, Nevada. The property consists of 1,346 acres (2.1 square miles) on BLM-administered lands.
Timberline originally acquired the project in 2010 through acquisition of Staccato Gold, who controlled the project as a non-core asset along with the flagship Eureka Project. Staccato controlled the project through an earn-in joint venture (JV) agreement with Lac Minerals (LAC), a subsidiary of Barrick Gold. Timberline acted as operator of the project through November 2013 earning a 73.7% interest in the project, with LAC holding the remaining interest.
Historical exploration demonstrated that gold mineralization is present on the property in styles of mineralization currently being mined elsewhere in the Battle Mountain district including at the Fortitude/Phoenix complex to the south and Lone Tree to the west. An analysis of historical data led to recognition that the property also has porphyry copper-gold characteristics similar to Newmont’s nearby historical Copper Basin mine.
Although Timberline controlled the project, as a non-core asset no exploration was completed between 2010 and December, 2013. In December of 2013, Timberline and LAC entered into an agreement with Americas Gold Exploration, Inc. (AGEI) to continue exploration at the project. Under the terms of the agreement, AGEI could earn up to a 51% ownership position in the property and the joint venture by making certain exploration expenditures over a four-year period. If AGEI earned an initial 51% interest, LAC agreed to withdraw from the Joint venture in exchange for a 5% Net Proceeds royalty and to amend the agreement allowing AGEI to increase its equity interest by 19% for a total of 76.6% by making additional exploration expenditures with Timberline retaining the balance of ownership. AGEI also assumed the role as operator of the joint venture.
On August 14, 2018 Timberline finalized the re-acquisition of the property from AGEI along with the contiguous Elder Creek property as part of a two-property acquisition from AGEI. Timberline re-assumed the operator’s position in the underlying property.
The underlying JV with LAC is an earn-in agreement and as a result of previous qualifying expenditures by Timberline, AGEI and previous owners, Timberline currently controls 76.1% ownership of the project after 2018-2020 expenditures. LAC’s parent company, Barrick, is now the operator of Nevada Gold Mines (NGM), a Nevada joint venture between Barrick and Newmont. NGM operates the nearby Fortitude/Phoenix Complex and Lone Tree Mines. Terms of the continued earn-in are as follows:
·No mandatory work commitments are included;
·As operator, Timberline proposes work budgets with a 30-day option for pro-rata participation by LAC;
·If LAC chooses to not participate, ownership dilutes on a pro-rata basis (based on $300,000 earn-in for 60% of the project); and
·If diluted project equity reaches 10% or less, LAC converts to a 2% NSR royalty.
On November 28, 2018 the Company announced completion of a NI 43-101 Technical Report on the Paiute copper-gold project. The report provides a comprehensive description of the project. The Paiute Project has no known reserves, as defined under Regulation S-K Subpart 1300, and the proposed program for the property is exploratory in nature.
Exploration and Mining History
The Paiute Project shares much exploration history with the Elder Creek Project (see above) as they are contiguous in location. However, as unique to Paiute, Battle Mountain Gold Company and its predecessors held the Paiute property through the early 1990s and drilled nine RC holes within the current claim block. A best intercept of 100 feet (30.5 m) with 925 ppb gold was noted in their drilling.
41
LAC relocated the claims in late 1992 and conducted basic field work in 1993 that included geologic mapping, rock and soil sampling, and ground magnetics. In late 1994 they completed a nine-hole RC drilling program to test the main soil anomalies on the property. One drill hole reported 20 feet (6.1 m) of 0.038 opt (1.18 g/t) gold from 20 to 40 feet (6.1 - 12.2 m) that was associated with a narrow vein-like structure in the Harmony Formation.
Pathfinder Exploration joint ventured the property from LAC in early 1995 and completed infill mapping and sampling and target definition. First pass drilling intersected a 200 feet (61m) zone of 411 ppb gold in drill hole ICBM-95-1 within a quartz-actinolite-sulfide veined granodiorite stock or sill. Follow-up RC drilling by Pathfinder in 1996 was highlighted by hole 96-5 which intersected sericitized, chloritized, amphibole-rich monzonite/granodiorite porphyry with secondary biotite from 450-490 feet (137.1 – 179.8m). Mineralization within the last 15.1 feet (4.6 m) of the hole averaged 0.035 opt Au (1.24 g/t) and was accompanied by increased silicification and sulfides (chalcopyrite, pyrite, arsenopyrite).
Petrographic work by Larson (1996) identified silicified, sulfidic (pyrite, chalcopyrite), quartz/calcite veined quartz monzonite porphyry, Cambrian sandstone/quartzite (Harmony Formation) and diabase lithologies, along with a skarn dominant monzonite or granodiorite porphyry with “significant percentages of pyrite, chalcopyrite, and chalcocite”.
Geology of the Paiute Project Area
In the Paiute Project area, the Dewitt Thrust Fault places Ordovician Valmy Formation cherts and shales on top of Cambrian Harmony Formation quartz- and feldspathic-sandstones and shales, which are locally calcareous. The Harmony Formation is intruded by seven Cretaceous to Tertiary age granitic to granodioritic intrusives. An older Devonian or Ordovician diabase intrusive is exposed in the southwest part of the project and surrounding area.
At Paiute, the granitic to granodiorites intrusives occur as high-level plugs, stocks, dikes and sills. Thermal metamorphism associated with the intrusions produced hornfels, quartzite and skarn in the Harmony Formation sediments. Hydrothermal alteration associated with the intrusions consists of argillization, silicification, quartz veining/stockwork that is accompanied by zones of hydrous iron oxides as fracture fillings, disseminations, and occasional gossans. Chlorite and actinolite occur locally within quartz veins and may represent retrograde metamorphism. Quartz veining occurs throughout the project area and increases in intensity within the alteration zones.
A series of echelon structures and sub-parallel faults define a strong N 10-20° E - striking structural zone through the central part of the property that extends approximately 16,500 feet in length and up to 1,500 feet in width. This fault zone is well defined by field mapping and is the dominant northeast trending feature. Secondary northwest and north striking faults cut the northeast-striking structures. Locally, the structures are occupied by granodiorite porphyry dikes. The structures are typically altered and mineralized.
Previous explorers of the Paiute Project have collected 1,283 soil samples and 301 rock samples in the area and analyzed many of them for 14 elements. Copper, gold, arsenic and bismuth trace element anomalies in soils and rocks occur along the N10-20°E structural zone. A north-northwesterly (N20°W)-trending zone of elevated copper and gold occurs where increased fracturing and actinolitic alteration of the rocks is spatially associated with intrusives near Pathfinder drill-hole 96-5.
Garwin (2014) described the major styles of mineralization in the Paiute area as calc-alkaline, porphyry copper-gold, and gold-bearing structurally controlled vein systems. The main gold mineralized zone on the property is coincident with the N10-20°E structural zone.
Where the rock is not oxidized, fresh disseminated and vein pyrite is pervasive throughout the project area. Pyrite is the most abundant sulfide and occurs within the bleached zones coincident with alteration and structural zones. Pyrrhotite is nearly as abundant as pyrite and occurs both within and adjacent to alteration and structural zones. Arsenopyrite appears to be closely related to alteration and occurs only within the alteration zones.
2018-2019 Timberline Exploration
Exploration expenditures for FY 2018 were limited to geological field reviews, rock grab sampling and assays to characterize surface mineral showings. In addition, an application was submitted to the BLM, with receipt thereafter, of an approved Notice of Intent (NOI) to allow disturbance related to construction of drill roads and pads. The BLM approved the application and the property is fully permitted for road construction and drilling. Work during FY2019 included continued data compilation and review in preparation for drilling planned for FY2020.
42
Paiute Project Activity during Fiscal Year 2020:
Drilling at Paiute was initiated in the 1st quarter of FY2020, and with assay results announced on January 16, 2020 for our first two drill holes. Drilling intercepted long intervals of disseminated gold mineralization in granodiorite porphyry and metamorphosed sandstone (Figure 9, Table 4). Both RC holes were terminated in hard, silicified and mineralized rock.
Hole PCRC 19-01 intercepted 125 feet (38 m) grading 0.012 opt (0.36 g/t) gold with associated pyrrhotite-pyrite-arsenopyrite in silicified, metamorphosed arkosic sandstone (see Table 3). The hole bottomed in 160 ft (49 m) of silicified granodiorite porphyry. The previously identified 2 km-long gold “Lone Tree-type” structural zone (Figure 4) remains largely untested below the 500 feet (152m) depth of historic drilling and is entirely untested over an interval of approximately 500 meters along the trend of the zone. The structural zone includes surface rock chip samples which previously returned multiple values greater than 1.0 g/t of gold including two samples over 0.322 opt (10 g/t) gold and one sample with 1.38 opt (42.9 g/t) gold and 16.9 opt (527 g/t) silver (see Company news release dated May 24, 2018 at http://timberlineresources.co/press-releases).
Table 6. 2019 Drill Hole Assay Results
Drill Hole | From (feet) | To (feet) | Interval (feet) | From (meters) | To (meters) | Interval (meters) | Au (g/t) | Ag (g/t) | As (ppm) | Ba (ppm) | S (%) |
PCRC19-01 | 295 | 420 | 125 | 89.9 | 128.0 | 38.1 | 0.356 | 0.4 | 673 | 266 | 1.5 |
including: | 340 | 420 | 80 | 103.6 | 128.0 | 24.4 | 0.442 | 0.5 | 968 | 185 | 1.9 |
PCRC19-02 | 0 | 710 (TD) | 710 | 0.0 | 216.4 | 216.4 | 0.271 | 0.5 | 72 | 849 | 0.3 |
including: | 0 | 40 | 40 | 0.0 | 12.2 | 12.2 | 0.606 | 0.9 | 292 | 648 | 0.0 |
| 110 | 140 | 30 | 33.5 | 42.7 | 9.1 | 0.488 | 0.5 | 43 | 872 | 0.1 |
| 150 | 230 | 80 | 45.7 | 70.1 | 24.4 | 0.514 | 0.4 | 27 | 1123 | 0.2 |
| 190 | 215 | 25 | 57.9 | 65.5 | 7.6 | 1.123 | 0.6 | 12 | 1280 | 0.2 |
| 280 | 390 | 110 | 85.3 | 118.9 | 33.5 | 0.359 | 0.3 | 39 | 720 | 0.2 |
| 490 | 500 | 10 | 149.4 | 152.4 | 3.0 | 0.511 | 0.1 | 30 | 1070 | 0.2 |
| 525 | 545 | 20 | 160.0 | 166.1 | 6.1 | 0.340 | 0.2 | 20 | 598 | 0.3 |
| 610 | 640 | 30 | 185.9 | 195.1 | 9.1 | 0.400 | 1.0 | 33 | 1023 | 0.8 |
| 685 | 710 | 25 | 208.8 | 216.4 | 7.6 | 0.478 | 0.8 | 38 | 680 | 0.6 |
*True thickness of drill intercepts is unknown. **TD: drill hole total depth | |||||||||||
PCRC 19-02 twinned and deepened historical hole ICBM-95-06, which intercepted gold mineralization within highly silica-altered, sulfide-poor (trace – 1% pyrite) granodiorite porphyry. The hole intercepted multiple zones of gold mineralization in granodiorite porphyry and metamorphosed arkosic sandstone, including 40 ft (12 m) of 0.020 opt (0.61 g/t) gold, 80 ft (24 m) of 0.016 opt (0.51 g/t) gold, 25 ft (8 m) of 0.036 opt (1.12 g/t) gold, and 25 ft (8 m) of 0.025 opt (0.48 g/t) gold over its 710 feet (216 m) length and bottomed in mineralization (Table 4). The mineralization in PCRC 19-02 expands on multiple intercepts in nearby historic holes (see Table 5). Management believes that the Paiute Project has the potential for bulk-mineable, open-pit gold mineralization based on the near surface thicknesses and gold grades drilled to date.
During FY 2020 year the Company also acquired historical IP and magnetic geophysical survey data to further guide future drill targeting of the under-tested structural zone and largely un-tested porphyry gold targets.
Timberline has conducted no work on the Paiute Project during fiscal year 2021, but all BLM and county claim fees have been paid in full.
43
Figure 12. Paiute Project Geology and Primary Target Areas
44
Table 7. Summary of Historic Porphyry-Hosted Drilling Gold Assay Results
Drill Hole | From (feet) | To (feet) | Interval (feet) | From (meters) | To (meters) | Interval (meters) | Au (g/t) |
ICBM 95-1 | 260 | 295 | 35 | 79.2 | 89.9 | 10.7 | 0.831 |
| 320 | 350 | 30 | 97.5 | 106.7 | 9.1 | 0.552 |
| 385 | 460 | 75 | 117.3 | 140.2 | 22.9 | 0.462 |
ICBM 96-3 | 45 | 65 |
| 13.7 | 19.8 | 6.1 | 0.431 |
| 345 | 370 | 25 | 105.2 | 112.8 | 7.6 | 0.497 |
| 405 | 415 | 10 | 123.4 | 126.5 | 3.0 | 1.000 |
| 480 | 580 | 100 | 146.3 | 176.8 | 30.5 | 0.962 |
ICBM 96-3C | 221 | 246 | 25 | 67.4 | 75.0 | 7.6 | 0.626 |
| 455 | 465 | 10 | 138.7 | 141.7 | 3.0 | 1.276 |
| 475 | 505 | 30 | 144.8 | 153.9 | 9.1 | 0.609 |
| 996 | 1001 | 5 | 303.6 | 305.1 | 1.5 | 3.655 |
ICBM 96-4 | 340 | 370 | 30 | 103.6 | 112.8 | 9.1 | 0.683 |
ICBM 96-5 | 90 | 100 | 10 | 27.4 | 30.5 | 3.0 | 0.741 |
| 320 | 350 | 30 | 97.5 | 106.7 | 9.1 | 0.377 |
| 575 | 590 | 15 | 175.3 | 179.8 | 4.6 | 1.501 |
3899 | 10 | 180 | 170 | 3.0 | 54.9 | 51.8 | 0.695 |
3632 | 0 | 100 | 100 | 0.0 | 30.5 | 30.5 | 0.945 |
| 350 | 400 | 50 | 106.7 | 121.9 | 15.2 | 0.55 |
4062 | 30 | 60 | 30 | 9.1 | 18.3 | 9.1 | 0.460 |
| 220 | 260 | 40 | 67.1 | 79.2 | 12.2 | 0.644 |
4006 | 95 | 145 | 50 | 29.0 | 44.2 | 15.2 | 0.483 |
| 280 | 300 | 20 | 85.3 | 91.4 | 6.1 | 0.948 |
3206 | 210 | 280 | 70 | 64.0 | 85.3 | 21.3 | 0.493 |
Seven Troughs Project
During the year ended September 30, 2012, Timberline announced the acquisition from CIT Microprobe Holdings, LLC (California Institute of Technology) (“CIT”) of CIT’s interest in 3,900 acres (6.1 square miles) of patented and unpatented mining claims comprising the majority of the Seven Troughs gold mining district near Lovelock, Nevada. Our acquired interest is as lessee under the terms of a 50-year lease, originally executed in 1975. Terms of the purchase agreement included a cash payment of $50,000 and a 2-percent NSR production royalty reserved to CIT. We have the option to purchase one-half of the NSR production royalty for $1 million.
Seven Troughs is an epithermal gold district recognized as yielding some of the highest gold production grades in Nevada history through small-scale operations in the early 20th century. We believe the district has the potential to host a large precious metals system similar to the high-grade gold and silver veins of Japan's world-renowned Hishikari epithermal gold mine.
We are under no obligation to make exploration expenditures at Seven Troughs. Since acquiring the property, we have compiled historical mine workings data and completed limited geologic mapping, and geochemical sampling within the district. The Company conducted no significant work on the ground during FY 2020 or FY 2021.
45
Wolfpack Gold Properties
With the acquisition of Wolfpack Gold (“WPG”), we acquired nine mineral properties in Nevada and one in California. We conducted a due diligence review on each property, including organization of the historical data and review of exploration work completed to-date. As of September 30, 2020, only claims on one property (Trail) have been retained, as they are contiguous with our Eureka project.
In 2017, we sold our property and royalty interests in various unpatented claims that were under lease to Pershing Gold. In addition, we sold various other royalty interests that WPG had retained through previous transactions in four other properties.
Overview of Regulatory, Economic and Environmental Issues
Hard rock mining in the United States is a closely regulated industrial activity. Mining operations are subject to review and approval by a wide variety of agencies at the federal, state, and local level. Each level of government requires applications for permits to conduct operations. The approval process always involves consideration of many issues including but not limited to air pollution, water use and discharge, noise issues, and wildlife impacts. Mining operations involve preparation of environmental impact studies that examine the probable effect of the proposed site development. Federal agencies that may be involved include: the USFS, BLM, EPA, NIOSH, MSHA, and FWS. Individual states also have various environmental regulatory bodies, such as Departments of Ecology and Departments of Environmental Quality. Local authorities, usually counties, also have control over mining activity.
Gold, silver, and copper are mined in a wide variety of ways, both in open pit and underground mines. Open pit mines require the gold deposit to be relatively close to the surface. These surface mineable deposits tend to be lower grade (such as 0.01-0.03 opt gold) and are mined using large, costly earth moving equipment, usually at very high tonnages per day. Modern open pit mines are typically very large excavations that require extensive engineering, planning, reclamation, and permitting.
Some open pit operations for gold in which the ores have bene oxidized involve heap leaching as a metallurgical method to remove the gold. Heap leaching involves stacking the ore on pads which are lined with an impenetrable under-surface, then sprinkling the ore with a weak cyanide solution to extract the gold. The gold-impregnated solution is collected and the gold recovered through further processing. Most new gold discoveries contain ores that are not suitable for heap leach processing. Often this is because the gold is associated with sulfide minerals such as pyrite. Extensive metallurgical testing is required to determine the optimum method for treating such ores, but sulfide ore deposits almost always require complex milling and processing plants.
Underground metal mines generally involve higher-grade ore bodies. Less tonnage is mined underground, and generally the higher-grade ore is processed in a mill or other refining facility. An underground mine may have much less visual impact on the land, but the mine design is complex and requires intensive study and careful engineering.
Gold processing plants often generate tailings (the residual material left behind after recovery of the gold-bearing minerals), which require permitted and engineered disposal facilities or tailings ponds. Mines and processing plants also often require extensive water treatment, which again will necessitate extensive interaction with the community and regulators during permitting
Capital costs for mine, mill, and tailings pond construction can, depending upon the size of the operation, run into the hundreds of millions of dollars. These costs are factored into the profitability of a mining operation. Metal mining is sensitive to both cost considerations and to the value of the metal produced. Metals prices are set on a worldwide market and are not controlled by the operators of the mine. Changes in currency values or exchange rates can also impact metals prices. Changes in metals prices or operating costs can have a huge impact on the economic viability of a mining operation.
Environmental protection and remediation are increasingly important parts of mineral economics. Estimated future costs of reclamation or restoration of mined land are based principally on legal and regulatory requirements. Reclamation of affected areas after mining operations may cost millions of dollars. Often governmental permitting agencies are requiring multi-million-dollar bonds from mining companies prior to granting mining permits, to ensure that reclamation takes place. All environmental mitigation tends to decrease profitability of the mining operation, but these expenses are recognized as a cost of doing business by modern mining and exploration companies.
46
Mining and exploration activities are subject to various laws and regulations governing the protection of the environment. These laws and regulations are continually changing and are generally becoming more restrictive. We conduct our operations so as to protect the public health and environment and believe our operations follow applicable laws and regulations in all material respects. We have made, and expect to make in the future, expenditures to comply with such laws and regulations, but cannot predict the full amount of such future expenditures.
Every mining activity has an environmental impact. In order for a proposed mining project to be granted the required governmental permits, mining companies are required to present proposed plans for mitigating this impact. In the United States, where our properties are located, no mine can operate without obtaining a number of permits. These permits address the social, economic, and environmental impacts of the operation and include numerous opportunities for public involvement and comment.
We intend to focus on exploration and discovery of mineral resources. If we are successful, the ore bodies discovered will be attractive to production companies, or we will potentially bring the ore bodies to production ourselves. The mining industry, like agriculture, is a fundamental component of modern industrial society, and minerals of all sorts are needed to maintain our way of life. If we are successful in finding an economic ore body, be it gold or silver, sufficient value is expected to be created to reward our shareholders and allow for all production and reclamation expenses to be paid ourselves or by the actual producer to whom we convey, assign, or joint venture the project.
ITEM 3. LEGAL PROCEEDINGS
We are not a party to any material pending legal proceedings, and no such proceedings are known to be contemplated.
No director, officer, or affiliate of Timberline and no owner of record or beneficial owner of more than 5.0% 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 pending litigation.
ITEM 4. MINE SAFETY DISCLOSURES
Pursuant to Section 1503(a) of the recently enacted Dodd-Frank Wall Street Reform and Consumer Protection Act (The “Dodd-Frank Act”), 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 citations, related assessments and legal actions, and mining-related fatalities. During the fiscal year ended September 30, 2021, our U.S. exploration properties were not 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”). The Company’s exploration operations received no notices, citations, or orders during the year pertaining to health and safety violations.
47
PART II
ITEM 5. MARKET FOR COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTCQB under the trading symbol “TLRS”. Our common stock also trades on the TSX-V in Canada under the trading symbol “TBR”. Our common stock was listed and traded on the NYSE MKT exchange under the trading symbol “TLR” until February 15, 2016 when we voluntarily de-listed from the NYSE MKT and began trading on the OTCQB market on February 16, 2016. The high and low sale prices for our common stock as quoted on the OTCQB and the TSX-V were as follows:
| OTCQB(US$) | TSX-V (CDN$) | ||
Period(1) | High | Low | High | Low |
|
|
|
|
|
2021 |
|
|
|
|
First Quarter | $0.38 | $0.24 | $0.49 | $0.31 |
Second Quarter | $0.38 | $0.20 | $0.49 | $0.24 |
Third Quarter | $0.30 | $0.19 | $0.36 | $0.24 |
|
|
|
|
|
2020 |
|
|
|
|
First Quarter | $0.11 | $0.02 | $0.14 | $0.06 |
Second Quarter | $0.08 | $0.04 | $0.10 | $0.06 |
Third Quarter | $0.27 | $0.04 | $0.34 | $0.09 |
Fourth Quarter | $0.38 | $0.18 | $0.44 | $0.33 |
|
|
|
|
|
2019 |
|
|
|
|
First Quarter | $0.13 | $0.06 | $0.12 | $0.08 |
Second Quarter | $0.08 | $0.03 | $0.11 | $0.08 |
Third Quarter | $0.11 | $0.06 | $0.13 | $0.10 |
Fourth Quarter | $0.10 | $0.06 | $0.11 | $0.09 |
|
|
|
|
|
(1) Quarters indicate calendar year quarters. | ||||
The quotations on the OTCQB reflect inter-dealer prices without retail mark-up, mark-down, or commission and may not reflect actual transactions.
On September 30, 2021, the closing sale price for our common stock was USD$0.14 on the OTCQB and CDN$0.18 on September 30, 2021 on the TSX-V.
As of December 20, 2021, we had 139,696,022 shares of common stock issued and outstanding and approximately 656 registered shareholders. In many cases, shares are registered through intermediaries, making the precise number of shareholders difficult to obtain.
Dividend Policy
We anticipate that we will retain any earnings to support operations and to finance the growth and development of our business. Therefore, we do not expect to pay cash dividends in the foreseeable future. Any further determination to pay cash dividends will be at the discretion of our board of directors and will be dependent on the financial condition, operating results, capital requirements, and other factors that our board deems relevant. We have never declared a dividend.
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
48
Stock Incentive Plans
The purpose of the Stock and Incentive Plan is to promote our interests and our Stockholders’ interests by aiding us in attracting and retaining employees, officers, consultants, advisors and non-employee directors capable of ensuring the future success of our Company. On September 24, 2015, our stockholders approved the adoption of the Company’s 2015 Stock and Incentive Plan in which the Company’s executive officers and directors are participants. This plan replaced our 2005 Stock Incentive Plan, as amended. The aggregate number of shares that may be issued under all stock-based awards made under the 2015 Stock and Incentive Plan was 4 million shares of our common stock.
On December 1, 2018, shareholders approved the new 2018 Incentive Plan. The 2018 Incentive Plan replaced our 2015 Stock and Incentive Plan. Concurrent with the approval of the 2018 Incentive Plan, the 2015 Stock and Incentive Plan was withdrawn for the purposes of issuing new options or equity incentives. There were 8,000,000 Timberline shares issuable under the 2018 Incentive Plan.
On April 14, 2021, shareholders approved to amend and restate the 2018 Incentive Plan. Under the amended plan, the shares issuable under the 2018 Incentive Plan increased to 15,000,000.
Equity Compensation Plans
The following summary information is presented as of September 30, 2021.
| Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) | Weighted-average exercise price of outstanding options, warrants, and rights | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) |
Equity compensation plans approved by security holders(1) | 8,335,000(1) | $0.18 | 6,665,000 |
Equity compensation plans not approved by security holders | Not applicable | Not applicable | Not applicable |
TOTAL | 8,335,000(1) | $0.18 | 6,665,000 |
(1) See “Stock Incentive Plans,” above.
There were no options exercised during the years ended September 30, 2021 and September 30, 2020.
Sale of Unregistered Securities
All unregistered sales of equity securities during the period covered by this Annual Report were previously disclosed in our current reports on Form 8-K and our Quarterly Reports on Form 10-Q.
ITEM 6. SELECTED FINANCIAL DATA
Not Applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the following discussion and analysis of our financial condition and results of operations together with our financial statements and related notes appearing elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including, but not limited to, those set forth under “Risk Factors and Uncertainties” and elsewhere in this document. See “Cautionary Note Regarding Forward-Looking Statements” above.
49
Overview
We are an exploration company, using tried and proven methods to search for gold, silver, and other metals as become indicated, on properties located in the State of Nevada in the Western United States. Our significant properties consist of our Eureka Projects (Lookout Mountain, Windfall, Oswego and other targets) in the Battle Mountain - Eureka Trend located in the North-Central portion of the state, and the Seven Troughs Project, located in the Northwest portion of the state.
We raised funds to acquire and explore these properties through private placements of our common stock and warrants with investors, through debt placements, and through joint venture arrangements with other mining exploration and development companies in our business sector. Our business plans employ strategies to locate and analyze gold and silver properties to determine the existence, quantity and quality of mineral deposits and advance those deposits for the benefit of our shareholders. We may seek to develop those properties ourselves or engage larger mining companies to purchase, develop, joint venture and otherwise exploit the properties for the purpose of production of these discovered precious metals.
During the fiscal year ended September 30, 2021, we accomplished the following:
1.We announced and closed two private placements of units of our equity for a total of approximately $4,476,000 cash;
2.We paid off approximately $250,000 of outstanding debt and the interest that accrued thereon;
3.We issued shares for exercise of warrants for a total of approximately $637,000;
4.We an Annual General Meeting of shareholders, wherein we reorganized the Board of Directors, and later added a qualified person to the Board, expanded the number of authorized shares, and increased the number of shares that can be issued under our share incentive plan;
5.We granted stock options to the Board members and to officers;
6.Drill results reported from FY 2020 exploration season: During early fiscal 2021, we announced drill results confirming new areas of high-grade gold inside the existing resource and to the east in the Water Well Zone.
7.Geophysics: Our team applied geophysics in conjunction with geologic mapping and 3D modeling to develop targets beyond the resource area for testing in the 2021 drill program. Zonge Geosciences, Inc. completed a CSAMT survey along four lines totaling 19 line-kilometers. The four survey lines transect six major target areas on the Eureka Project. These data are expected to provide enhanced insights into the alteration, structural geology, and stratigraphy of the rocks in three dimensions. After completing the CSAMT survey, Zonge also completed a new 25 line-kilometer IP survey focused on the Windfall target.
8.Geochemistry: We completed a soil geochemical survey across unsurveyed areas of the property. The survey began with an orientation survey to test sampling and analytical methodology over an area of known mineralization. Systematic sampling commenced after a period of training and completion of the orientation survey. Ultimately, the sampling team collected approximately 900 samples, mostly in the northeastern part of the claim block. The new sampling augments the existing geochemical coverage across the projected northern extensions of the three gold trends on the property. Samples were submitted to ALS Global Laboratory for analysis by state-of-the-art ultra-trace level technology, which is likely to yield much more robust and comprehensive data than seen in previous surveys. The soil geochemistry survey is expected to provide high-resolution data that will support future drill targeting.
9.Drilling: RC drilling commenced in mid-July 2021 and five holes (1,409 meters) were completed before the end of the fiscal year. Three of these holes were aimed at expanding the WWZ mineralization to the north, including the northernmost hole, which was collared more than 200 meters from previous high-grade intercepts. Two additional holes were drilled on the western side of the resource and farther southwest on a new exploration target. Subsequent to the end of the fiscal year, Timberline reported results of the first five holes drilled during 2021. Each of the three new drill holes in the Water Well Zone intersected a significant thickness of gold mineralization at the base of the Dunderberg Shale, where it was expected to occur. These results grew the WWZ appreciably, more than doubling the surface projection “footprint” of the gold mineralization.
Summary
Fiscal year 2021 has seen continuing strong trends in the gold price from a low of approximately $1,660 to a high of approximately $1,980 per ounce, with a trend moving around $1,780 per ounce at year end. We believe the global economic environment and monetary climate continue to favor a strong gold price for the foreseeable future. While volatility is to be expected, our expectation is that we can identify and pursue opportunities to advance our projects and take advantage of the current gold price and market volatility.
50
During fiscal year 2021, we executed on an additional financing that provided for the advancement of our flagship Eureka Project as well as improvements in our team and corporate infrastructure. At the time of this writing, we are still in the midst of reporting results from the fiscal year 2021 exploration program. The partial drill results and geophysical data already announced continue to indicate the potential for significant advancement of the project through expansion of known mineralization and emerging new target areas. We believe that our management and our board of directors have been strengthened during the year and that the team possesses the knowledge and experience to evaluate and take advantage of financing and strategic opportunities and to provide for the advancement of our several projects
Exploration Plans and Budgets
Our exploration focus during fiscal 2022 will continue to be on the Eureka Project. Our financial and human resources will be dedicated to the advancement of the Lookout Mountain, Water Well, Oswego, and other targets across the property. The results of our drilling, mapping, geochemical and geophysical work completed during Fiscal 2020, and especially Fiscal 2021, exploration seasons significantly advanced our understanding of the overall geologic setting of the Eureka Project,, highlighting several areas with potential for significant gold mineralization.
Our preliminary exploration budget for fiscal 2022 is expected to reach $3.0 million, funded largely by our cash reserves as we enter into the new calendar year. By the time the 2021 – 2022 drill program concludes, we expect to have completed approximately sixteen (16) new drill holes in the Water Well Zone (adjacent to the Lookout Mountain resource) and 8 new drill holes at the Oswego Target. At the time of this writing, exploration drilling continues at the Eureka Project and assay results are pending on all but 3 of the holes mentioned above. Timberline anticipates conducting additional drilling at the Water Well Zone, the Oswego Target, and the Windfall Trend. Details of the work plan for later in Fiscal 2022 will be based in part on the results yet to be received from the current drill program.
Results of Operations for Years Ended September 30, 2021 and 2020
Consolidated Results
| Year Ended September 30, | |
| 2021 | 2020 |
Exploration expenses: |
|
|
Eureka/Lookout Mountain, net of non-cash expenses | $2,795,753 | $907,777 |
Other exploration properties | - | - |
Total exploration expenditures | $2,795,753 | $907,777 |
Non-cash expenses: |
|
|
Abandonment of Elder Creek | $- | $1,218,715 |
Stock option and stock issuance expense | 646,422 | 161,100 |
Depreciation, amortization, and accretion | 5,632 | 97,065 |
Gain on change in ARO estimate | - | (83,050) |
Loss on extinguishment of debt | - | 195,611 |
Total non-cash expenses | $652,054 | $1,589,441 |
Operating expenses paid in cash: |
|
|
Salaries and benefits, net of non-cash expenses | $293,137 | $227,240 |
Professional fees expense | 205,068 | 172,362 |
Other general and administrative expenses | 529,641 | 334,193 |
Interest and other (income) expense, net of non-cash expenses | 232,162 | 146,078 |
Income tax provision (benefit) | - | - |
Net loss | $4,707,815 | $3,377,091 |
Our consolidated net loss for the fiscal year ended September 30, 2021 increased significantly from the prior year, primarily as a result of our increased exploration program, which included significant increases in drilling and geophysical activities. We also experienced significant increases in shared-based compensation costs and foreign exchange losses arising from our private placement priced in CDN$ measured against a strengthened USD$ exchange rate. These costs were offset by the non-cash costs in fiscal year 2020 related to the abandonment of the Elder Creek property and the nonrecurrence of a loss on extinguishment of debt. Professional fees expenses were higher as a result of increased utilization of legal professionals during fiscal 2021, largely related to the annual shareholders meeting. Salaries and benefits increased due to long-overdue increases to management salaries. General and administrative expenses increased as management executed on marketing, investor relations, and other programs that were not possible in previous years as placement funds became available to do so. Other expenses for fiscal 2021 were generally consistent with the prior year.
51
Financial Condition and Liquidity
At September 30, 2021, we had assets of $17,716,406, consisting of cash of $3,327,352; property, mineral rights and equipment, net of depreciation, of $13,821,085, reclamation bonds of $538,696, and other assets in the amount of $29,273.
On September 30, 2021, we had total liabilities of $570,144 and total assets of $17,716,406. This compares to total liabilities of $792,085 and total assets of $16,886,921 on September 30, 2020. As of September 30, 2021, our liabilities consist of $118,247 for asset retirement obligations, $270,991 of senior unsecured notes payable – related party, net of discount, and $176,761 of trade payables and accrued liabilities and $4,145 interest payable to a related party. Of these liabilities, $180,906 are due within 12 months. The decrease in liabilities compared to September 30, 2020 is largely due to payments on the senior unsecured note payable and the associated accrued interest – related party as we were able to apply funds raised during fiscal 2021. Other liabilities were affected positively or negatively by individual small changes in other components of liabilities. The increase in total current assets was due to an increase in cash as a result of a private placement shortly before the end of the fiscal year.
On September 30, 2021, we had working capital of $3,170,019 and stockholders’ equity of $17,146,262 compared to working capital of $2,155,400 and stockholders’ equity of $16,094,836 for the year ended September 30, 2020. Working capital experienced a favorable change because of an increase in cash from the private placement, reduced by payments against the accrued interest – related party, with other liabilities affected positively or negatively by individual small changes in other components of liabilities.
During the fiscal year ended September 30, 2021, we used cash from operating activities of $4,263,754, compared to $1,606,489 used for fiscal 2020. There was a net loss of $4,707,815 for fiscal 2021 compared to a net loss of $3,377,091 for fiscal 2020. The causal factors are disclosed above in the comparative table and discussion above. At the end of fiscal 2021, we have accumulated approximately $50.9 million and $26.6 million in federal and state net operating losses, respectively, which may enable us to generate like amounts in net income prior to incurring any significant income tax obligation. Federal net operating losses of $44.8 million will expire in various amounts from 2024 through 2038, while $6.1 million do not expire. The state net operating loss will expire in fiscal years ending September 30, 2022 through September 30, 2041.
During the fiscal year ended September 30, 2021, we used cash of $13,430 from investment activities, compared with cash provided by investment activities of $78,939 in fiscal 2020. During fiscal 2021, we paid $92,000 to purchase mineral properties, while receiving $78,570 for lease payments to us for company-owned mineral properties. During fiscal 2020, we paid $33,000 to purchase mineral properties, while receiving $110,487 for lease payments to us for company-owned mineral properties, $205,194 for advance from Lookout Mountain LLC and $29,770 of cash acquired upon obtaining control of Lookout Mountain LLC, and $233,512 to increase reclamation bonds.
During the fiscal year ended September 30, 2021, cash of $5,083,810 was provided by financing activities, compared to cash of $4,017,519 provided during the fiscal year ended September 30, 2020. For the fiscal year ended September 30, 2021, cash of $4,475,818 was provided through the sale of stock and warrants, net of offering costs, $637,001 was provided from exercise of warrants, reduced by $29,009 paid on debt. This compares to cash of $4,198,000 provided through the sale of stock and warrants, net of offering costs, $248,052 provided from exercise of warrants, reduced by $178,533 paid on the payment obligation and $250,000 paid on a senior unsecured note payable for the fiscal year ended September 30, 2020.
Going Concern:
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.
Prior to the close of fiscal 2021, we closed on a private placement of our common stock and warrants to generate $4,475,818 cash, a portion of which was used to reduce debt obligation of $250,000 together with interest thereon. At September 30, 2021, we had working capital of $3,170,019. We have $180,906 outstanding in current liabilities and a cash balance of $3,327,352. As of the date of this Annual Report on Form 10-K, we have sufficient cash to meet our normal operating commitments for the next 12 months. Therefore, we do not expect to be required to engage in financial transactions to increase our cash balance or
52
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 are those we have planned, can result in 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 audit opinion and notes that accompany our consolidated financial statements for the year ended September 30, 2021 disclose a ‘going concern’ qualification to our ability to continue in business. The accompanying consolidated financial statements have been prepared under the assumption that we will continue as a going concern. We have incurred losses since our inception. We do not have sufficient cash to fund normal operations and meet all of our obligations for the next 12 months without deferring payment on certain current liabilities and/or raising additional funds. 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.
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
Private Placements:
On June 25, 2021, we closed on total subscriptions for a private placement offering for 23,070,798 Units of the Company at a price of $0.20 per Unit. Each Unit consisted of one share of our common stock and one-half common share purchase Series M Warrant (each whole such warrant a “Warrant”), with each Warrant exercisable to acquire an additional share of our common stock at a price of $0.30 per share until the Warrant expiration date of May 31, 2023. A total of 23,070,798 shares and 11,535,399 Warrants issued for net proceeds of $4,475,818 to us, net of $138,342 finders fees. In addition, 596,248 Series M Warrants were issued for finders fees.
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 qualified as accredited investors. Subscribers who were resident in Canada were required to qualify as accredited investors under Canadian National Instrument 45-106 Prospectus Exemptions.
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 our consolidated financial statements contained in Item 8 of this Annual Report for a complete summary of the significant accounting policies used in the presentation of our financial statements. As described in Note 2, 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:
53
Asset Impairments
Significant property acquisition payments for active exploration properties and the fair value of equity instruments, including common shares and warrants, issued for 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 mineral properties.
We review the carrying value of long-lived assets 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 asset 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 in association with our Eureka Property. 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
54
ITEM 8. FINANCIAL STATEMENTS
TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES
Consolidated Financial Statements
September 30, 2021 and 2020
55
Timberline Resources Corporation and Subsidiaries
Contents
Page
FINANCIAL STATEMENTS:
Report of Independent Registered Public Accounting Firm57
Consolidated balance sheets59
Consolidated statements of operations60
Consolidated statements of changes in stockholders’ equity61
Consolidated statements of cash flows62
Notes to consolidated financial statements63-74
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Timberline Resources Corporation
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Timberline Resources Corporation (the "Company") as of September 30, 2021 and 2020, the related consolidated statements of operations, changes in stockholders’ equity and cash flows for each of the years in the two-year period ended September 30, 2021, and the related notes (collectively referred to as the "financial statements"). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended September 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
The Company’s Ability to Continue as a Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has accumulated losses since inception. This factor raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
57
Critical Audit Matters
Critical audit matters are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. We determined that there are no critical audit matters.
Assure CPA, LLC (formerly DeCoria, Maichel & Teague, P.S.)
We have served as the Company’s independent auditor since 2006.
Spokane, Washington
December 20, 2021
58
TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
|
|
|
|
|
|
|
|
|
|
|
|
| September 30, |
| September 30, |
| 2021 |
| 2020 | ||||
ASSETS |
|
|
|
| |||
| CURRENT ASSETS: |
|
|
|
| ||
|
| Cash | $ | 3,327,352 | $ | 2,520,726 | |
|
| Prepaid expenses and other current assets |
| 23,573 |
| 14,144 | |
|
|
| TOTAL CURRENT ASSETS |
| 3,350,925 |
| 2,534,870 |
|
|
|
|
|
| ||
| PROPERTY, MINERAL RIGHTS, AND EQUIPMENT, net ( |
| 13,821,085 |
| 13,807,655 | ||
|
|
|
|
|
|
|
|
| OTHER ASSETS: |
|
|
|
| ||
|
| Reclamation bonds |
| 538,696 |
| 538,696 | |
|
| Deposits and other assets |
| 5,700 |
| 5,700 | |
|
|
| TOTAL OTHER ASSETS |
| 544,396 |
| 544,396 |
|
|
|
|
|
| ||
| TOTAL ASSETS | $ | 17,716,406 | $ | 16,886,921 | ||
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY |
|
|
|
| |||
| CURRENT LIABILITIES: |
|
|
|
| ||
|
| Accounts payable | $ | 114,819 | $ | 173,981 | |
|
| Accrued expenses |
| 23,749 |
| 39,440 | |
|
| Accrued interest – related party |
| 4,145 |
| 142,492 | |
|
| Accrued payroll, benefits and taxes |
| 38,193 |
| 23,557 | |
|
|
| TOTAL CURRENT LIABILITIES |
| 180,906 |
| 379,470 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||
| LONG-TERM LIABILITIES: |
|
|
|
| ||
|
| Asset retirement obligation |
| 118,247 |
| 112,615 | |
|
| Senior unsecured note payable – related party ( |
| 270,991 |
| 300,000 | |
|
|
| TOTAL LONG-TERM LIABILITIES |
| 389,238 |
| 412,615 |
|
|
|
|
|
|
|
|
|
|
| TOTAL LIABILITIES |
| 570,144 |
| 792,085 |
|
|
|
|
|
|
|
|
| COMMITMENTS AND CONTINGENCIES ( |
| - |
| - | ||
|
|
|
|
|
|
|
|
| STOCKHOLDERS' EQUITY: ( |
|
|
|
| ||
|
| Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding |
| - |
| - | |
|
| Common stock, $0.001 par value; 500,000,000 shares authorized, 139,696,022 and 112,075,224 shares issued and outstanding, respectively |
| 139,696 |
| 112,075 | |
|
| Additional paid-in capital |
| 85,345,213 |
| 79,613,593 | |
|
| Accumulated deficit |
| (68,338,647) |
| (63,630,832) | |
|
|
| TOTAL STOCKHOLDERS' EQUITY |
| 17,146,262 |
| 16,094,836 |
|
|
|
|
|
| ||
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 17,716,406 | $ | 16,886,921 | ||
See accompanying notes to consolidated financial statements.
59
TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS | |||||||
|
|
|
|
| Year ended | ||
|
|
|
|
| September 30, | ||
|
|
|
|
| 2021 |
| 2020 |
|
|
| |||||
OPERATING EXPENSES: |
|
|
|
|
| ||
| Mineral exploration |
| $ | 2,801,385 | $ | 932,208 | |
| Abandonment of mineral rights |
|
| - |
| 1,218,715 | |
| Salaries and benefits |
|
| 564,659 |
| 299,340 | |
| Professional fees |
|
| 205,068 |
| 172,362 | |
| Insurance |
|
| 135,906 |
| 95,579 | |
| Gain on change in ARO estimate |
|
| - |
| (83,050) | |
| Other general and administrative |
|
| 768,635 |
| 327,614 | |
|
| TOTAL OPERATING EXPENSES |
|
| 4,475,653 |
| 2,962,768 |
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS |
|
| (4,475,653) |
| (2,962,768) | ||
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE): |
|
|
|
|
| ||
| Other income |
|
| 151 |
| - | |
| Foreign exchange loss and other |
|
| (148,197) |
| (863) | |
| Interest expense |
|
| (1,473) |
| (35,965) | |
| Interest expense – related party |
|
| (82,643) |
| (181,884) | |
| Loss on debt modification – related party |
|
| - |
| (195,611) | |
|
| TOTAL OTHER EXPENSE |
|
| (232,162) |
| (414,323) |
|
|
|
|
|
|
|
|
LOSS BEFORE INCOME TAXES |
|
| (4,707,815) |
| (3,377,091) | ||
|
|
|
|
|
|
|
|
INCOME TAX PROVISION (BENEFIT) |
|
| - |
| - | ||
|
|
|
|
|
|
|
|
|
|
|
|
| |||
NET LOSS | $ | (4,707,815) | $ | (3,377,091) | |||
|
|
|
|
| |||
NET LOSS PER SHARE, BASIC AND DILUTED | $ | (0.04) | $ | (0.04) | |||
|
|
|
|
| |||
WEIGHTED-AVERAGE NUMBER OF COMMON SHARES OUTSTANDING, BASIC AND DILUTED |
| 120,741,893 |
| 78,725,630 | |||
See accompanying notes to consolidated financial statements.
60
TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
| ||||||||||
| Common Stock Shares |
| Common Stock Amount |
| Additional Paid-in Capital |
| Accumulated Deficit |
| Total Stockholders’ Equity | |
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019 |
| 67,395,260 | $ | 67,395 | $ | 74,568,258 | $ | (60,253,741) | $ | 14,381,912 |
|
|
|
|
|
|
|
|
|
|
|
Common stock and warrants issued for cash, net |
| 41,136,364 |
| 41,137 |
| 4,156,863 |
| - |
| 4,198,000 |
Common stock issued for exercise of warrants |
| 3,543,600 |
| 3,543 |
| 244,509 |
| - |
| 248,052 |
Stock-based compensation |
| - |
| - |
| 161,100 |
| - |
| 161,100 |
Warrants issued for debt modification |
| - |
| - |
| 170,500 |
| - |
| 170,500 |
Net assets acquired upon obtaining control of LM LLC (see |
| - |
| - |
| 312,363 |
| - |
| 312,363 |
Net loss |
| - |
| - |
| - |
| (3,377,091) |
| (3,377,091) |
Balance, September 30, 2020 |
| 112,075,224 | $ | 112,075 | $ | 79,613,593 | $ | (63,630,832) | $ | 16,094,836 |
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for exercise of warrants |
| 4,550,000 |
| 4,550 |
| 632,451 |
| - |
| 637,001 |
Common stock and warrants issued for private placement, net |
| 23,070,798 |
| 23,071 |
| 4,452,747 |
| - |
| 4,475,818 |
Stock-based compensation |
| - |
| - |
| 646,422 |
| - |
| 646,422 |
Net loss |
| - |
| - |
| - |
| (4,707,815) |
| (4,707,815) |
Balance, September 30, 2021 |
| 139,696,022 | $ | 139,696 | $ | 85,345,213 | $ | (68,338,647) | $ | 17,146,262 |
See accompanying notes to consolidated financial statements.
61
TIMBERLINE RESOURCES CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS | ||||||
|
|
|
|
| ||
|
| Year Ended September 30, |
|
| ||
| 2021 |
| 2020 |
|
| |
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
Net loss | $ | (4,707,815) | $ | (3,377,091) |
|
|
Adjustments to reconcile net loss to net cash used by operating activities: |
|
|
|
|
|
|
Stock-based compensation |
| 646,422 |
| 161,100 |
|
|
Abandonment of mineral rights |
| - |
| 1,218,715 |
|
|
Accretion of asset retirement obligation |
| 5,632 |
| 24,431 |
|
|
Gain on change in ARO estimate |
| - |
| (83,050) |
|
|
Loss on debt modification – related party |
| - |
| 195,611 |
|
|
Amortization of discount on senior unsecured notes payable |
| - |
| 72,634 |
|
|
Changes in assets and liabilities: |
|
|
|
|
|
|
Prepaid expenses and other current assets |
| (9,428) |
| 6,988 |
|
|
Account receivable |
| - |
| 118,525 |
|
|
Accounts payable |
| (59,162) |
| 70,496 |
|
|
Accrued expenses |
| (15,691) |
| (14,367) |
|
|
Accrued interest payable – related party |
| (138,347) |
| - |
|
|
Accrued payroll, benefits, and taxes |
| 14,635 |
| (481) |
|
|
Net cash used by operating activities |
| (4,263,754) |
| (1,606,489) |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
Purchase of mineral rights |
| (92,000) |
| (33,000) |
|
|
Proceeds from lease of mineral rights |
| 78,570 |
| 110,487 |
|
|
Reclamation bonds |
| - |
| (233,512) |
|
|
Advance received from LM LLC prior to acquisition |
| - |
| 205,194 |
|
|
Cash acquired upon obtaining control of LM LLC |
| - |
| 29,770 |
|
|
Net cash provided (used) by investing activities |
| (13,430) |
| 78,939 |
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
Proceeds from sale of common stock and warrants, net |
| 4,475,818 |
| 4,198,000 |
|
|
Proceeds from exercise of warrants |
| 637,001 |
| 248,052 |
|
|
Payment on payment obligation |
| - |
| (178,533) |
|
|
Payment on senior unsecured note payable – related party |
| (29,009) |
| (250,000) |
|
|
Net cash provided by financing activities |
| 5,083,810 |
| 4,017,519 |
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
| 806,626 |
| 2,489,969 |
|
|
|
|
|
|
|
|
|
CASH AT BEGINNING OF YEAR |
| 2,520,726 |
| 30,757 |
|
|
|
|
|
|
|
|
|
CASH AT END OF YEAR | $ | 3,327,352 | $ | 2,520,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest | $ | 222,463 |
| 96,816 |
|
|
|
|
|
|
|
|
|
Non-cash financing and investing activities: |
|
|
|
|
|
|
Net assets acquired upon obtaining control of LM LLC | $ | - | $ | 312,363 |
|
|
See accompanying notes to consolidated financial statements.
62
Timberline Resources Corporation
Notes to Consolidated Financial Statements
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS:
Timberline Resources Corporation (“Timberline” or “the Company”) was incorporated in August of 1968 under the laws of the State of Idaho as Silver Crystal Mines, Inc., for the purpose of exploring for precious metal deposits and advancing them to production. In 2008, the Company reincorporated into the State of Delaware, pursuant to a merger agreement approved by its shareholders.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
a. Basis of Presentation and Going Concern – This summary of significant accounting policies is presented to assist in understanding the financial statements. The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America (“GAAP”) and have been consistently applied in the preparation of the financial statements.
The accompanying consolidated financial statements have been prepared under the assumption that the Company will continue as a going concern. The Company has incurred losses since its inception. The Company has sufficient cash to fund normal operations and meet all of its obligations for the next 12 months without raising additional funds. However, we are an exploration company with exploration programs that require significant cash expenditures. A significant drilling program, such are those we have planned, can result in depletion of cash and return us to a position of insufficient cash to support normal operations for 12 months. The Company currently has no historical recurring source of revenue, and its ability to continue as a going concern is dependent on its ability to raise capital to fund future exploration and working capital requirements, or the Company’s ability to profitably execute its business plan. The Company’s plans for the long-term return to and continuation as a going concern include financing its future operations through sales of common stock and/or debt and the eventual profitable exploitation of its mining properties. While the Company has been successful in the past in obtaining financing, there is no assurance that it will be able to obtain adequate financing in the future or that such financing will be on terms acceptable to the Company. These factors raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. 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.
b.New Accounting Pronouncements - In August 2020, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2020-06 Debt - Debt With Conversion And Other Options (Subtopic 470-20) And Derivatives And Hedging - Contracts In Entity’s Own Equity (Subtopic 815-40): Accounting For Convertible Instruments And Contracts In An Entity’s Own Equity. The update simplifies the accounting for and disclosures related to company debt that is convertible or can be settled in a company’s own equity securities. The update is effective for fiscal years beginning after December 15, 2021. Management is evaluating the impact of this update on the Company’s debt disclosures and accounting for convertible debt.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the consolidated financial statements upon adoption.
c. Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, BH Minerals USA, Inc.; Lookout Mountain LLC; Wolfpack Gold (Nevada) Corp.; Staccato Gold Resources, Ltd.; and Talapoosa Development Corp., after elimination of intercompany accounts and transactions. Due to the change in ownership of Lookout Mountain LLC and the associated transfer to the Company of all management and approval responsibilities, the Company began consolidating all balance sheet and expense transactions relative to the Lookout Mountain Project into its consolidated financial statements as of July 29, 2020.
63
Timberline Resources Corporation
Notes to Consolidated Financial Statements
d. Exploration Expenditures – All exploration expenditures are expensed as incurred. Significant property acquisition payments for active exploration properties are capitalized. If no mineable ore body is discovered, the Company determines to focus its exploration efforts elsewhere, claims fees and holding fees are not remitted, or for other reasons, previously capitalized costs are expensed in the period the property is abandoned. When it is determined that a mineral deposit can be economically developed as a result of establishing proven and probable reserves, the costs incurred after such determination will be capitalized and amortized over their useful lives. To date, the Company has not established the commercial feasibility of its exploration prospects; therefore, all exploration costs are being expensed.
e. Property Holding Costs – Holding costs to maintain a property, excluding mineral lease payments, are expensed in the period they are incurred. These costs include security and maintenance expenses, claim fees and payments, and environmental monitoring and reporting costs.
f. Fair Value Measurements – When required to measure assets or liabilities at fair value, the Company uses a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used. The Company determines the level within the fair value hierarchy in which the fair value measurements in their entirety fall. The categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. Level 1 uses quoted prices in active markets for identical assets or liabilities, Level 2 uses significant other observable inputs, and Level 3 uses significant unobservable inputs. The amount of the total gains or losses for the period are included in earnings that are attributable to the change in unrealized gains or losses relating to those recurring assets and liabilities still held at the reporting date.
At September 30, 2021 and 2020, the Company had no assets or liabilities accounted for at fair value on a recurring basis or nonrecurring basis. The carrying amounts of financial instruments, including senior unsecured note payable – related party, net of discount and the payment obligation, approximate fair value at September 30, 2021 and 2020.
g. Cash Equivalents – For the purposes of the statement of cash flows, the Company considers all highly liquid investments with original maturities of three months or less when purchased to be cash equivalents. Balances are insured by the Federal Deposit Insurance Corporation up to $250,000 for accounts at each financial institution.
h. Reclamation Bonds – Bonds paid to assure reclamation of properties covered by exploration permits are capitalized in the period paid, reduced as refunds are received or expensed as they are applied to reclamation obligations.
i. Estimates and Assumptions – The preparation of financial statements in accordance with GAAP requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the dates of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Significant areas requiring the use of management assumptions and estimates relate to long-lived asset impairments, asset retirement obligations, and stock-based compensation. Actual results could differ from these estimates and assumptions and could have a material effect on the Company’s reported financial position and results of operations.
j. Accounting for Investments in Joint Ventures - Investments in companies and joint ventures in which we have the ability to exercise significant influence, but do not control, are accounted for under the equity method of accounting. In determining whether significant influence exists, the Company considers its participation in policy-making decisions and representation on governing bodies. Under the equity method of accounting, our share of the net earnings or losses of the investee are included in net income (loss) in the consolidated statements of operations. We evaluate equity method investments whenever events or changes in circumstance indicate the carrying amounts of such investments may be impaired. If a decline in the value of an equity method investment is determined to be other than temporary, a loss is recorded in earnings in the current period. The Company has no investments accounted for under the equity method.
The Company recognizes as income funds that are received from distributions from net accumulated earnings of the joint venture. For joint ventures where the Company holds more than 50% of the voting interest and has significant influence, the joint venture is consolidated with the presentation of a non-controlling interest. In determining whether significant influence exists, the Company considers its participation in policy-making decisions and its representation on the venture’s management committee. The Company has no significant influence over its joint ventures, and therefore accounts for its investment using the cost less impairment basis.
The Company periodically assesses its investments in joint ventures for impairment. If management determines that a decline in fair value is other than temporary it will write-down the investment and charge the impairment against operations.
64
Timberline Resources Corporation
Notes to Consolidated Financial Statements
k. Property and Equipment – Property and equipment are stated at cost. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful lives of the assets, which ranges from two to seven years. Maintenance and repairs are charged to operations as incurred. Significant improvements are capitalized and depreciated over the useful life of the assets. Gains or losses on disposition or retirement of property and equipment are recognized in operating expenses.
l. Asset Impairments - Carrying Value of Property, Mineral Rights and Equipment – The Company reviews the carrying value of property, mineral rights, and 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 loss is recognized equal to an amount by which the carrying value exceeds the fair value of the related assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, the effects of obsolescence, demand, competition, and other economic factors.
m. Asset Retirement Obligations – The Company accounts for asset retirement obligations by following the methodology for accounting for estimated reclamation and abandonment costs as prescribed by GAAP. This guidance provides that the fair value of a liability for an asset retirement obligation (“ARO”) will be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made and a contractual obligation exists. An ARO asset is capitalized as part of the carrying value of the assets to which it is associated, and depreciated over the useful life of the 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 estimate underlying the obligation. The Company has an asset retirement obligation associated with its exploration program at the Lookout Mountain Target on its Eureka Project, and its Paiute Project (see Note 6).
n.Provision for Income Taxes – Income taxes are provided based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against the deferred tax asset, if management believes it is more likely than not that some portion or all of the deferred tax assets will not be realized (see Note 7).
Uncertain tax positions are evaluated in a two-step process, whereby (i) it is determined whether it is more likely than not that the tax positions will be sustained based on the technical merits of the position and (ii) for those tax positions that meet the more-likely-than-not recognition threshold, the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate settlement with the related tax authority would be recognized.
o. Translation of Foreign Currencies – All amounts in the financial statements are presented in US dollars, and the US dollar is the Company’s functional currency. The Company has a Canadian subsidiary, but this subsidiary has no operations, assets, or liabilities in Canada for the years ended September 30, 2021 and 2020, respectively. The US-based operations of the Company incur certain expenses in Canada, and the foreign translation and transaction gains and losses relating to such expenses incurred in Canada have been included in the Company’s net loss as a component of other income (expense).
p. Stock-based Compensation – The Company estimates the fair value of its stock-based option compensation, and warrants when issued, using the Black-Scholes model, which requires the input of some subjective assumptions. These assumptions include estimating the length of time employees will retain their vested stock options before exercising them (“expected life”), the estimated volatility of the Company’s common stock price over the expected term (“volatility”), employee forfeiture rate, the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimate of fair value of stock-based compensation. Options that are forfeited or expired are returned to the pool of options available for grant with no effect on the Company’s Statement of operations, but fair values are reduced from deferred share-based compensation in the calculation of current or deferred income tax assets or obligations.
The fair value of common stock awards is determined based upon the closing price of the Company’s stock on the grant date of the award. Compensation expense for grants that vest is recognized ratably over the vesting period.
q.Net Income (Loss) per Share – Basic earnings per share (“EPS”) is computed as net income (loss) available to common shareholders divided by the weighted-average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities.
65
Timberline Resources Corporation
Notes to Consolidated Financial Statements
The dilutive effect of convertible and outstanding securities as of September 30, 2021 and 2020 is as follows:
2021 |
| 2020 | |
Stock options | 8,335,000 |
| 5,400,000 |
Warrants | 74,216,319 |
| 75,634,670 |
Total potential dilution | 82,551,319 |
| 81,034,670 |
At September 30, 2021 and 2020, the effect of the Company’s common stock equivalents would have been anti-dilutive. Accordingly, only basic EPS is presented.
NOTE 3 – PROPERTY, MINERAL RIGHTS AND EQUIPMENT:
The following is a summary of property, mineral rights, equipment and accumulated depreciation at September 30, 2021 and 2020:
Expected Useful Lives (years) |
| 2021 |
| 2020 | |
|
|
|
|
|
|
Mineral rights – Eureka | - | $ | 13,704,608 | $ | 13,701,178 |
Mineral rights – Other | - |
| 65,000 |
| 55,000 |
Total mineral rights |
|
| 13,769,608 |
| 13,756,178 |
|
|
|
|
|
|
Equipment and vehicles | 2-5 |
| 53,678 |
| 53,678 |
Office equipment and furniture | 3-7 |
| 70,150 |
| 70,150 |
Land | - |
| 51,477 |
| 51,477 |
Total property and equipment |
|
| 175,305 |
| 175,305 |
Less accumulated depreciation |
|
| (123,828) |
| (123,828) |
Property, mineral rights, and equipment, net |
| $ | 13,821,085 | $ | 13,807,655 |
Depreciation expense for the years ended September 30, 2021 and 2020, was $0 for each period.
During the year ended September 30, 2020, the Company recognized an abandonment expense of $1,218,715 relating to the Elder Creek property for which the Company elected to not make required claims fee payments to McEwen Mining. See the discussion of Elder Creek below.
The Company received lease payments from a third party in two of the Company’s historical leases on the Eureka property. The total amount of these payments received for the years ended September 30, 2021 and September 30, 2020 was $78,570 and $110,487, respectively. The lease terms were modified during the fourth quarter of fiscal year 2021, and the payments ceased. These receipts were recorded as a reduction to mineral rights.
Elder Creek:
Management sought, but was unable to bring in a major company partner to farm into its rights under the agreement with McEwen Mining. A proposed agreement required the consent of McEwen Mining, which was not obtained prior to the June 30, 2020 anniversary deadline for payment of holding costs. McEwen Mining was unwilling to renegotiate the agreement and consent to the assignment to a third party, and due to the Company’s inability and unwillingness to raise additional funds at significantly higher interest rates to pay for the ongoing claims fees, the Company elected to terminate the agreement on the anniversary date. The Company recognized a loss on abandonment of $1,218,715, which was the carrying value of the mineral rights.
66
Timberline Resources Corporation
Notes to Consolidated Financial Statements
Lookout Mountain, LLC:
On July 27, 2019, the Company entered into an agreement with PM & Gold Mines, Inc. (“PM&G”) for the advanced exploration, and if determined feasible, the development of the Company’s Lookout Mountain Gold Project.
The LLC Agreement called for PM&G to fund exploration and development activities in two stages for an earned equity in the project. Timberline contributed certain claims that constitute the Lookout Mountain Target and adjacent historical Oswego Mine area to the limited liability company in exchange for its ownership position. Timberline was to manage the project at least through Stage I of investment. PM&G was to retain the right to manage all Stage II activities with or without Timberline’s participation.
PM&G failed to meet its funding obligations for Stage 1 or Stage II. As a result, effective July 29, 2020, PM&G resigned under terms of the Agreement, forfeiting its rights and interests under the Agreement. At July 29, 2020, the Company became the 100% owner of the LLC and all PM&G ownership was forfeited.
Due to the change in ownership and the transfer to the Company of all management and approval responsibilities, the Company began consolidating all balance sheet and expense transactions into its consolidated financial statements as of July 29, 2020. Due to the status of the Company’s investment, Management determined that the acquisition of the remaining portion of the LLC should be accounted for as a transaction between companies under common control. As a result, the assets of the LLC were recognized in the consolidated financial statements at their net book value upon acquisition date. The net book values of the LLC’s net assets consisted of the following on July 29, 2020:
| Net Asset Value on July 29, 2020 | |
Cash | $ | 29,770 |
Advance to the Company |
| 205,194 |
Mineral properties |
| 7,637,403 |
Net Assets |
| 7,872,367 |
|
|
|
Eliminated upon consolidation: |
|
|
Investment in LM LLC |
| (7,354,810) |
Advance from LM LLC |
| (205,194) |
| $ | 312,363 |
The total net asset value of $312,363 was recognized as an increase in additional paid in capital during the year ended September 30, 2020.
NOTE 4 – RELATED-PARTY TRANSACTIONS:
Mr. William Matlack was appointed to the Company’s Board of Directors on October 29, 2019. Mr. Matlack was the holder of the Unsecured senior notes payable with a principal balance of $550,000 ($452,255 net of unamortized discounts), plus interest accrued totaling $83,107 at September 30, 2019. During fiscal 2020, $250,000 of the notes was repaid together with $60,851 of interest accrued thereon. At September 30, 2020, the Company owed Mr. Matlack $300,000 plus $142,492 of accrued interest. During fiscal 2021, the Company repaid $29,009 of principal along with $220,991 of interest. At September 30, 2021, the Company owed Mr. Matlack $270,991 of principal plus $4,145 accrued interest. In conjunction with his appointment to the Board in fiscal year 2020, he was issued 100,000 stock options to acquire shares of common stock of the Company.
During the year ended September 30, 2020, two directors participated in a private placement offering of units of the Company, purchasing 909,091 units for total proceeds of $100,000. Each Unit was priced at $0.11 and consisted of one share of common stock of the Company and one common share Series L Warrant, with each warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.20 per share until August 15, 2023. The participation of the directors of the Company in this private placement was on the same terms as other investors in the private placement offering. The Board of Directors approved the insiders’ participation in the private placement.
67
Timberline Resources Corporation
Notes to Consolidated Financial Statements
NOTE 5 – SENIOR UNSECURED NOTES PAYABLE:
On July 30, 2018, the Company entered into a loan agreement and promissory note with William Matlack, a significant shareholder who became a director and related-party on October 29, 2019 (the “Lender”). Lender loaned the Company $300,000 in the form of a senior unsecured note, with the principal bearing interest at an annual rate of 18%, compounded monthly. The loan is unsecured and the principal and accrued interest would have become due for repayment on January 20, 2020, but could have been repaid early without penalty. Pursuant to the terms of the loan agreement, the Company issued to the Lender 3,265,500 non-transferrable Series F Warrants to purchase common shares of the Company. The exercise price of the warrants was $0.09, and the warrants contained a provision restricting their exercise in the event any such exercise would cause the Lender to own 10% or more of the Company’s outstanding common shares. The relative fair value of the warrants issued in connection with the senior unsecured note was estimated at $110,900, based upon a total fair value as calculated by a Black-Scholes option-pricing model.
On October 4, 2019, the Company entered into an agreement with the Lender to extend the due date of the note for a period of three years to mature on January 20, 2023, with the same terms as the original note. The Series F Warrants were cancelled and replaced with 4,000,000 Series K Warrants issued solely in relation to the extension of the note, with expiration at February 1, 2023 and an exercise price of $0.08. The warrants contain a provision restricting their exercise in the event any such exercise would cause the Lender to own 10% or more of the Company’s outstanding common shares. As a result of the extension of the due date, this note has been included in long-term debt on the Company’s consolidated balance sheet. The Company accounted for the change in terms of this Senior unsecured note payable as a debt modification.
The fair value of the Series K Warrants issued in connection with the extension of the senior unsecured note and the fair value of the Series F Warrants at the date of amendment were estimated at $227,600 and $57,100, respectively, based upon fair values as calculated by a Black-Scholes option-pricing model using the following assumptions:
Series K Warrants Issued October 4, 2019 | Series F Warrants Canceled October 4, 2019 | |
Expected volatility | 147.20% | 147.20% |
Stock price on date of grant | $0.07 | $0.07 |
Exercise price | $0.08 | $0.09 |
Expected dividends | - | - |
Expected term (in years) | 3.333 | 3.333 |
Risk-free rate | 1.34% | 1.34% |
Expected forfeiture rate | 0% | 0% |
The unamortized discount related to the Series F warrants was $25,111 at the time of the amendment. The net difference in the fair values of the warrants of $170,500, together with the unamortized discount, were recorded as a loss on modification of debt of $195,611 in the year ended September 30, 2020.
At September 30, 2021 and 2020, the note payable balance was $270,991 and $300,000, respectively, with all of the discount fully amortized.
The accrued interest on the senior unsecured note payable – related party was $4,145 and $142,492 at September 30, 2021 and September 30, 2020, respectively. Interest expense related to the senior unsecured note payable to this related party was $82,643 and $120,237 for the fiscal years ended September 30, 2021 and 2020, respectively.
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 the proceeds of such financings will be paid toward reduction of the principal and interest accrued on this note, which did not occur with the August 17, 2020 private placement. As at August 30m 2021 and continuing through September 30, 2021, the Lender provided a waiver of default on the Note that would otherwise have existed due to a non-payment under this contract term for the note. On August 30, 2021, $250,000 was remitted to the Lender in conjunction with the financing of June 2021, consisting of $29,009 of principal and $220,991 of interest. The Lender agreed to waive the balance of the payment requirement to avoid a default on the Note that would otherwise have existed due to a under-payment under this contract term for the note as of September 30, 2021.
68
Timberline Resources Corporation
Notes to Consolidated Financial Statements
NOTE 6 – ASSET RETIREMENT OBLIGATION:
Remediation, reclamation and mine closure costs are based principally on legal and regulatory requirements. Management estimates costs associated with reclamation of mining properties as well as remediation costs for inactive properties. The Company uses assumptions about future costs, capital costs and reclamation costs. Such assumptions are based on the Company’s current mining plan and the best available information for making such estimates. In calculating the present value of the new estimate of the asset retirement obligation during the prior year, the Company used a credit-adjusted risk-free interest rate of 5% and a projected mine life of 15 years.
On an ongoing basis, management evaluates its estimates and assumptions; however, actual amounts could differ from those based on such estimates and assumptions. Changes to the Company’s asset retirement obligation on its mineral properties are as follows:
| 2021 |
| 2020 | |
Beginning balance | $ | 112,615 | $ | 168,619 |
Change in ARO estimate |
| - |
| (80,435) |
Accretion expense |
| 5,632 |
| 24,431 |
Ending balance | $ | 118,247 | $ | 112,615 |
In the fourth quarter of 2020, Management updated the ARO at Lookout Mountain to reflect the actual disturbed acres from exploration activities and actual reclamation work performed to date. The updated estimate of undiscounted costs of approximately $234,119 was an increase from the $200,000 in the previous estimate. However, the ARO liability decreased by $80,435 as a result of changes in the estimated acres disturbed, estimated timing of costs, estimated costs to perform the reclamation work and the impact of discounting the costs to present value. The ARO related to the changes described above were discounted using a credit adjusted, risk-free interest rate of 5.0%. Management’s evaluation of the ARO at September 30, 2021 did not indicate that a revision to the ARO was needed.
NOTE 7 – INCOME TAXES:
At September 30, 2021 and 2020, the Company did not record a tax provision or benefit.
At September 30, 2021 and 2020, the Company had deferred tax assets arising principally from net operating loss carryforwards for income tax purposes. As the Company’s management cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to 100% of the net deferred tax asset has been recorded at September 30, 2021 and 2020.
The components of the Company’s deferred taxes at September 30, 2021 and 2020 are as follows:
Timberline Resources Corp. |
| 2021 |
| 2020 |
Net deferred tax assets: |
|
|
|
|
Exploration costs | $ | 130,000 | $ | 190,000 |
Investments in subsidiaries |
| 184,000 |
| 184,000 |
Share-based compensation |
| 350,000 |
| 1,460,000 |
Federal and state net operating loss carryforwards |
| 11,752,000 |
| 11,408,000 |
Foreign net operating loss carryforwards |
| 1,803,000 |
| 1,736,000 |
Total deferred tax asset |
| 14,219,000 |
| 14,978,000 |
Valuation allowance |
| (14,219,000) |
| (14,978,000) |
Net deferred tax asset | $ | - | $ | - |
|
|
|
|
|
BH Minerals USA, Inc. |
|
|
|
|
Net deferred tax assets (liabilities): |
|
|
|
|
Property, mineral rights, and equipment | $ | (2,261,000) | $ | (2,302,000) |
Exploration costs |
| 296,000 |
| 479,000 |
Federal and state net operating loss carryforwards |
| 4,425,000 |
| 3,871,000 |
Total deferred tax asset |
| 2,460,000 |
| 2,048,000 |
Valuation allowance |
| (2,460,000) |
| (2,048,000) |
Net deferred tax asset | $ | - | $ | - |
69
Timberline Resources Corporation
Notes to Consolidated Financial Statements
The federal income taxes of the Company’s wholly owned subsidiary, BH Minerals USA, Inc., are not consolidated with those of the rest of the Company since BH Minerals USA, Inc. is wholly owned by the Company’s Canadian subsidiary, Staccato Gold Resources Ltd.
The annual tax benefit is different from the amount that would be provided by applying the statutory federal income tax rate to the Company’s pretax loss for the following reasons:
| 2021 |
| 2020 | |
|
|
|
|
|
Net Loss | $ | (4,708,000) | $ | (3,377,000) |
Statutory Federal income tax rate |
| 21.0% |
| 21.0% |
Expected income tax benefit based on statutory rate |
| (989,000) |
| (709,000) |
Effect of state taxes |
| (98,000) |
| (67,000) |
Effect of change in tax rates |
| (67,000) |
| - |
Expiration of foreign tax credit |
| - |
| 697,000 |
Taxable loss from unconsolidated entity |
| - |
| (46,000) |
Change in valuation allowance |
| (346,000) |
| 252,000 |
Expiration of stock options in prior years |
| 1,277,000 |
| - |
Prior year change in estimates |
| 223,000 |
| (127,000) |
Income tax provision | $ | - | $ | - |
At September 30, 2021, the Company had total federal net operating loss carryforwards of approximately $50.9 million, of which $44.8 million expire in fiscal years ending September 30, 2024 through September 30, 2038. Federal net operating loss carryforwards of $6.1 million will not expire. State net operating losses total approximately $21.6 million and will expire in fiscal years ending September 30, 2022 through September 30, 2041.
BH Minerals has total federal net operating loss carryforwards of approximately $21.0 million, of which $15.8 million expire in fiscal years ending September 30, 2025 through September 30, 2038. Federal net operating loss carryforwards of $5.2 million will not expire.
At September 30, 2021, the Company also has approximately $6.7 million in net operating loss carryforwards in Canada which will expire in fiscal years ending September 30, 2024 through September 30, 2032.
At September 30, 2020, $697,000 of foreign tax credit carryforwards expired.
The Company has not identified any unrecognized tax benefits. If interest and penalties were to be assessed, the Company would charge interest to interest expense, and penalties to other operating expense. Fiscal years 2018 through 2021 remain subject to examination by state and federal tax authorities. The Company has reviewed its tax returns and believes the Company has not taken any unsubstantiated tax positions.
IRS Code Section 382 limits the loss and credit carryforwards in the event of an “ownership change” of a corporation. The equity placement activities during the year ended September 30, 2021 did not give rise to an ownership change under Section 382.
As a result of previous acquisitions, the Company acquired approximately $15,000,000 of federal net operating loss carryovers that are limited by Code Section 382. As of September 30, 2021, the Company has not determined if any other losses are limited by IRS Code Section 382.
NOTE 8 – COMMON STOCK, WARRANTS AND PREFERRED STOCK:
At the Annual General Meeting of shareholders held on April 14, 2021, the shareholders approved an increase in the number of authorized common shares of the Company from 200,000,000 to 500,000,000, with no change in par value and no split or other modification to any outstanding shares. The Certificate of Incorporation of the Company in the State of Delaware was amended to reflect that change in October 2021.
70
Timberline Resources Corporation
Notes to Consolidated Financial Statements
Private Placements
On October 23, 2019, the Company closed a private placement offering with accredited investors for 7,500,000 units of the Company at a price of US$0.08 per unit, for total proceeds to the Company of $600,000. Each unit consisted of one share of common stock of the Company and one-half common share purchase Series J warrant (each whole such warrant a “Warrant”), with each Warrant exercisable to acquire an additional share of common stock of the Company at a price of US$0.12 per share until the warrant expiration date of October 15, 2024. As a result, 7,500,000 shares of common stock of the Company and 3,750,000 Warrants were issued and 3,750,000 shares of common stock were reserved for issuance pursuant to Warrant exercises. A director of the Company, William Matlack, participated in the offering and subscribed for 7,125,000 units. The Warrants comprised in Mr. Matlack’s units contain a voluntary restriction on exercise preventing Mr. Matlack from completing any Warrant exercise if such exercise would cause him to beneficially own or control 20% or more of the issued and outstanding common shares of Timberline.
On August 17, 2020, the Company closed a private placement offering with accredited investors for 33,636,364 units of the Company at a price of US$0.11 per unit, for total proceeds to the Company of $3,700,000. Each unit consisted of one share of common stock of the Company and one common share purchase Series L Warrant, with each warrant exercisable to acquire an additional share of common stock of the Company at a price of US$0.20 per share until the warrant expiration date of August 15, 2023. The Company incurred total costs of $102,000 related to this financing. As a result, 33,636,364 shares of common stock of the Company and 33,636,364 warrants were issued and 33,636,364 shares of common stock were reserved for issuance pursuant to warrant exercises. Two directors of the Company, William Matlack and Steven Osterberg, participated in the offering and subscribed for 909,091 units for total proceeds of $100,000. The warrants comprised in Mr. Matlack’s units contain a voluntary restriction on exercise preventing Mr. Matlack from completing any warrant exercise if such exercise would cause him to beneficially own or control 20% or more of the issued and outstanding common shares of Timberline.
On June 25, 2021, the Company closed on total subscriptions for a private placement offering for 23,070,798 Units of the Company at a price of $0.20 per Unit. Each Unit consisted of one share of common stock of the Company and one-half common share purchase Series M Warrant (each whole such warrant a “Warrant”), with each Warrant exercisable to acquire an additional share of common stock of the Company at a price of $0.30 per share until the Warrant expiration date of May 31, 2023. A total of 23,070,798 shares and 11,535,399 Warrants issued for net proceeds of $4,475,818 to the Company, net of $138,342 finders fees to third parties. In addition, 596,248 Series M Warrants were issued for finders fees.
Warrants
During the fiscal year ended September 30, 2020, a total of 37,386,364 Series J and Series L Warrants were issued pursuant to two private placement offerings. A total of 3,543,600 Series I Warrants were exercised for shares of common stock. Additionally, 3,265,500 Series F warrants were canceled and replaced by 4,000,000 Series K Warrants as part of the extension of a Senior unsecured note payable described in Note 5.
During the fiscal year ended September 30, 2021, 12,131,647 Series M Warrants were issued pursuant to a private placement offering. A total of 4,550,000 warrants were exercised for shares of common stock for a total of $637,001 cash proceeds to the Company. Total warrants of 9,000,000 and 8,000,000 expired during the fiscal years ended September 30, 2021 and 2020, respectively. There were 74,216,319 and 75,634,670 warrants outstanding as of September 30, 2021 and 2020, respectively.
Fair values of warrants issued with equity transactions was recorded as recorded to Additional paid-in capital. The valuation model used the following inputs:
Warrants Issued During the Year Ended September 30, 2020 | |
Expected volatility | 147.2% - 171.6% |
Stock price on date of the note | $0.07 - $0.11 |
Exercise price | $0.08 - $0.20 |
Expected dividends | - |
Expected term (in years) | 3.0 -3.333 |
Risk-free rate | .0.667% - 1.34% |
Expected forfeiture rate | 0% |
71
Timberline Resources Corporation
Notes to Consolidated Financial Statements
The following is a summary of warrants as of September 30, 2021:
Shares |
| Exercise Price ($) | Expiration Date | |
Series C Warrants: (Issued for Private Placement) |
|
|
|
|
Outstanding and exercisable at September 30, 2019 | 2,880,867 |
| 0.45 | October 31, 2022 |
Outstanding and exercisable at September 30, 2020 | 2,880,867 |
|
|
|
Outstanding and exercisable at September 30, 2021 | 2,880,867 |
|
|
|
Series D Warrants: (Issued for Private Placement) |
|
|
|
|
Outstanding and exercisable at September 30, 2019 | 7,500,000 |
| 0.14 | April 30, 2021 |
Outstanding and exercisable at September 30, 2020 | 7,500,000 |
|
|
|
Exercised | (3,500,000) |
|
|
|
Expired | (4,000,000) |
|
|
|
Outstanding and exercisable at September 30, 2021 | - |
|
|
|
Series D-2 Warrants: (Issued for Mineral Property Purchase) |
|
|
|
|
Outstanding and exercisable at September 30, 2019 | 5,000,000 |
| 0.24 | May 23, 2021 |
Outstanding and exercisable at September 30, 2020 | 5,000,000 |
|
|
|
Expired | (5,000,000) |
|
|
|
Outstanding and exercisable at September 30, 2021 | - |
|
|
|
Series E Warrants: (Issued for Private Placement) |
|
|
|
|
Outstanding and exercisable at September 30, 2019 | 7,500,000 |
| 0.14 | October 29, 2021 |
Outstanding and exercisable at September 30, 2020 | 7,500,000 |
|
|
|
Exercised | (675,000) |
|
|
|
Outstanding and exercisable at September 30, 2021 | 6,825,000 |
|
|
|
Series F Warrants: (Issued for Unsecured Senior Note) |
|
|
|
|
Outstanding and exercisable at September 30, 2019 | 3,265,500 |
| 0.09 | February 1, 2023 |
Exchanged for Series K warrants | (3,265,500) |
|
|
|
Outstanding and exercisable at September 30, 2020 | - |
|
|
|
Outstanding and exercisable at September 30, 2021 | - |
|
|
|
Series G Warrants: (Issued for Mineral Property Purchase) |
|
|
|
|
Outstanding and exercisable at September 30, 2019 | 5,000,000 |
| 0.24 | December 18, 2021 |
Outstanding and exercisable at September 30, 2020 | 5,000,000 |
|
|
|
Outstanding and exercisable at September 30, 2021 | 5,000,000 |
|
|
|
Series H Warrants: (Issued for Private Placement) |
|
|
|
|
Outstanding and exercisable at September 30, 2019 | 6,367,441 |
| 0.14 | March 22, 2022 |
Outstanding and exercisable at September 30, 2020 | 6,367,441 |
|
|
|
Exercised | (375,000) |
|
|
|
Outstanding and exercisable at September 30, 2021 | 5,992,441 |
|
|
|
Series I Warrants: (Issued for Unsecured Note Payable) |
|
|
|
|
Outstanding and exercisable at September 30, 2019 | 3,543,600 |
| 0.07 | November 7, 2020 |
Exercised | (3,543,600) |
|
|
|
Outstanding and exercisable at September 30, 2020 | - |
|
|
|
Outstanding and exercisable at September 30, 2021 | - |
|
|
|
Series J Warrants: (Issued for Private Placement) |
|
|
|
|
Warrants Issued October 15, 2019 | 3,750,000 |
| 0.12 | October 15, 2024 |
Outstanding and exercisable at September 30, 2020 | 3,750,000 |
|
|
|
Outstanding and exercisable at September 30, 2021 | 3,750,000 |
|
|
|
Series K Warrants: (Issued for Extension of Unsecured Note Payable) |
|
|
|
|
Warrants Issued January 20, 2020 in exchange for Series F warrants | 4,000,000 |
| 0.08 | January 20, 2023 |
Outstanding and exercisable at September 30, 2020 | 4,000,000 |
|
|
|
Outstanding and exercisable at September 30, 2021 | 4,000,000 |
|
|
|
Series L Warrants: (Issued for Private Placement) |
|
|
|
|
Warrants Issued August 15, 2020 | 33,636,364 |
| 0.20 | August 15, 2023 |
Outstanding and exercisable at September 30, 2020 | 33,636,364 |
|
|
|
Outstanding and exercisable at September 30, 2021 | 33,636,364 |
|
|
|
Series M Warrants: (Issued for Private Placement) |
|
|
|
|
Warrants Issued June 25, 2021 | 12,131,647 |
| 0.30 | May 21, 2023 |
Outstanding and exercisable at September 30, 2021 | 12,131,647 |
|
|
|
|
|
|
|
|
Warrants outstanding and weighted average exercise price at September 30, 2021 | 74,216,319 |
| 0.21 |
|
72
Timberline Resources Corporation
Notes to Consolidated Financial Statements
Preferred Stock
The Company is authorized to issue up to 10,000,000 shares of preferred stock, $0.01 par value. The Company’s board of directors is authorized to issue the preferred stock from time to time in series, and is further authorized to establish such series, to fix and determine the variations in the relative rights and preferences as between series, to fix voting rights, if any, for each series, and to allow for the conversion of preferred stock into common stock. There was no preferred stock issued as of September 30, 2021 and 2020.
NOTE 9 – STOCK-BASED AWARDS:
During the year ended September 30, 2019, the Company’s shareholders approved and the Company’s Board of Directors adopted of the Company’s 2018 Stock and Incentive Plan. This plan replaced the Company’s 2015 Equity Incentive Plan. The aggregate number of shares that could be issued to employees, directors, and consultants under all stock-based awards made under the 2018 Stock and Incentive Plan was 8 million shares of the Company’s common stock.
During the year ended September 30, 2021, the Company’s shareholders approved an increase to the number of shares of common stock reserved for issuance under the Plan to 15,000,000 shares of common stock, including 10,000,000 shares of common stock reserved for incentive stock options. Upon exercise of options or other awards, shares are issued from the available authorized shares of the Company. Option awards are granted with an exercise price equal to the fair value of the Company’s stock at the date of grant.
On October 29, 2019, the Company granted to directors and management stock options to acquire an aggregate of 2,450,000 shares of the Company’s common stock. The options vested immediately and are exercisable at a price of $0.08 per common share for a period of five years from the date of the grant. Also, on October 29, 2019, in connection with his appointment to the Board of Directors, Mr. Matlack was granted 100,000 options to acquire shares of the Company’s common stock. The options have an exercise price of $0.08 per share, vested immediately, and have a term of five years.
On October 8, 2020, the Company granted a total of 1,100,000 options to purchase shares of the Company’s common stock that expire in five years with an exercise price of $0.25 in conjunction with the appointment of Patrick Highsmith as CEO (750,000 options), Mr. Steven Osterberg as VP-Exploration (250,000 options), and addition of Mr. Quinton Hennigh to the Board of Directors (100,000 options). Of Mr. Highsmith’s options, 187,500 vested immediately, with 187,500 vesting at each of the following three grant anniversary dates.
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 in five years with an exercise price of $0.25. All options vested upon issuance.
The fair value of the option awards granted during the years ended September 30, 2021 and 2020 was $779,385, of which $646,422 was vested, and $161,100, respectively. The fair value of unvested fiscal 2021 options will be recognized as compensation in the amount of $44,321 in each of the following three years covered by the vesting period. Fair values of options issued were measured on the date of the grant with a Black-Scholes option-pricing model using the assumptions noted in the following table:
Options Granted at May 6, 2021 | Options Granted at October 8, 2020 | Options Granted at October 29, 2019 | |
Expected volatility | 167.9% | 171.9% | 149.5% |
Stock price on date of grant | $0.20 | $0.25 | $ 0.07 |
Exercise price | $0.25 | $0.25 | $ 0.08 |
Expected dividends | - | - | - |
Expected term (in years) | 5 | 5 | 5 |
Risk-free rate | 0.05% | 0.09% | 1.66% |
Expected forfeiture rate | 0% | 0% | 0% |
Fair value of vested options at grant date | $519,400 | $127,022 | $161,100 |
73
Timberline Resources Corporation
Notes to Consolidated Financial Statements
The cost of options granted to employees is recorded as salaries and benefits, and the cost of options granted to directors and consultants is recorded as other general and administrative expenses. The total compensation cost of options vested under the plan, charged against operations, is included in the consolidated statements of operations as follows:
|
| Fiscal year ended September 30, | ||
| 2021 |
| 2020 | |
Salaries and benefits | $ | 271,522 | $ | 72,100 |
Other general and administrative expenses |
| 374,900 |
| 89,000 |
Total | $ | 646,422 | $ | 161,100 |
The following is a summary of the Company’s options issued under the Amended 2005 Equity Incentive Plan, the 2015 Stock and Incentive Plan and the 2018 Stock and Incentive Plan:
| Options |
| Weighted Average Exercise Price | |||
Outstanding at September 30, 2019 |
| 3,280,000 |
| $ | 0.26 | |
Granted |
| 2,550,000 |
|
| 0.08 | |
Expired |
| (430,000) |
|
| (0.43) | |
Outstanding at September 30, 2020 |
| 5,400,000 |
|
| 0.16 | |
| Granted |
| 3,885,000 |
|
| 0.12 |
| Expired |
| (950,000) |
|
| (0.43) |
Outstanding at September 30, 2021 |
| 8,335,000 |
| $ | 0.17 | |
|
|
|
|
|
| |
Exercisable at September 30, 2021 |
| 7,772,500 |
| $ | 0.18 | |
|
|
|
| |||
Weighted average fair value of options granted during the fiscal year ended September 30, 2021 |
| $ | 0.12 | |||
Average remaining contractual term of options outstanding and exercisable at September 30, 2021 (years) | 3.34 | |||||
Intrinsic value of options outstanding at September 30, 2021 |
| $ | 165,000 | |||
|
|
|
| |||
Intrinsic value of options exercisable at September 30, 2021 |
| $ | 165,000 | |||
NOTE 10 – COMMITMENTS AND CONTINGENCIES:
Mineral Exploration
A portion of the Company’s mining claims on the Company’s properties are subject to lease and option agreements with various terms, obligations, and royalties payable in certain circumstances.
The Company pays federal and county claim maintenance fees on unpatented claims that are included in the Company’s mineral exploration properties. Should the Company continue to explore all of the Company’s mineral properties, it expects annual fees to total $236,277 per year in the future.
Real Estate Lease Commitments
At September 30, 2021, the Company had real estate lease commitments for certain mineral properties totaling $72,000 annually. The Company’s office in Coeur d’Alene, Idaho and its facilities in Eureka, Nevada are rented on a month-to-month basis.
74
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusions of Management Regarding Effectiveness of Disclosure Controls and Procedures
At the end of the period covered by this Annual Report on Form 10-K, 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 Act) as of the end of the period covered by this report. Based upon that evaluation, it was concluded that our disclosure controls were effective as of the end of the period covered by this report, to ensure that: (i) information required to be disclosed by the Company in the reports that it files under the Exchange Act is recorded, processed, summarized, and reported within required time periods specified by the Securities & Exchange Commission rules and forms, and (ii) material information required to be disclosed in reports filed under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Accounting Officer, as appropriate, to allow for accurate and timely decision regarding required disclosure.
Internal 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 management and Board of Directors regarding the preparation and fair presentation 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 September 30, 2021. 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 September 30, 2021, the Company’s internal control over financial reporting is not effective, due 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 duties 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 was no material change in internal control over financial reporting in the quarter ended September 30, 2021.
ITEM 9B. OTHER INFORMATION
None.
75
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE
Directors and Executive Officers
The following table sets forth certain information with respect to our current directors and nominees, executive officers and key employees. The term for each director expires at our next Annual Meeting or until his or her successor is appointed and qualified. The ages of the directors and officers are shown as of December 20, 2021.
Name | Current Office | Principal Occupation | Director/Officer Since | Age |
Patrick Highsmith(1) | President & Chief Executive Officer and Director | Mining Executive, Geologist & Geochemist | October 8, 2020 | 54 |
Steven Osterberg(2) | VP- Exploration and Director, former President & Chief Executive Officer | VP – Exploration, Geologist | February 1, 2012 | 61 |
Ted R. Sharp | Chief Financial Officer, Principal Financial Officer | Chief Financial Officer, Founder and Owner of Sharp Executive Associates, Inc., Certified Public Accountant | September 10, 2018 | 65 |
Leigh Freeman(3) | Director | Principal, Leigh Freeman Consultancy | January 18, 2013 | 72 |
Donald McDowell | VP Corporate Development and Director | President of Americas Gold Exploration Inc. | June 21, 2018 | 62 |
William Matlack | Director | Geologist | October 29, 2019 | 67 |
Pamela Saxton (3) | Director | Professional Director | May 6, 2021 | 69 |
1)Mr. Highsmith was appointed President and Chief Executive Officer on October 8, 2020, and was appointed to the Board of Directors on January 1, 2021.
2)Mr. Osterberg was appointed VP- Exploration on October 8, 2020, was former President and Chief Executive Officer appointed on January 19, 2016 and resigned from those positions on October 8, 2020.
3)“Independent” in accordance with Rules 121 and 803A of the NYSE American Company Guide.
The following is a description of the business background of the directors and executive officers of Timberline Resources Corporation:
Leigh Freeman – Chairman of the Board of Directors
Mr. Freeman was appointed to the Board of Directors (the “Board) in January 2013. He has over 40 years of experience in the mining industry. At present, he is Principal with Leigh Freeman Consultancy. Mr. Freeman has served in technical, managerial and executive positions with junior and senior mining and service companies. He was a co-founder, President and Director of Orvana Minerals and also held several positions with Placer Dome. Mr. Freeman also serves on the industry advisory board for the mining programs at the University of Arizona, Montana Tech and South Dakota School of Mines. In addition, he co-chaired the Education Sustainability Committee for the Society of Mining Engineers.
For the following reasons the Board concluded that Mr. Freeman should serve as a director and Chairman of the Board of Directors of the Company, in light of its business and structure. Mr. Freeman’s technical and management experience in mining and mineral exploration enables him to provide operating and management insight to the Board. Further, his training and experience as a geological engineer allow him to bring technical expertise to the Board as a director. These skills were determined by the Board to be valuable to the Board, as the Company’s primary assets are exploration stage properties.
76
Patrick Highsmith - President, Chief Executive Officer and Director
Mr. Highsmith has more than 30 years of international experience including operational, exploration and business development roles with major companies such as Newmont Mining, BHP, Rio Tinto, and Fortescue Metals Group. He also has co-founded, and/or acted as a director or senior executive in several junior companies. His junior company pedigree includes Canadian listed companies such as: Lithium One, Bellhaven Copper & Gold, Pure Energy Minerals, Idaho Champion Gold Mines, and FireFox Gold, for whom he is co-founder and chairman of the board. Mr. Highsmith has been involved with several significant discoveries and helped add value to those projects through various stages of economic advancement, partnerships, joint ventures, or sales. He has a long history with Chairman Leigh Freeman and VP Exploration Steven Osterberg. Patrick holds degrees in Geological Engineering and Economic Geology (Geochemistry) from the Colorado School of Mines. He has specialized technical expertise in gold, copper, and lithium exploration. Mr. Highsmith was appointed to the Board effective January 1, 2021.
For the following reasons the Board concluded that Mr. Highsmith should serve as a director of the Company, in light of its business and structure. Mr. Highsmith’s technical and management experience in mining and mineral exploration enables him to provide operating and management insight to the Board. Further, his training and experience as a geological engineer allow him to bring technical expertise to the Board as a director. These skills were determined by the Board to be valuable to the Board, as the Company’s primary assets are exploration stage properties.
Donald McDowell – VP-Corporate Development and Director
Mr. Donald McDowell has served as the founding President of Americas Gold Exploration Inc. since October 2008. He was the President of Great American Minerals Inc. from January 2000 to October 2008. Mr. McDowell is a mineral exploration executive with over 25 years of business, mineral exploration, and development experience with a specific focus on the Great Basin in Nevada. Mr. McDowell’s experience includes 17 years with major corporations including Nippon Mining of Japan, Santa Fe Pacific Gold and Kennecott Exploration, where he was involved in exploration, resource/reserve evaluations and mine development. He was also the founder, president and director of Great American Minerals Inc. from April 2003 until its sale in 2007. From 1997 to 1999, he was a co-founding officer and Director of Golden Phoenix Minerals, Inc., a publicly held natural resources company. Mr. McDowell is a registered professional land surveyor in the state of California.
For the following reasons the Board concluded that Mr. McDowell should serve as a director of the Company, in light of its business and structure. Mr. McDowell’s extensive management experience in mineral exploration companies and background in mineral projects enable him to provide operating and leadership insights to the Board as a director. Further, his experience with other exploration companies allows him to bring a wide range of senior expertise in regard to mineral exploration to the Company. These skills were determined by the Board to be valuable to the Board, as the Company’s primary assets are exploration stage properties.
William Matlack - Director
On October 29, 2019, our Board of Directors appointed Mr. Matlack as a director of the Company. Mr. Matlack is a veteran geologist over a 20-year career in the mining industry, working primarily with Santa Fe Pacific Gold Corp. (now Newmont Mining) and Gold Fields. Mr. Matlack was involved in the exploration and development of several world-class gold discoveries in Nevada and California. Later, he was an equity research analyst in metals & mining with Citigroup and BMO Capital Markets, and an investment banker in metals & mining with Scarsdale Equities. He was interim CEO and a director of Klondex Mines Limited during its transformation from an explorer to gold producer in Nevada.
For the following reasons the Board concluded that Mr. Matlack should serve as a director of the Company, in light of its business and structure. Mr. Matlack holds the Accredited Director designation, ICSA Canada. He is financially literate by virtue of his background as a metals & mining equity research analyst. His extensive geological, and management experience in mineral exploration companies, and background in gold exploration and development projects enable him to provide operating and leadership insights to the Board. These skills were determined to be valuable to the Board, as the Company’s primary assets are exploration-stage properties.
Pamela Saxton – Director
On May 4, 2021, our Board of Directors appointed Ms. Pamela Saxton as a director of the Company, effective May 6, 2021. Ms. Saxton is an accredited accountant and recognized finance leader with more than 35 years of domestic and international experience in the mining, software, and oil and gas industries. Ms. Saxton currently serves on the board of Aquila Resources Inc. since 2019, and Bunker Hill Mining Corporation since November 2020, and also currently serves on a North American advisory board for Damstra Holdings Limited – Damstra Technology, since February 2021. Ms. Saxton also served on the board of Pershing Gold Corporation from November 2017 until it was acquired in April 2019. Ms. Saxton has held senior executive finance positions at several mining and oil and gas companies, most recently serving as Executive Vice President and Chief Financial Officer of Thompson Creek Metals Company Inc. from August 2008 to October 2016. Prior to 2008, Ms.
77
Saxton was Vice President Finance—U.S. Operations of Franco-Nevada Corporation, Vice President and Chief Financial Officer of New West Gold Corporation, Vice President and Controller of Amax Gold Inc. and Assistant Controller of Cyprus Amax Minerals Inc. Ms. Saxton also was the Vice President of Finance, Corporate Controller and Chief Accounting Officer for J.D. Edwards & Company. Ms. Saxton began her career with Arthur Andersen & Company after receiving her Bachelor of Science in Accounting from the University of Colorado. Since September 1987, she has served as a Trustee and since January 2017 serves as Vice President for the Viola Vestal Coulter Foundation, which provides scholarships to various colleges and universities, with a focus on mining. She is also the Past Chair of the Board for the Colorado Association of Commerce and Industry, a state chamber of commerce.
For the following reasons the Board concluded that Ms. Saxton should serve as a director and Chair of the Audit Committee of the Company, in light of its business and structure. Ms. Saxton is an independent director and is a financial expert given her extensive financial background and management experience in mining and exploration companies. In addition to Ms. Saxton’s industry knowledge, she has a strong grasp of internal controls over financial reporting and accounting and financial reporting issues and critical accounting policies. These skills were determined to be valuable to the Board, as the Company’s primary assets are exploration-stage properties.
Steven Osterberg – VP-Exploration, former President, Chief Executive Officer
Dr. Osterberg was appointed as our Vice-President, Exploration on October 8, 2020 and previously served as President and Chief Executive Officer and a Director since January 19, 2016, and prior to that was our Vice-President, Exploration since February 1, 2012. Previously, since April 2009, Dr. Osterberg was a Senior Geologist with Tetra Tech, Inc., a mining-related consulting firm. From November 2004 through March 2009, Dr. Osterberg was an independent consulting geologist. During this period, Dr. Osterberg also co-founded Jack’s Fork Exploration, Inc., a privately held mineral exploration company. From 2002 to 2004, Dr. Osterberg was a Senior Geologist at Tetra Tech-MFG, Inc. Dr. Osterberg holds a Ph.D. in geology from the University of Minnesota and is a licensed professional geologist (P.G.) and qualified person (QP) with the Society of Mining and Metallurgy (SME). Mr. Osterberg is employed on a full-time basis with Timberline Resources.
Ted R. Sharp, CPA – Chief Financial Officer
Mr. Sharp was appointed as our Chief Financial Officer, Secretary, and Treasurer effective September 10, 2018. Mr. Sharp is a Certified Public Accountant, and has Bachelor of Business Administration Degree in Accounting from Boise State University. Since March 2006 to the present, he serves as Chief Financial Officer of Goldrich Mining Company. Since 2003, he has been President of Sharp Executive Associates, Inc., a privately-held accounting firm providing Chief Financial Officer services to clients. From July 2012 through the present, Mr. Sharp is a principal and serves part-time as Chief Financial Officer of US Calcium LLC, a privately-held natural resource company. In the past, from December 2018 to April 10, 2020, he served as Chief Financial Officer of U.S. Gold Corp. From May 2011 through January 2012, Mr. Sharp served part-time as Chief Financial Officer of Gryphon Gold Corporation. From September 2008 through November 2010, Mr. Sharp served part-time as Chief Executive Officer, President and Chief Financial Officer of Texada Ventures, Inc. From November of 2006 to June 2009, Mr. Sharp served part-time as Chief Financial Officer of Commodore Applied Technologies, Inc. Prior to 2003, he worked for 14 years in positions of Chief Financial Officer, Managing Director of European Operations and Corporate Controller for Key Technology, Inc., a publicly-traded manufacturer of capital goods. Mr. Sharp has more than 35 years of experience in treasury management, internal financial controls, SEC reporting and Corporate Governance.
Arrangements between Officers and Directors
To our knowledge, there is no arrangement or understanding between any of our officers and any other person, including Directors, pursuant to which the officer was selected to serve as an officer.
Family Relationships
None of our Directors are related by blood, marriage, or adoption to any other Director, executive officer, or other key employees.
Other Directorships
None of the Directors of the Company are also directors of issuers with a class of securities registered under Section 12 of the Exchange Act (or which otherwise are required to file periodic reports under the Exchange Act).
Legal Proceedings
Other than as noted below, we are not aware of any of our directors or officers being involved in any legal proceedings in the past ten years relating to any matters in bankruptcy, insolvency, criminal proceedings (other than traffic and other minor offenses) or being subject to any of the items set forth under Item 401(f) of Regulation S-K.
78
Audit Committee and Audit Committee Financial Experts
We have a standing Audit Committee and audit committee charter, which complies with Rule 10A-3 of the Exchange Act, and the requirements of the NYSE American LLC. Our Audit Committee was established in accordance with Section 3(a)(58)(A) of the Exchange Act. Our Audit Committee is composed of two (2) directors each of whom, in the opinion of the Board, are independent (in accordance with Rule 10A-3 of the Exchange Act and the requirements of Section 803A of the NYSE American Company Guide) and financially literate (pursuant to the requirements of Section 803B of the NYSE American Company Guide): Pamela Saxton (Chairwoman) and Leigh Freeman. Ms. Saxton and Mr. Freeman each satisfy the requirement of a “financial expert” as defined under Item 407(d)(5) of Regulation S-K and meets the requirements for financial sophistication under the requirements of Section 803B of the NYSE American Company Guide. At December 20, 2021, Ms. Saxton and Mr. Freeman are the only members of the Audit Committee.
Director Nomination Procedures
There have been no material changes to the procedures pursuant to which a stockholder may recommend a nominee to the Board. The Corporate Governance and Nominating Committee does not have a set policy for whether or how stockholders are to recommend nominees for consideration by the Board. Recommendations for director nominees made by stockholders are subject to the same considerations as nominees selected by the Corporate Governance and Nominating Committee or the Board.
Code of Business and Ethical Conduct
We have adopted a corporate Code of Business and Ethical Conduct administered by our President and Chief Executive Officer, Patrick Highsmith. We believe our Code of Business and Ethical Conduct is reasonably designed to deter wrongdoing and promote honest and ethical conduct, to provide full, fair, accurate, timely and understandable disclosure in public reports, to comply with applicable laws, to ensure prompt internal reporting of code violations, and to provide accountability for adherence to the code. Our Code of Business and Ethical Conduct provides written standards that are reasonably designed to deter wrongdoing and to promote:
·Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;
·Full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submitted to, the Commission and in other public communications made by an issuer;
·Compliance with applicable governmental laws, rules and regulations; and
·The prompt internal reporting of violations of the code to an appropriate person or persons identified in the code; and
·Accountability for adherence to the code.
Our Code of Business and Ethical Conduct is available on our web site at www.timberline-resources.com. A copy of the Code of Business and Ethical Conduct will be provided to any person without charge upon written request to us at our executive offices: Timberline Resources Corporation, 101 East Lakeside Avenue, Coeur d’Alene, Idaho 83814. We intend to disclose any amendment to or any waiver from a provision of our code of ethics that applies to any of our principal executive officer, principal financial officer, principal accounting officer or controller or persons performing similar functions that relates to any element of our code of ethics on our website. No waivers were granted from the requirements of our Code of Business and Ethical Conduct during the year ended September 30, 2021, or during the subsequent period from October 1, 2021 through the date of this Form 10-K.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our officers, directors, and persons who beneficially own more than 10% of our common stock (“10% Stockholders”), to file reports of ownership and changes in ownership with the Securities and Exchange Commission (“SEC”). Such officers, directors and 10% Stockholders are also required by SEC rules to furnish us with copies of all Section 16(a) forms that they file.
Based solely on our review of the copies of such forms received by us, or written representations from certain reporting persons, the Company believes that during fiscal year ended September 30, 2021, the filing requirements applicable to its officers, directors and greater than 10% percent beneficial owners were complied with.
79
ITEM 11. EXECUTIVE COMPENSATION
The following summary compensation tables set forth information concerning the annual and long-term compensation for services in all capacities to the Company for the year ended September 30, 2021 of those persons who were, at September 30, 2021 (i) the Chief Executive Officer (Patrick Highsmith), (ii) the Chief Financial Officer (Ted R. Sharp), and (iii) any other highly compensated executive officers of the Company, whose annual base salary and bonus compensation was in excess of $100,000:
SUMMARY COMPENSATION TABLE | ||||||
Name and principal Position | Fiscal Year | Salary ($) | Bonus ($) | Stock Unit and Stock Option Awards(12) ($) | All Other Compensation ($) | Total ($) |
Patrick Highsmith, President, Chief Executive Officer(1) | 2021 | 166,727 |
| 270,250(3)(4) |
| 436,977 |
Steven Osterberg, VP-Exploration(2) | 2021 | 150,000 | - | 96,391(5) | - | 246,391 |
| 2020 | 150,000 | - | 28,841(6) | - | 178,841 |
Donald McDowell, VP-Corporate Development | 2021 | - | - | 37,300(7) | 49,100(10) | 86,400 |
| 2020 | - | - | 28,841(6) | 112,200(10) | 141,041 |
Ted R. Sharp, Chief Financial Officer | 2021 | - | - | 27,975(8) | 66,510(11) | 94,485 |
| 2020 | - | - | 9,614(9) | 49,259(11) | 58,873 |
(1)Mr. Patrick Highsmith was appointed President & Chief Executive Officer on October 8, 2020. (2)Mr. Osterberg was President and Chief Executive Officer, appointed on January 19, 2016, until October 8, 2020, resigned from those positions and was then appointed VP – Exploration. (3)Includes 750,000 stock option awards with an exercise price of $0.25 per share, 25% which vested immediately with the balance vesting at 25% on subsequent anniversaries. (4)Includes 500,000 stock option awards with an exercise price of $0.25 per share, which vested immediately. (5)Includes 450,000 stock option awards with an exercise price of $0.25 per share, which vested immediately. (6)Includes 456,522 stock option awards, with an exercise price of $0.08 per share, which vested immediately. (7)Includes 200,000 stock option awards, with an exercise price of $0.25 per share, which vested immediately. (8)Includes 150,000 stock option awards, with an exercise price of $0.25 per share, which vested immediately. (9)Includes 152,173 stock option awards, with an exercise price of $0.08 per share, which vested immediately. (10)Mr. McDowell provides services as VP-Corporate Development under a consulting arrangement. (11)Mr. Sharp provides services as Chief Financial Officer under a consulting contract. (12)Stock Option awards are valued using the Black-Scholes method in accordance with FASB ASC Topic 718 and stock unit awards are valued at the market price of the stock on the date of grant. These amounts reflect the Company’s accounting expense for these awards, and do not correspond to the actual value that may be recognized by the named executive officers. For additional information on the assumptions underlying the valuation of the Company’s stock-based awards, please refer to Note 9 of the Company’s consolidated financial statements included in its Annual Report on Form 10-K for fiscal year ended September 30, 2021 and Note 9 of the Company’s consolidated financial statements included in its Annual Report on Form 10-K for fiscal years ended September 30, 2020. | ||||||
Executive Compensation Agreements
Compensation agreements for executives are on terms normal to the industry in which we operate. Each agreement is publicly available by inquiring on the Company’s filings as described in the Exhibits of Item 15, Part IV of this document.
80
Retirement, Resignation or Termination Plans
We sponsor no plan, whether written or verbal, that would provide compensation or benefits of any type to an executive upon retirement, or any plan that would provide payment for retirement, resignation, or termination as a result of a change in control of our Company or as a result of a change in the responsibilities of an executive following a change in control of our Company. Specific executive employment agreements described above do, however, provide that if the executive’s employment is terminated by the Company without cause or by the executive for good reason, as such terms are defined in their respective employment agreements, the executive will be entitled to receive payments as set forth in the above discussions, which payments are greater in each case in the event that such termination or resignation is in relation to a change in control transaction.
Outstanding Equity Awards At Fiscal Year-End
The following table sets forth the stock options granted to our named executive officers, as of September 30, 2021. No stock appreciation rights have been awarded.
Name | Number of Securities Underlying Unexercised Options (#) Exercisable(1) | Option Exercise Price ($) | Option Expiration Date |
Patrick Highsmith | 750,000 500,000 | $0.25 $0.25 | 10/8/2025 5/6/2026 |
Steven Osterberg | 500,000 456,522 250,000 200,000 | $0.17 $0.08 $0.25 $0.25 | 2/2/2023 10/29/2024 10/8/2025 5/6/2026 |
Donald McDowell | 100,000 456,522 200,000 | $0.10 $0.08 $0.25 | 06/21/2023 10/29/2024 5/6/2026 |
Ted R. Sharp | 100,000 152,173 150,000 | $0.10 $0.08 $0.25 | 1/17/2024 10/29/2024 5/6/2026 |
Directors
The following table sets forth the compensation granted to our directors during the fiscal year ended September 30, 2021. Compensation to Directors that are also executive officers is detailed above and is not included on this table.
Name | Fees Earned or Paid in Cash ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Non-Qualified Compensation Earnings ($) | All Other Compensation ($) | Total ($) |
Leigh Freeman | 0 | 0 | 44,760 | 0 | 0 | 0 | 44,760 |
Paul Dircksen(3) | 0 | 0 | 0 | 0 | 0 | 7,330(1) | 7,330 |
Quinton Hennigh(2) | 0 | 0 | 79,736 | 0 | 0 | 0 | 79,736 |
Patrick Highsmith(4) | 0 | 0 | 270,250 | 0 | 0 | 0 | 270,250 |
David Mathewson(3) | 0 | 0 | 41,140 | 0 | 0 | 0 | 41,140 |
William Matlack | 0 | 0 | 37,300 | 0 | 0 | 0 | 37,300 |
Steve Osterberg(5) | 0 | 0 | 96,391 | 0 | 0 | 0 | 96,391 |
Pam Saxton(6) | 0 | 0 | 37,300 | 0 | 0 | 0 | 37,300 |
(6)Mr. Dircksen’s health care premium reimbursements per his employment letter prior to his retirement. This reimbursement agreement has no expiration date. (2)Mr. Hennigh was appointed a director on September 14, 2020 and received no compensation during the fiscal year ended September 30, 2020. He resigned on August 6, 2021. (3)Mr. Dircksen and Mr. Mathewson did not stand for re-election to the board during the 2021 AGM but will remain on in a capacity of an advisory board. (4)Mr. Highsmith was appointed director on January 1, 2021. He was appointed President and Chief Executive Officer on October 8, 2020, for which he receives a salary, which is not listed here. (5)Mr. Osterberg resigned from the board October 9, 2020, and remains with the Company as VP-Exploration, for which he receives a salary, which is not listed here. (6)Ms. Saxton was appointed a director on May 4, 2021. | |||||||
Compensation of Directors
Directors that were also executive officers received no monetary compensation for serving as a director. Non-executive directors are granted non-qualified stock options as compensation. Such stock option awards are determined at the sole discretion of the Company’s Compensation Committee.
81
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
The following tables set forth information as of September 30, 2021, regarding the ownership of our common stock by:
·each named executive officer, each director and all of our directors and executive officers as a group; and
·each person who is known by us to own more than 5% of our shares of common stock.
The number of shares beneficially owned and the percentage of shares beneficially owned are based on 139,696,022 shares of common stock outstanding as of September 30, 2021. Beneficial ownership is determined in accordance with the rules and regulations of the SEC. Shares subject to options that are exercisable within 60 days following September 30, 2021 are deemed to be outstanding and beneficially owned by the optionee for the purpose of computing share and percentage ownership of that optionee but are not deemed to be outstanding for the purpose of computing the percentage ownership of any other person. Except as indicated in the footnotes to this table, and as affected by applicable community property laws, all persons listed have sole voting and investment power for all shares shown as beneficially owned by them.
DIRECTORS AND EXECUTIVE OFFICERS
Title of Class | Name of Beneficial Owner | Number of Shares of Common Stock/Common Shares Underlying Derivative Securities Beneficially Owned | Percentage of |
Common Stock | Leigh Freeman (a)(1) Chairman of the Board, Director | 65,066/805,217 | * |
Common Stock | Steve Osterberg (c)(2) President & Chief Executive Officer, Director | 1,037,569/1,859,931 | 2.05% |
Common Stock | Donald McDowell (b)(3) Director | 10,555,418/6,231,522 | 11.51% |
Common Stock | William Matlack (a)(4) Director | 17,383,461/12,664,009 | 20.00% |
Common Stock | Patrick Highsmith(b)(5) Chief Executive Officer, Director | -/687,500 | * |
Common Stock | Pamela Saxton (a)(6) Director | -/200,000 | * |
Common Stock | Ted R. Sharp (c)(7) Chief Financial Officer | -/402,173 | * |
|
|
|
|
Common Stock | Total Directors and Executive Officers as a group (7 persons) | 19,041,514/22,850,352 | 35.09% |
82
5% STOCKHOLDERS | |||
Title of Class | Name and Address of Beneficial Owner | Number of Shares of Common Stock/Common Shares Underlying Derivative Securities Beneficially Owned | Percentage of |
Common Stock | William Matlack (a)(4) Director | 17,383,461/12,664,009 | 20.00% |
Common Stock | Americas Gold Exploration, Inc. (3) Donald McDowell 2131 Stone Hill Circle Reno, NV 89519 | 10,555,418/6,231,522 | 11.51% |
Common Stock | Myrmikan Gold Fund LLC (8) Daniel Oliver Jr. 713 Silvermine Rd., New Canaan, CT 06840 | 5,650,000/5,147,500 | 7.46% |
Common Stock | Condire Resource Master Partnership (9) John Bateman, 2000 McKinney Ave, Suite 2125, Dallas TX 75201 | 11,300,000/10,050,000 | 14.26% |
Common Stock | Crescat Global Macro Master Fund LTD Crescat Long/Short Fund LLP Crescat Precious Metals Master Fund LTD Kevin and Linda Smith Living Trust (10) Kevin Smith, 1560 Broadway, Suite 2270, Denver, CO 80202 | 17,763,636/16,988,636 | 22.18% |
* less than 1%.
** The percentages listed for each shareholder are based on 139,696,022 shares outstanding as of September 30, 2021 and assume the exercise by that shareholder only of his/her entire option or warrant, exercisable within 60 days of September 30, 2021.
(a) Director only
(b) Officer and Director
(c) Officer only
(1) A vested option to purchase 200,000 shares was granted to this stockholder on February 2, 2018 with an exercise price of $0.17 per share and an expiration date of February 2, 2023. A vested option to purchase 365,217 shares was granted to this stockholder on October 29, 2019 with an exercise price of $0.08 per share and an expiration date of October 29, 2024. A vested option to purchase 240,000 shares was granted to this stockholder on May 6, 2021 with an exercise price of $0.186 per share and an expiration date of May 6, 2026.
(2) A vested option to purchase 500,000 shares was granted to this stockholder on February 2, 2018 with an exercise price of $0.17 per share and an expiration date of February 2, 2023. A vested option to purchase 456,522 shares was granted to this stockholder on October 29, 2019 with an exercise price of $0.08 per share and an expiration date of October 29, 2024. A vested option to purchase 200,000 shares was granted to this stockholder on May 6, 2021 with an exercise price of $0.186 per share and an expiration date of May 6, 2026. This stockholder acquired units on October 29, 2018 which included 187,500 shares of common stock and 187,500 warrants to acquire one share of common stock with an exercise price of $0.14 and an expiration date of October 29, 2021. This stockholder acquired units on March 22, 2019 which included 175,000 shares of common stock and 175,000 warrants to acquire one share of common stock with an exercise price of $0.14 and an expiration date of March 22, 2022. This stockholder acquired units on August 15, 2020 which included 90,909 shares of common stock and 90,909 Series L Warrants exercisable at a price of $0.20 per share that expire on August 15, 2023.
(3) Mr. McDowell, a director of the Company, is the principal holder of shares of Americas Gold Exploration, Inc., owning approximately 75% of the voting securities of that company. The shares include 609,200 shares, a vested option to purchase 100,000 shares was granted to this stockholder on June 21, 2018 with an exercise price of $0.10 per share and an expiration date of June 21, 2023, a vested option to purchase 456,522 shares was granted to this stockholder on October 29, 2019 with an exercise price of $0.08 per share and an expiration date of October 29, 2024, a vested option to purchase 200,000 shares was granted to this stockholder on May 6, 2021 with an exercise price of $0.186 per share and an expiration date of May 6, 2026.and 475,000 warrants to acquire one share of common stock with an exercise price of $0.14 and an expiration date of March 22, 2022, each held personally by Mr. McDowell. Also included are 5,000,000 shares acquirable upon exercise of warrants exercisable at a price of $0.14 per share that expire on December 31, 2021.
(4) A vested option to purchase 404,348 shares was granted to this stockholder on October 29, 2019 with an exercise price of $0.08 per share and an expiration date of October 29, 2024. A vested option to purchase 200,000 shares was granted to this stockholder on May 6, 2021 with an exercise price of $0.186 per share and an expiration date of May 6, 2026. Includes 3,678,979 shares acquirable upon exercise of warrants exercisable at a price of $0.14 per share that expire on October 29, 2021. This stockholder acquired units on October 19, 2019 which included 7,125,000 share of common stock and 3,562,500 warrants exercisable at a price of $0.12 per share that expire on October 15, 2024. This stockholder acquired units on August 15, 2020 which included 818,182 shares of common stock and 818,182 Series L Warrants exercisable at a price of $0.20 per share that expire on August 15, 2023. This stockholder renegotiated a senior note – related party, exchanging 3,265,500 Series F Warrants for 4,000,000 Series K Warrants exercisable at $0.08 that expire on January 20, 2023. Mr. Matlack’s warrants include a voluntary provision in which he is prohibited from exercising those warrants if so doing would result in ownership exceeding 20.0%, therefore, the beneficial ownership percentage for Mr. Matlack is limited to the maximum allowed by that provision.
83
(5) An option to purchase 750,000 shares was granted to this stockholder on October 8, 2020 with an exercise price of $0.25 per share and an expiration date of October 8, 2025, of which 187,500 are vested. A vested option to purchase 500,000 shares was granted to this stockholder on May 6, 2021 with an exercise price of $0.186 per share and an expiration date of May 6, 2026.
(6) A vested option to purchase 200,000 shares was granted to this stockholder on May 6, 2021 with an exercise price of $0.186 per share and an expiration date of May 6, 2026.
(7) A vested option to purchase 100,000 shares was granted to this stockholder on December 31, 2018 with an exercise price of $0.10 per share and an expiration date of December 31, 2023. A vested option to purchase 152,173 shares was granted to this stockholder on October 29, 2019 with an exercise price of $0.08 per share and an expiration date of October 29, 2024. A vested option to purchase 150,000 shares was granted to this stockholder on May 6, 2021 with an exercise price of $0.186 per share and an expiration date of May 6, 2026.
(8) This stockholder acquired units on November 16, 2017 which included 85,000 shares of common stock and 85,000 Series C Warrants exercisable at a price of $0.45 per share that expire on October 31, 2022. This stockholder acquired units on November 9, 2018 which included 500,000 shares of common stock and 500,000 Series E Warrants exercisable at a price of $0.14 per share that expire on October 29, 2021. This stockholder acquired units on July 25, 2019 which included 375,000 shares of common stock and 375,000 Series H Warrants exercisable at a price of $0.14 per share that expire on March 22, 2022. This stockholder acquired units on October 23, 2019 which included 375,000 shares of common stock and 187,500 Series J Warrants exercisable at a price of $0.12 per share that expire on October 14, 2024. This stockholder acquired units on August 15, 2020 which included 3,500,000 shares of common stock and 3,500,000 Series L Warrants exercisable at a price of $0.20 per share that expire on August 15, 2023. This stockholder acquired units on June 29, 2021 which included 1,000,000 shares of common stock and 500,000 Series M Warrants exercisable at a price of $0.30 per share that expire on May 31, 2023.
(9) This stockholder acquired units on August 15, 2020 which included 8,800,000 shares of common stock and 8,800,000 Series L Warrants exercisable at a price of $0.20 per share that expire on August 15, 2023. This stockholder acquired units on June 29, 2021 which included 2,500,000 shares of common stock and 1,250,000 Series M Warrants exercisable at a price of $0.30 per share that expire on May 31, 2023.
(10) This group of affiliated stockholders acquired units on August 15, 2020 which included 17,272,727 shares of common stock and 17,272,727 Series L Warrants exercisable at a price of $0.20 per share that expire on August 15, 2023. This stockholder acquired units on June 29, 2021 which included 1,250,000 shares of common stock and 625,000 Series M Warrants exercisable at a price of $0.30 per share that expire on May 31, 2023.
We believe that all persons named have full voting and investment power with respect to the shares indicated, unless otherwise noted in the table and the footnotes thereto. Under the rules of the SEC, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security.
Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
The Company is not, to the best of our knowledge, directly or indirectly owned or controlled by another corporation or foreign government.
Change in Control
The Company is not aware of any arrangement that might result in a change in control in the future. The Company has no knowledge of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in the Company’s control.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
There were no reportable transactions with related parties, including 5% or greater security holders, during the fiscal year ended September 30, 2021, except as noted below.
Mr. Matlack is the lender of a senior unsecured notes payable with an original principal balance of $300,000 to the Company. The note carries an annual rate of 18% and is due on January 20, 2023. The Company paid a total of $250,000 to Mr. Matlack under the terms of this note, which included $29,009 principal and $220,991 of accrued interest. Mr. Matlack has waived a default condition that would otherwise currently exist due to us not remitting 25% of equity and other debt financings in payment on the note balance.
Except as indicated herein, no officer, director, promoter, or affiliate of Timberline has or proposes to have any direct or indirect material interest in any asset acquired or proposed to be acquired by Timberline through security holdings, contracts, options, or otherwise. In cases where we have entered into such related party transactions, we believe that we have negotiated consideration or compensation that would have been reasonable if the party or parties were not affiliated or related.
Policy for Review of Related Party Transactions
We have a policy for the review of transactions with related persons as set forth in our Audit Committee Charter and internal practices. The policy requires review, approval or ratification of all transactions in which we are a participant and in which any of our directors, executive officers, significant stockholders or an immediate family member of any of the foregoing persons has a direct or indirect material interest, subject to certain categories of transactions that are deemed to be pre-approved under
84
the policy - including employment of executive officers, director compensation (in general, where such transactions are required to be reported in our proxy statement pursuant to SEC compensation disclosure requirements), as well as certain transactions where the amounts involved do not exceed specified thresholds. All related party transactions must be reported for review by the Audit Committee of the Board of Directors pursuant to the Audit Committee’s charter and the rules of the NYSE American.
Following its review, the Audit Committee determines whether these transactions are in, or not inconsistent with, the best interests of the Company and its stockholders, taking into consideration whether they are on terms no less favorable to the Company than those available with other parties and the related person's interest in the transaction. If a related party transaction is to be ongoing, the Audit Committee may establish guidelines for the Company's management to follow in its ongoing dealings with the related person.
Our policy for review of transactions with related persons was followed in all of the transactions set forth above and all such transactions were reviewed and approved in accordance with our policy for review of transactions with related persons.
Director Independence
We have five directors as of December 20, 2021, including two independent directors, as follows:
·Leigh Freeman
·Pamela Saxton
An “independent” director is a director whom the Board of Directors has determined satisfies the requirements for independence under Section 803A of the NYSE American Company Guide.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Assure CPA, LLC was the Independent Registered Public Accounting Firm for the Company in the fiscal year ended September 30, 2021.
Our financial statements have been audited by Assure CPA, LLC, independent registered public accounting firm, for the years ended September 30, 2006 through September 30, 2020.
The following table sets forth information regarding the amount billed to us by our independent auditor, Assure CPA, LLC for our two fiscal years ended September 30, 2021 and 2020, respectively:
| Years Ended September 30, | |
| 2021 | 2020 |
Audit Fees | $64,903 | $52,847 |
Audit Related Fees | - | - |
Tax Fees | 7,850 | 8,000 |
All Other Fees | 1,516 | 1,189 |
Total | $74,269 | $62,036 |
Audit Fees
Consist of fees billed for professional services rendered for the audit of our financial statements and review of interim consolidated financial statements included in quarterly reports and services that are normally provided by the principal accountants in connection with statutory and regulatory filings or engagements.
Audit Related Fees
Consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of our consolidated financial statements and are not reported under “Audit Fees”.
Tax Fees
Consist of fees billed for professional services for tax compliance, tax advice and tax planning. These services include preparation of federal and state income tax returns.
All Other Fees
Consist of fees for product and services other than the services reported above.
85
Policy on Pre-Approval by Audit Committee of Services Performed by Independent Auditors
The Audit Committee has adopted procedures requiring the Audit Committee to review and approve in advance, all particular engagements for services provided by the Company’s independent auditor. Consistent with applicable laws, the procedures permit limited amounts of services, other than audit, review or attest services, to be approved by one or more members of the Audit Committee pursuant to authority delegated by the Audit Committee, provided the Audit Committee is informed of each particular service. All of the engagements and fees for 2021 and 2020 were pre-approved by the Audit Committee. The Audit Committee reviews with Assure CPA, LLC whether the non-audit services to be provided are compatible with maintaining the auditor's independence.
PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
Financial Statements
The following Consolidated Financial Statements of the Corporation are filed as part of this report:
1. Report of Independent Registered Public Accounting Firm dated December 20, 2021.
2. Consolidated Balance Sheets—At September 30, 2021 and 2020.
3. Consolidated Statements of Operations—Years ended September 30, 2021 and 2020.
4. Consolidated Statements of Changes in Stockholders’ Equity—Years ended September 30, 2021 and 2020.
5. Consolidated Statements of Cash Flows—Years ended September 30, 2021 and 2020.
6. Notes to Consolidated Financial Statements.
See “Item 8. Financial Statements and Supplementary Data.”
Exhibits
86
10.6 | |
10.7 | |
10.8* | |
10.9 | Lookout Mountain LLC Agreement dated June 28, 2019, incorporated by reference to the Company’s Form 10-K as filed with the Securities and Exchange Commission on January 10, 2020 |
10.10* | Patrick Highsmith Employment Agreement dated October 3, 2020, incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on October 13, 2020 |
10.11* | Steven Osterberg Employment Agreement dated October 9, 2020, incorporated by reference to the Company’s Form 8-K as filed with the Securities and Exchange Commission on October 13, 2020 |
21.1 | List of Subsidiaries, incorporated by reference to the Company’s Form 10-K as filed with the Securities Exchange Commission on January 10, 2020 |
31.1# | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act) |
31.2# | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (Rules 13a-14 and 15d-14 of the Exchange Act) |
32.1# | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) |
32.2# | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. 1350) |
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 |
* - Denotes management contract or compensatory plan
# - Filed herewith
87
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, we caused this report to be signed on our behalf by the undersigned thereunto duly authorized.
TIMBERLINE RESOURCES CORPORATION
By: /s/ Patrick Highsmith
Patrick Highsmith, President and Chief Executive Officer, Principal Executive Officer
Date: December 20, 2021
In accordance with Section 13 or 15(d) of the Exchange Act, we caused this report to be signed on our behalf by the undersigned thereunto duly authorized.
TIMBERLINE RESOURCES CORPORATION
By: /s/ Ted R. Sharp
Ted R. Sharp, Chief Financial Officer, Principal Financial Officer
Date: December 20, 2021
In accordance with the Exchange Act, this report has been signed below by the following persons on our behalf and in the capacities and on the dates indicated.
Date: December 20, 2021 /s/ Leigh Freeman
Leigh Freeman, Chairman of the Board of Directors
Date: December 20, 2021 /s/ Patrick Highsmith
Patrick Highsmith, Director, President and Chief Executive Officer
Date: December 20, 2021 /s/ Donald McDowell
Donald McDowell, Director, VP-Corporate Development
Date: December 20, 2021 /s/ Pamela Saxton
Pamela Saxton, Director
Date: December 20, 2021 /s/ William Matlack
William Matlack, Director
Date: December 20, 2021 /s/ Ted R. Sharp
Ted R. Sharp, Chief Financial Officer
88