ITEM 2. DESCRIPTION OF PROPERTIES

Summary of Timberline’s Mineral Exploration Prospects

As of December 2013, we have acquired mineral prospects for exploration in Nevada and Montana mainly for target commodities of gold and silver. 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, and this 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

South Eureka (Battle Mountain/Eureka Trend)

We acquired the South Eureka property 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.  South Eureka comprises an area of approximately 15,000 acres or more than 23 square miles.  The property’s northern boundary is located approximately 1 mile south of the town of Eureka, Nevada, in the Eureka Mining district within the Battle Mountain – Eureka Mineral Trend, also referred to as the Cortez Trend.  

The South Eureka property has no known reserves, as defined under Guide 7, and the proposed program for the property is exploratory in nature.

Property Description

The South Eureka property is located in the southern part of the Eureka mining district of Eureka County, Nevada, within T19N, R53E and unsurveyed T17N and T18N, R53E at the southern end of the Cortez Trend (Battle Mountain/Eureka Trend).  The South Eureka 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.

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All unpatented mining claims on the South Eureka property have been located under the General Mining Laws of the United States on US Bureau of Land Management (“BLM”) managed lands.

We pay federal and county claim maintenance fees on the South Eureka property.  The Federal claim fees are due to the BLM by September 1 ^st each year, and the remainder is due to Eureka County by November 1 ^st each year.  The following table summarizes the claims and royalties for the South Eureka property:

We have the right to explore and develop the Lookout Mountain project subject to a mining lease and agreement dated August 22, 2003 with Rocky Canyon Mining Company, and 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.  Advanced royalty payments are $6,000 per month, or $72,000 per annum.  The work commitment on the project has been fulfilled.  A 3.5% net smelter return royalty, plus a 1.5% net smelter return royalty capped at $1.5 million (excludes Trevor and Dave claims) exists on the project.  In addition, a 2% NSR royalty may exist, pending a legal opinion that is forthcoming.

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During the year ended September 30, 2012, we acquired the Windfall patented claims.  The claims were acquired in exchange for $400,000 cash as well as 919,935 shares of our common stock with a value of $500,000, based upon the weighted average closing price of our common stock on the NYSE MKT during the 15 days prior to the acquisition.  A 4% net smelter return royalty exists on these claims.

The Secret Canyon/Oswego, South Ratto, and New York Canyon projects are owned by us subject to royalty agreements.  Net smelter return royalties up to 5.5% exist on the projects.  Pending a legal opinion that is forthcoming, the same 2% NSR royalty referenced above may exist on the Hiero/Syracuse project.

The Hamburg Ridge project is composed of the Hoosac, North Amselco, and South Rustler/W claim groups.  The Hoosac and North Amselco claims are owned by us and are currently under lease to DFH Co., a subsidiary of Royal Gold, Inc.  No payments are due under the lease agreement.  The South Rustler/W-Claims are owned by DFH Co.  A draft agreement is in place pursuant to which we would acquire the South Rustler/W-Claims, and the Hoosac/North Amselco lease agreement would cancel.  Net smelter return royalties ranging from 6.75% to 7.35% exist on the projects.  We currently pay all of the claim maintenance fees for the Hamburg Ridge project.

Accessibility, Physiography, Climate and Infrastructure

The South Eureka property is located approximately one mile south and southwest of the town of Eureka, within the southern part of the Eureka Mining district of Eureka County, Nevada.  The South Eureka property is located at the southeastern end of the Battle Mountain/Eureka Trend (Cortez Trend) of gold and base-metal deposits in north-central Nevada.

The South Eureka property 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 the dockage for shipments of heavy equipment.  A small airport at Eureka is available for private air transport.  Railroad access also is 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.

Terrain on the South Eureka property is rugged, with high ridges, steep canyons, and narrow valleys.  Elevations range from 7,000 to 9,000 feet.  Ridges show abundant bedrock exposures, slopes and valleys are typically covered by soil and alluvium.  Sagebrush abounds in lower-elevation areas while juniper and pinion 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.  

U.S. Highway 50 passes to the east of the South Eureka property and access is gained by heading south out of Eureka on the 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 to 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.

The southern parts of the South Eureka property 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 South Eureka property allow additional access.

Summer temperatures usually consist of many consecutive days over 90º F (32.2º C), and temperatures can reach as high as 100º F (40.6° C) or more. Winter temperatures generally range from as cold as below 0º F (17.8ºC) to usually 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 usually accumulate on the property during the winter months.

Historic Exploration

The most significant exploration on the South Eureka property has been the drilling programs mounted over recent years.  Such exploration on the South Eureka property spans a period of over twenty years.  Drilling on the Hoosac and Windfall claims date from Norse-Windfall (63 holes, 1970s-1980s), Amselco (8 holes, mid-1980s), Tenneco (18 holes, 1989-1991), Pathfinder (18 holes, 1993) and Pathfinder/Cambior (36 holes, 1995-1997).  On the Lookout Mountain claim group, drilling programs began with Amselco (296 holes, 1978-1985) followed by the Windfall group (20 holes, 1986), EFL Gold Company (10 holes, 1990), Barrick (40 holes, 1992-93), and Echo Bay (70 holes, 1994-95).  The drilling programs were conducted concurrent with and guided by extensive 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 toxic element anomalies in soil and rock.

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

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has resulted in significant indications of disseminated gold mineralization.  The Windfall, Rustler, and Paroni deposits on the Windfall claims and the Lookout Mountain group 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 promising zones of gold mineralization on the H amburg 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 drilling program which tested gold mineralization along the Ratto Ridge Fault and associated geochemical anomalies and jasperoids developed along the N-S 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 decided that the Lookout Mountain deposit was not of further interest even though their geologists reportedly believed the deposit had significant potential.  The property was optioned to a joint venture of three companies which then owned Norse-Windfall Mines, the Eureka Venture.

In 1990, EFL Gold Mines took bulk samples from the floor of the Lookout Mountain pit.  These samples returned assays values ranging from 0.10 to 0.135 oz of gold/ton.  EFL also drilled 9 holes, two of which, drilled 500 feet (152 meters) into the floor of the pit, showed both oxide and sulfide gold mineralization.

Barrick (1992-93) 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.  Barrick discovered that geochemical anomalies are apparently controlled by E-NE and N-NW to NW trending cross structures which intersect the N-S trending Ratto Ridge Fault.  Much of the Barrick work focused on the deeper potential in Cambrian Dunderberg Shale 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.  Barrick drilled 42 holes to a maximum depth of approximately 1,300 feet and encountered several gold intercepts.

Work by Barrick also included air and ground geophysics, and a stratigraphic and mineralogic 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 run, ICP and graphite furnace analyses at MB Associates in California, and ICP and neutron activation analysis at Activation Laboratories in Canada.  Mapping, together with results of the Magmachem geochemistry, indicated that mineralization was apparently strongly controlled by E-NE and N-NW to NW trending cross structures near or at the point they intersect the N-S trending Ratto Ridge Fault where the Cambrian Dunderberg Shale and Hamburg Dolomite occur.  Ultimately, Barrick drilled 42 reverse circulation holes.  However, geological and geochemical targets or additional drilling in areas of known mineralization previously discovered by Amselco found insufficient mineralization to meet Barrick’s objectives.  It should be noted that the potential for mineralization west of the Ratto Ridge crest has not been explored adequately.

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 grading 0.043 oz of gold/ton in the Dunderberg, and drill hole EBR-9 which intersected 115 feet grading 0.043 oz of gold/ton in the Nevada Group.  Offsets of EBR-9 found 90 feet grading 0.028 oz of gold/ton, and another hole which was lost before reaching planned depth found 45 feet of 0.024 oz of gold/ton.  Further offsets of EBR-9 and several widely-spaced holes averaging 1,000 feet 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.

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 oz/ton, was a Carlin-type sediment-hosted disseminated gold occurrence.  Wilson’s work emphasized the east side of Hamburg Ridge, the Windfall Trend, where he drilled, with conventional air rotary, holes F1 through F20, and Z-1 through Z-31, Z42, and ZA-1 on the current Windfall group.  He drilled holes Z32-41 on the Hoosac group.  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 oz of gold/ton.  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 Century Gold files, 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.

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From 2005-2007, core drilling programs 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 and drill hole relogging program demonstrated the stratabound nature of gold mineralization in thick zones of collapse breccia within carbonate rock flanking the Ratto Ridge structural zone.  Metallurgical and other technical characteristics of known mineralization at Lookout Mountain are currently being investigated.

In orde r to improve understanding of the technical aspects of the project and evaluate the potential of the South Eureka property, Staccato Gold initiated a comprehensive work program in June 2008. The program included geologic modeling that incorporated structural and stratigraphic controls to mineralization, additional density determinations, and new drilling and metallurgical test data.  Results of this work have been incorporated into our exploration programs.

A large part of the Lookout Mountain project and Windfall project areas have now been mapped and sampled, including a detailed program conducted over the main mineralization area.  The principal objectives of the mapping and sampling program are to characterize offsets along the main mineralized fault zones at Windfall and Lookout Mountain, identify orientations of mineralized cross structures intersecting the main structural zones, and follow up on soil anomalies.  The mapping program, combined with surface sampling and acquisition of historic data, has 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 drill holes have been re-logged along Ratto Ridge to ensure geologic consistency with surface mapping, and, based on this work, new geologic cross sections and plans have been constructed for the entire Lookout Mountain deposit.  Geologic grade shells have also been built, and construction of a 3-D model of the geology, based on the results of historic drill re-logging and mapping efforts, is ongoing.  This new work has led to an updated mineralization estimate that resolves past technical issues, and provides us with a plan for advancing the property into the scoping/pre-feasibility study phase following one more round of drilling.  

An exploration Plan of Operations has been approved by the BLM and the State Department of Environmental Protection (NDEP) for the Lookout Mountain project.  The Plan of Operations calls for approximately 266 acres of disturbance that can be accessed for use in a phased approach, and covers the entire Ratto Ridge structural zone.  The Plan of Operations will allow us to complete additional infill, metallurgical, and exploration drilling necessary to advance the development of the Lookout Mountain project.

Windfall

Staccato Gold initiated detailed mapping and sampling programs and completed a ten-hole drill program totaling 8,030 feet at the Windfall project in October 2009.  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 project mineralization area.  The Windfall project is one of several prospective gold projects on our extensive South Eureka property in Nevada.

Results from the surface mapping program, review of historic production and geologic maps, and drilling indicate that high grade gold is locally controlled within cross structures cutting the main Windfall fault zone, at the contact between the Hamburg Dolomite and Dunderburg Shale. The 2009 drill program tested approximately 3,600 feet 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 based on historic 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 drilled define the Windfall fault zone as a 150 to 200 foot thick zone striking roughly north-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 (75 feet at 0.153 ounces of gold/ton), and five were drilled as exploratory holes to test the strike and dip extent of the Windfall fault zone.  Several thick intercepts of gold mineralization were returned, including 135 feet at 0.011 ounces of gold/ton in hole 7, 135 feet at 0.016 ounces of gold/ton in hole 8, 115 feet at 0.010 ounces of gold/ton in hole 9, and 100 feet at 0.018 ounces of gold/ton 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, and 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.

Timberline continues to assess the potential of the prospective Windfall fault zone at depth and on strike along the regional trend, with additional surface mapping, sampling, geophysical surveys, and exploration drilling programs planned, including a 6-hole program that was completed in 2011.

South Eureka Property Ownership

Staccato amended the Lookout Mountain project lease agreement in June 2008.  The lease term was extended to 20 years, and thereafter for as long as minerals are mined on the project.  Advanced royalty payments are $72,000 per annum.  Pursuant to the amended lease, annual minimum exploration expenditures of $250,000 are required for five years commencing on June 1, 2008, and an additional expenditure of $250,000 is required before June 1, 2016, for a total minimum work commitment of $1,500,000.  Exploration expenditures in excess of $250,000 in any year can be accumulated and carried forward and credited to expenditures required in succeeding years.  We have fulfilled the work commitment on the Lookout Mountain project.

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During the year ended September 30, 2012, we acquired the Windfall patented claims.  The claims were acquired in exchange for $400,000 cash as well as 919,935 shares of our common stock with a value of $500,000, based upon the weighted average closing price of our common stock on the NYSE MKT during the 15 days prior to the acquisition.

Other projects that comprise the extensive South Eureka property, including the Secret Canyon/Oswego, South Ratto and New York Canyon projects, and a large portion of the Hamburg Ridge project, are owned by us subject to underlying royalty agreements.  We are in the process of consolidating the ownership of a portion of the Hoosac/North Amselco project that is currently held by another party.

South Eureka Exploration

We are of the opinion that the South Eureka property has excellent potential for continued exploration success both at the deposit scale and on the regional scale.  The current Lookout Mountain mineralization is defined over a relatively small area at the north end of a mineralized structural corridor that extends for several thousand feet across the property, and up to 4 to 5 kilometers (2.5 to 3 miles) in strike length. This structure hosts several areas of drill indicated mineralization and the exploration potential in this corridor is strong, as evidenced by historic drilling, and soil and rock geochemical analyses.  The Lookout Mountain mineralization itself is open for expansion at depth and along strike, especially to the south. Regionally, several other target areas also exist where historic production and exploration have occurred, but only limited systematic exploration has been conducted.

From 2010 through 2012, we completed aggressive exploration work programs totaling approximately $9,000,000 on the South Eureka property.  Program objectives were to obtain sufficient data to prepare a NI 43-101 compliant technical report, conduct initial gold recovery studies, initiate environmental baseline investigations, better understand the controls of mineralization, and to outline additional exploration drill targets.  The 2010-2012 exploration programs achieved these objectives through:

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16,675 feet of core drilling focused primarily for metallurgical and geotechnical scoping studies;

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46,965 feet of  reverse circulation (RC) drilling directed primarily at resource in-fill and definition drilling

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Drill testing of high grade sulfide lenses within the oxide mineralization to better understand the geologic controls and geometry;

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Metallurgical testing on core samples to initially define heap leach characteristics and process parameters;

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Channel sampling and bulk sampling within the historic Lookout Mountain pit for bench-scale metallurgical testing;

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Identification of additional exploration targets on the South Eureka Property outside of the main Lookout Mountain Project area through detailed geologic mapping and sampling;

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Drilling and construction of additional groundwater monitoring wells for hydrological characterization;

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Initiation of geotechnical pit-wall stability and heap leach pad alternative  studies; and

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Initiation of additional baseline hydrology and environmental geochemistry studies directed at state and BLM permitting.

Regional exploration was also advanced in the district during 2012.  Complementing previous work, geologic mapping and ground magnetic surveys undertaken during the year complete district wide coverage.  Key successes of the 2012 drill program include demonstration of strong continuity in mineralization at the Lookout Mountain Project, and initial identification of high grade gold mineralization down-dip of the current mineralization.  

An initial technical report entitled, Technical Report on the Lookout Mountain Project, Eureka County, Nevada, USA , compliant with NI 43-101 (“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 Project.  In addition, significant exploration potential is noted.

The Technical Report was modeled and estimated by MDA by statistical evaluation of available drill data utilizing geologic interpretations provided by us.  The geologic interpretations were used to constrain gold mineral domains on vertical cross sections spaced at 50- to 100-foot intervals across the extents of the Lookout Mountain mineralization.  The cross sections were rectified to the mineral-domain interpretations on level plans spaced at 10-foot intervals, analyzing the modeled mineralization geostatistically 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 NI 43-101 compliant “Updated Technical Report on the Lookout Mountain Project, Eureka County, Nevada, USA” issued by MDA on May 31, 2012.  As a result of the 2011 exploration program, we successfully extended the mineralized zone at Lookout Mountain 600 feet to the south of the existing mineral deposit, and expanded mineralization 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 Project.

During the year ended September 30, 2013, we completed our 2012 exploration program at Lookout Mountain.  This program focused on providing data for on-going metallurgical studies directed at characterization of gold mineralization recovery, and for initial assessment of pit-slope stabilities.  Permitting-related activities were advanced through completion of quarterly water monitoring, and installation of three monitoring wells. Scoping-level investigations for location of site facilities (heap leach pads, mine rock storage, access roads) have also been prepared in advance of an anticipated Preliminary Economic Assessment (“PEA”) of the project. Assay results from drilling during the 2012 exploration program were incorporated into an NI 43-101 compliant “Updated Technical Report on the Lookout Mountain Project, Eureka County, Nevada, USA” issued by MDA on April 11, 2013.

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As a result of the limited availability of capital, we have curtailed our exploration activities at Lookout Mountain since the completion of the 2012 exploration program.  We have, however, continued geochemical waste rock environmental characterization, completed independent metallurgical testing, continued to monitor water quality and defined hydrologic work plans.  In addition, we consolidated our Elko field office into our Eureka facility in order to reduce ongoing expenses.  We also announced that we had entered into a letter agreement to form a joint venture with a private equity group to fund up to $20-million toward the development, permitting and construction of Lookout Mountain in exchange for up to 50-percent of a newly formed joint venture company.  However, as of the date of filing this report, we have not completed a definitive agreement regarding this joint venture.

There are no proven and probable reserves as defined under Guide 7 at the South Eureka property and our activities there remain exploratory in nature.

In anticipation of the completion of a Preliminary Economic Assessment, we plan in fiscal 2014 to complete additional detailed engineering and environmental studies to support project prefeasibility analysis.  This analysis would allow expeditious completion of an environmental impact study.   Assuming the availability of funding to undertake our exploration program - which is expected to include a preliminary economic analysis, additional drilling, metallurgical recovery studies, and project prefeasibility analyses; we expect that total expenditures on South Eureka during fiscal 2014 will be approximately $8 million.  These expenditures are discretionary and may be scaled back depending upon the availability of capital to us.

Cautionary Note to U.S. Investors: The Technical Report uses the terms "mineral resource," "measured mineral resource," "indicated mineral resource" and "inferred mineral resource". We advise investors that these terms are defined in and required to be disclosed by NI 43-101; however, these terms are not defined terms under Guide 7 and are normally not permitted to be used in reports and registration statements filed with the SEC.  See “Cautionary Note to U.S. Investors Regarding Mineral Reserve and Resource Estimates”, above.  

ICBM Project

The ICBM Joint Venture Project (Timberline/Barrick) is located in the Battle Mountain Mining District, Lander County, Nevada.  The land position consists of 526 hectares (1,300 acres) on BLM-administered lands.  The drilling to date has demonstrated that mineralization is present and is localized along the contacts of Cambrian sediments and altered granodiorite.  This style of mineralization is being mined at Newmont’s Fortitude/Phoenix complex to the south.  We are the operator of the joint venture, and currently hold a 72% interest in the project, with Barrick Gold holding the remaining interest.

As of September 30, 2013, we do not consider the ICBM prospect to be a material property.  No material future expenditures are planned on the prospect at this time.  

White Rock Project

In January 2011 we entered into a mining lease, with an option to purchase a 100% interest, for the White Rock property, which encompasses 2,060 acres in the northeastern portion of Elko County, Nevada.  The terms of the agreement to earn a 100% interest include a series of advance royalty payments, ranging from $20,000 to $50,000 annually, granting of a 3% NSR to the property owner, and an option to purchase all claims comprising the property for $100,000.

The White Rock property is an exploration project encompassing a large, low grade, structurally controlled epithermal gold system with similarities to other well-known Nevada gold deposits such as Sleeper, Paradise Peak and Aurora/Borealis.  Historical exploration during the period from 1988 to 1994 validated widespread gold mineralization within the property.  Since acquiring the property, we have completed detailed geologic mapping, soil and rock chip geochemical sampling, a ground magnetics survey, and spectrophotometry surveys.  In addition, planning and permitting is in progress with regulators in anticipation of a future surface drilling program.  However, as of September 30, 2013, we do not consider White Rock to be a material property and no material expenditures are planned at this time.

Toole Springs Project

In August 2011 we entered into a mining lease, with an option to purchase a 100% interest, for the Red Rock Project and Cedar Project, collectively referred to as the Toole Springs Project, which encompasses 4,020 acres along the Carlin Trend in Elko County, Nevada.  The terms of the agreement to earn a 100% interest include a series of advance royalty payments, ranging from $20,000 to $100,000 annually and the granting of a 3% NSR to the property owner.

The Toole Springs Project represents an early stage gold exploration target. It is located in favorable stratigraphy within the Carlin Trend and is a pediment play (gravel covered).  Limited exploration has been undertaken since we acquired the property, including compilation of historic data, a ground magnetic survey, and biogeochemical sampling.  We anticipate undertaking limited additional surface exploration work on the project in the future, to be followed by a drilling program.  However, as of September 30, 2013, we do not consider Toole Springs to be a material property and no material expenditures are planned at this time.

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Seven Troughs District

During the year ended September 30, 2012, we announced the acquisition from CIT Microprobe Holdings, LLC (California Institute of Technology) (“CIT”) of 3,900 acres of patented and unpatented mining claims comprising essentially the entire Seven Troughs gold mining district near Lovelock, Nevada.  Terms of the purchase agreement included a cash payment of $50,000 and a 2-percent NSR production royalty reserved to CIT, with a standard royalty buy down clause.  

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 20 ^th 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 initiated the compilation of historic data and completed a limited geochemical sampling and spectrophotometry survey within the district.  As of September 30, 2013, we do not consider Seven Troughs to be a material property and no material expenditures are planned at this time.

Iron Butte/Dave Knight Mineral Properties

During the year ended September 30, 2013, we announced that we had entered into a Lease and Option-to-Purchase Agreement (the "Knight Agreement") to evaluate, explore, and develop a package of mineral claims in Nevada comprised of six separate properties, including the Iron Butte Project.  The properties, primarily focused in the productive gold trends of central Nevada, were acquired from David Knight, a well-known and respected professional Nevada geologist.  All of the leased properties exhibit anomalous gold values in outcrop or in historic drill holes.  

The Iron Butte Project is located along the southern boundary of the prolific Battle Mountain - Eureka Gold Trend.  Over 100,000 feet of drilling have previously been undertaken on the property, outlining gold mineralization along a strike distance of 9,000 feet proximal to the range front with an overall width of 4,000 feet within structural intersections in volcanic rocks and Paleozoic sediments.

The Knight Agreement provided for the issuance of 900,000 restricted shares of our common stock on the effective date of the Knight Agreement, as well as an additional 1,000,000 restricted shares of common stock in September 2014; and 1,500,000 shares of restricted common stock in March 2016.    The shares of restricted common stock issued on the effective date of the Knight Agreement had a value of $306,000, based upon the closing price of our common stock on the NYSE MKT on the date of issuance.

No cash payments are required under the Knight Agreement until March 2015 when annual advance royalty payments of $25,000 commence.  The option to purchase the claims, subject to the reservation of a royalty, is exercisable at any time prior to March 2017.  Should we exercise the purchase option, the purchase price includes a cash payment of $2,000,000, not due until March 2017.  The Knight Agreement does not require any annual work commitments, and provides us with a first right of refusal on certain other Nevada properties controlled by Mr. Knight and currently under lease to third parties.   

Subsequent to September 30, 2013 the Knight Agreement was amended to include additional mineral claims in Nevada in exchange for 200,000 restricted shares of our common stock.  As of the date of filing this report, we hold 590 mineral claims on seven separate properties, comprising a total of nearly 11,000 acres under this Knight Agreement, as amended.

As of September 30, 2013, we do not consider the Iron Butte Project, or any of the other properties acquired under the Knight Agreement, as amended, to be a material property and no material expenditures are planned at this time.

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Montana Gold Properties

Butte Highlands Gold Project

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In July 2007, we closed our purchase of the Butte Highlands Gold Project, including 100-percent ownership of mineral rights, from Butte Highlands Mining Company for $405,000 cash and 108,000 shares of our common stock.  The project is located approximately 15 miles south of Butte, Montana in Silver Bow County.  The property covers 1,142 acres consisting of a combination of patented and unpatented mining claims situated within Sections 31 and 32, Township 1 North, Range 7 West; Sections 5 and 6, Township 1 South, Range 7 West; and Section 1, Township 1 South, Range 8 West, Montana Principal Meridian.  The property can be accessed utilizing motor vehicles via State Highway 2 and county and US Forest Service maintained, improved surface roads.  The project is within a favorable geologic domain that has hosted several multi-million ounce gold deposits.

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”) (an entity controlled by Ron Guill, a director of the Company, to create Butte Highlands JV, LLC (“BHJV”).  Under terms of the joint venture agreement, development (as defined in the joint venture agreement) began in the summer of 2009, with Highland funding all costs through development. Both Timberline’s and Highland’s 50-percent share of costs will be paid out of proceeds from future mine production.  Under the terms of the operating agreement, filed with this Annual Report as Exhibit 10.13, Highland will have preferential rights with respect to distributions until our investment is deemed equal to the investment by Highland.  During the year ended September 30, 2012, Ron Guill, a director of the Company, sold his interest in Highland to a private corporation unrelated to the Company or to Mr. Guill.

Since the creation of BHJV, Butte Highlands has been advanced toward production (as defined in the joint venture agreement) through completion of an underground exploration ramp and a 52,000 foot underground core drilling program.  The drilling program was designed to collect definition drill data to facilitate, with our assistance, a mine model for production planning purposes during the early years of the mine’s production life.  In addition, BHJV continued to collect environmental baseline data as part of its application for an operating permit that was initially submitted during the year ended September 30, 2010 with the Montana Department of Environmental Quality (“MTDEQ”) to commence gold mining operations.  During fiscal 2013 we received a notice of completeness and compliance from the MTDEQ, as well as a draft operating permit.  Subsequent to our fiscal year end, but prior to filing this Annual Report, we also received notification that the MTDEQ had completed its Draft Environmental Impact Statement (“Draft EIS”) relative to the operating permit application.  Receipt of the Draft EIS is a significant milestone in the process to obtaining the final operating permit to commence production.  It is anticipated that the MTDEQ will issue the final operating permit in early 2014.  

Activities at Butte Highlands during fiscal 2012 and 2013 focused on advancing mine permitting.  Supplemental baseline data to support the operating permit application was collected and provided to regulators.  This data included characterization of wetlands, faunal study, surface water hydrology investigations, geochemistry, and an initial project water balance analysis.  In addition, a Montana Pollutant Discharge Elimination System (MPDES) permit application was submitted and the final permit was granted in 2013.  The MPDES is a critical requirement for further underground exploration and mine operation.  

Permitting has also advanced during 2012 and 2013 with submittal of a proposed Plan of Operations with the United States Forest Service (“USFS”) for ore haulage road use.  The USFS completed site investigations and continues preparation of an Environmental Assessment, which is anticipated to be completed in 2014.  Once the final operating permit is granted by the MTDEQ and the Plan of Operations is approved by the USFS, we expect BHJV to transition from exploration to gold mining operations.

Highland, our 50/50 joint venture partner on the project, will carry all costs incurred on the project until mining operations commence.  We expect that the total costs incurred by Highland on the project to reach this milestone will be approximately $35 to 40 million.

⁽¹⁾  Claims are owned 100% by Butte Highlands JV, LLC, in which Timberline Resources owns a 50% interest.

⁽²⁾  Timberline holds a lease option agreement on these claims subject to a mining lease/option to purchase agreement dated October 1, 2009.

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All of the unpatented claims are exploration lode claims legally located under federal and state guidelines whereas each claim is 600 feet by 1500 feet encompassing 20 acres.  Each claim is clearly marked with a 4 inch by 4 inch post or equivalent tree at each corner and a location monument is erected along the center line of the long direction of the claim.  All BLM maintenance requirements have been met.

All of the private lands within the Butte Highlands property are historic lode and placer claims which were patented through the U.S. government patent process.  We are responsible for paying yearly BLM maintenance fees on all unpatented mining claims and Montana state property taxes on all patented lands.  All associated taxes and fees are paid up to date as of September 30, 2013.  Electricity and water are readily available on the property.  If necessary, additional electricity requirements may be met by augmenting the currently available electrical supply with generator power.

In 2009, we signed a Mining Lease/Option to Purchase Agreement with the Richardson Family Trust for certain patented claims as detailed in the table above.  The agreement called for an initial payment of $20,000 with annual payments of $15,000, increasing to $20,000 plus an annual inflation adjustment by October 2013, and remaining at that level thereafter.  We will pay a 3-4% NSR royalty on any production from the Richardson Family Trust property, based upon the sale price of minerals produced from the property.

Gold mineralization at Butte Highlands is hosted primarily in lower Paleozoic Wolsey shale with higher-grade mineralization occurring within the sediments proximal to diorite sills and dikes.  Between 1988 and 1996, prior operators Placer Dome, Battle Mountain, ASARCO, and Orvana Minerals demonstrated the presence of a wide and continuous mineralized zone by drilling 46 core holes (36,835 feet) and 132 reverse-circulation holes (61,338 feet) within the district.  The vast majority of this drilling was conducted in the Nevin Hill area which is included in the Timberline property.  Best gold intercepts achieved at Butte Highlands include 49.8 feet of 0.651 ounces per ton (oz/t) and 11.5 feet of 1.996 oz/t from surface drilling.  From underground drilling, best gold intercepts include 33.6 feet of 1.65 oz/t, 31.0 feet of 1.060 oz/t and 14.3 feet of 2.37 oz/t.  

In 1997, Orvana Minerals used recent and historic drilling data to prepare a report on the Butte Highlands property.  The report provided a preliminary technical review of feasibility issues, identifying no fatal flaws to mine development.  The report also noted that suitable sites for a mill and tailings pond are present on the property, custom milling at existing nearby facilities was feasible, and access to the deposit could be achieved with a decline from either of two existing portals.

Drilling by Timberline Resources  

Four core holes were drilled in 2008 totaling 6,757 feet of drill core.  The results were positive, resulting in confirmation and extension of the stratigraphic controlled mineralization to the northwest and the discovery of an additional zone at depth near the northwest end of the known mineralized extents.  The drilling also indicated a potential zone of broader lower grade material within the intrusive which may be amenable to bulk underground mining methods.

In 2009 BHJV completed a five hole core drill program totaling 7,244 feet of drilling.  Several intercepts grading above 0.10 ounces of gold per ton (oz/t) and a significant amount of skarn mineralization were encountered.  At least one of the holes also provided geotechnical data for the proposed vent raise and for exploration.  BHJV also initiated a Hydrologic Reverse Circulation Drill program during 2009.  The program consisted of five holes completed for a total of 6,695 feet.  Data collected during this program was used to model the hydrologic character of the mineralized area.  

A seven-hole core drilling program was completed in 2010.  The program had two purposes; one was to infill and expand mineralization within the known area of mineralized material, and the second was to test potential for mineralization to the east, outside the area of known mineralization.  Three holes were drilled within the known extents of the mineralized area while four holes were drilled outside to the east of the known extents.  Two of the holes drilled interior to the known mineralized extents had significant intercepts in them.  Hole BHDDH10-02 had a 9.7 foot intercept grading 0.383 oz/t.  This intercept is generally carried by a 1.72 foot intercept grading 0.768 oz/t.  This drill hole had a couple additional shorter intercepts that with further exploration drilling may lead into additional ore zones.  The first one is a 3.3 foot gold intercept grading 0.113 oz/t and the second is a 2 foot gold intercept grading 0.269 oz/t.

Hole BHDDH10-07 had sixteen intercepts greater than 0.029 oz/t.  The overall intercept was 43.2 feet from 959.8 feet to 1003 feet at an average grade of 0.819 oz/t gold including one intercept from 971.9 feet to 974.1 feet of 2.2 feet grading 15.242 oz/t.  There are other intercepts in the drill hole but all are less than 0.1 oz/t.  

There were no mineable width significant intercepts in the outside exploration holes.  Several short intercepts and intercepts of anomalous material were encountered but nothing of economic interest.  Hole number BHDDH10-03 contained an intercept from 938.5 to 939.9 consisting of 1.4 feet grading 0.185 oz/t.  Hole number BHDDH10-04 also contained a short intercept from 708.9 to 709.6 consisting of 0.7 feet grading 0.179 oz/t.  Both of these intercepts were short zones on the contact between intrusive material and the Meagher formation.  Although we did not encounter significant ore zone intercepts, strides in understanding the geology and genesis of the Butte Highlands gold mineralization were achieved.  

In 2011, BHJV undertook a 52,000 foot underground definition drilling program.  This program was designed to collect definition drill data to facilitate a mine model for production planning purposes during the early years of the mine’s production life.  This drilling encountered several significant intercepts within the known mineralized extents, including 33.6 feet grading 1.65 oz/t, 51.8 feet grading 0.43 oz/t, 26.9 feet grading 0.32 oz/t and 14.3 feet grading 2.37 oz/t.

All of these intercept values were calculated using a sample length, weighted average calculation or represent a single sample interval.  The true widths of the intervals’ lengths are estimated to be approximately 75-percent of the reported interval length.

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Our President, Chief Executive Officer and Executive Chairman, Paul Dircksen, was a qualified person as defined by NI 43-101, and has reviewed and approved the technical contents of drilling results when they were received, including sampling, analytical and test data.  Field work was conducted under his supervision.  Our sampling and analysis program included an industry standard QA/QC program.  After photographing, core logging and cutting the sample intervals in half, the samples were shipped to ALS Chemex Laboratories in Elko, Nevada for preparation.  The prepared pulps were then forwarded by ALS Chemex to their lab in Sparks, Nevada or their lab in Vancouver, BC Canada for analysis.  The samples were analyzed for gold using a standard 30g fire assay with an AA finish.  Samples returning a gold value in excess of 10 ppm were re-analyzed using a 30g fire assay with a gravimetric finish.  

As of September 30, 2013, we have incurred exploration costs to date of approximately $1,600,000.  During the 2014 fiscal year, we do not plan to undertake any significant exploration work on the property.  The focus at Butte Highlands in fiscal 2014 will be the completion of the permitting process, and the commencement of mining operations by our joint venture partner, Highland, upon the receipt of the Hard Rock Operating Permit from the State of Montana and the Special Use Permit from the USFS.

Idaho Gold Property

The Spencer Prospect

The Spencer prospect covers 640 acres on the western end of the Kilgore-Spencer Trend, a northeast-trending belt of rhyolite volcanics known to host epithermal gold-silver mineralization, just south of a privately-held opal mine about nine miles northeast of near the town of Spencer, Idaho.  We believe that the property has the potential to host both open-pit and underground gold deposits.

The geochemistry at Spencer is consistent with the upper levels of an epithermal system.  Although there was considerable interest in the region during the 1980s and 1990s, the Spencer property has never been drill tested. We have performed a phase-one exploration program consisting of reconnaissance-scale geological mapping along with rock chip and soil geochemical sampling.  Future work may include more detailed mapping and sampling, and possibly a geophysical survey to help define drill targets.   

The Spencer Prospect is held by State of Idaho Department of Lands Mineral Lease No. 9347. The Mineral Lease was issued to a prior Director of Timberline, who assigned it to us for consideration of common stock and approximately $3,000 in expenses.  The prospect is located in Section 16, Township 12 North, Range 37 East, in Clark County, Idaho.  The lease covers an area of approximately 640 acres and calls for annual payments to the State of Idaho of $640.  Royalties on production of precious metals are 5-percent of the gross receipts from the sale of minerals produced, less reasonable transportation, smelting and treatment costs.  

As of September 30, 2013, we do not consider the Spencer prospect to be a material property.  No material future expenditures are planned on the prospect at this time.

Idaho Copper-Silver Property

The Snowstorm Prospect

The Snowstorm Prospect (“Snowstorm”) is located in north Idaho’s “Silver Valley” and features the Snowstorm Mine, a historic operation that produced 800,000 tons of ore averaging 4-percent copper and 6 ounces per ton (oz/t) silver.  Snowstorm mineralization occurred as disseminated copper and silver found in the same Revett Formation quartzites that host the Troy, Rock Creek, and Montanore deposits on the Montana Copper Sulfide Belt, but was of a much higher grade.  The Snowstorm property, which is 2 miles northeast of the Lucky Friday Mine near Mullan in Shoshone County, Idaho, lies in the southwest corner of the Montana Copper Sulfide Belt where it overlaps the northeast corner of the Coeur d'Alene Mining District.  

In June 2012 we entered into an Exploration and Option to Purchase Agreement (“Snowstorm Agreement”) with Daycon Minerals Corporation (“Daycon”), a private Canadian corporation, for Snowstorm.  Under the terms of the agreement, Daycon held a five year option to purchase the property for $1.5 million cash.  We received a total of 1,000,000 shares of Daycon common stock under the Snowstorm Agreement, with potential stock to be issued of up to 1,500,000 shares of Daycon common stock.  Daycon agreed to make annual minimum exploration expenditure commitments of $250,000 on Snowstorm, commencing in June 2014.  

Subsequent to September 30, 2013, we replaced the Snowstorm Agreement with a Transfer Agreement whereby we transferred our interests in Snowstorm to Daycon in exchange for 500,000 shares of Daycon common stock, thereby ending our involvement in Snowstorm.  We do not consider our agreements with respect to Snowstorm to be material to our business at this time.  

As of September 30, 2013, we do not consider the Snowstorm prospect to be a material property.  No material future expenditures are planned on the prospect, as we have subsequently transferred the prospect to Daycon as described above.

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Montana Copper-Silver Properties

The Minton Pass, East Bull, Standard Creek, Lucky Luke, Clear Peak and Copper Rock Prospects  

In 2004, we acquired four properties on the Montana Copper Sulfide Belt in Lincoln and Sanders counties.  All four properties are interpreted as sediment-hosted copper-silver occurrences located in the Revett Formation of the Montana Copper-Silver Belt and are considered early-stage exploration prospects.  The properties were held by U.S. Borax and its successor company, Kennecott Exploration, during the 1980s and early-1990s.  We acquired the mapping and sampling data from the U.S. Borax program.  There has been no documented activity in these areas since 1992.

In 2008, we acquired two additional prospects in the same favorable mineralized geology, Clear Peak and Copper Rock.  These properties have the same geologic description as the properties described above.  Both Clear Peak and Copper Rock were previously explored by Asarco Exploration Company, Inc.  All claims were staked by us and are not subject to any underlying production royalty.  All of these claims have been filed with the BLM.

In June 2012 we entered into an Exploration and Option to Purchase Agreement (“Montana Agreement”) with Daycon Minerals Corporation (“Daycon”), a private Canadian corporation, for our Montana Copper-Silver Properties.  Under the terms of the Montana Agreement, Daycon held a five year option to purchase the properties for $1.5 million cash.  We received a total of 600,000 shares of Daycon common stock under the Montana Agreement, with potential stock to be issued of up to 900,000 shares of Daycon common stock.  Daycon had agreed to make annual minimum exploration expenditure commitments of $200,000 on the properties, commencing in June 2014.  However, during the year ended September 30, 2013, Daycon exercised its right to terminate the Montana Agreement and return the properties to us.  

Subsequent to September 30, 2013, we entered into agreements with Daycon whereby we transferred the properties to Daycon for nominal consideration, thereby ending our involvement in the Montana Copper-Silver Properties.  We do not consider our agreements with respect to these properties to be material to our business at this time.

As of September 30, 2013, we do not consider any of the Minton Pass, East Bull, Standard Creek, Lucky Luke, Clear Peak or Copper Rock prospects to be material properties.  No material future expenditures are planned on the properties, as we have subsequently transferred the properties to Daycon as described above.

Overview of Regulatory, Economic and Environmental Issues

Hard rock mining and drilling in the United States is a closely regulated industrial activity.  Mining and drilling 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 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 and Departments of Environmental Quality.  Local authorities, usually counties, also have control over mining activity.  An example of such regulation is the State of Montana’s recent ban on the use of cyanide in certain open-pit mining activities within the state.  Cyanide is often used in the extraction of gold.  However, since some of our prospects in Montana are for silver and copper this ban does not affect those properties.  Our Butte Highlands project in Montana is partially on patented ground and is an underground gold prospect.  It is anticipated that any production from this property would be from an underground mine and would, at least initially, be shipped to nearby mills for processing as opposed to building our own mills and processing facilities, thus this ban would not affect our plans in Montana. We are not aware of any other states that plan to enact similar legislation.

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 deposits tend to be low grade (such as 0.01-0.03 ounces per ton gold) and are mined using large, costly earth moving equipment, usually at very high tonnages per day.   

Open pit operations for gold often 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 surface, then sprinkling the gold with a weak cyanide solution to extract the gold.  The gold impregnated solution is collected and the gold recovered through further processing.

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.  This process results in the accumulation of waste by-products from the processing of the ground ore. Mills require associated tailings ponds to capture waste by-products and treat water used in the milling process.

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 world-wide 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.

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Environmental protection and remediation is an increasingly important part of mineral economics.  In some cases, particularly in Montana, with its concern for its grizzly bear population, mining companies have been required to acquire and donate additional land to serve as a substitute habitat for this threatened species.

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 permits, to insure 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.    

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 are in compliance with 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, silver or copper, 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.