Timberline News Commentary
Timberline Resources (TLR) announced today, Wednesday, May 16, that they had amended the terms of the non-binding letter of intent to acquire the remaining 50% of Butte Highlands from Highland Mining (see the VultureInReview post below this one). As we understand it, the revised terms (and the change from the original agreement) are:
• 5% of the issued and outstanding common stock of Timberline, less one share, as of the time of closing the deal (no material change from the original, but the number of shares is fixed, unaffected by price);
• A 5% Net Smelter Return (NSR) royalty on all ounces produced from Butte Highlands (rather than 5% for the first 250,000 ounces and 2% on production thereafter);
• A $6 million note to Highland Mining, apparently non-interest bearing, payable within two years after Butte Highlands commences commercial production (rather than $5 million cash at closing – a material change that reduces TLR’s cash needs now and, importantly, the time meter does not begin until commercial production starts); and
• Highland Mining’s forgiveness of the $24 million in development expense debt (no material change from the original agreement).
In essence Timberline and Highland Mining have eliminated the upfront cash payment portion, increasing the amount from $5 million to $6 million but structuring it so that it can be paid from production. In our view this should alleviate concerns of some shareholders that the cash portion of the deal would be dilutive at a time when the stock price is being adversely affected by a hostile market. This is key to us. It seems very pragmatic under the circumstances and shows a good deal of confidence in the project on the part of Highland Mining.
In return, but over the long haul, Highland Mining stands to benefit by the increase in the NSR (for the back end of the future production), with the increase in NSR effective after the first 250,000 ounces have been produced.
In light of the vicious market conditions at present, TLR and Highland have made the deal more attractive to current TLR shareholders in our opinion. We view this news favorably and commend TLR and Highland management.
That is all for now, but there is more to come.
Disclosure: Timberline Resources is a Vulture Bargain Candidate of Interest (VBCI) and is our fully fledged Vulture Bargain #4. Members of the GGR team are actively accumulating shares of TLR and continue to hold a speculative long position in the company.