Randal Hardy: From the ground up
Drill, baby, drill means something entirely different to Timberline Resources Corp. The small mining exploration company based in Coeur d'Alene is reaping profits from record prices of precious metals, but not from its own mines - yet.
A pair of drilling companies owned by Timberline - Kettle Drilling in the U.S. and Worldwide Exploration in Mexico - are doing contract work for other mining companies, and providing essential cash flow as Timberline nears production at its Butte Highlands gold mine in Montana and looks forward to a fast turnaround from exploration to low-cost yield of gold at its Nevada property acquired in June.
Leading the company since August 2007 is Randal Hardy, chief executive officer, chief financial officer and a member of the board of directors. When he signed on, shortly after Timberline bought the drilling companies and Butte Highlands, gold was selling for less than $700 an ounce, and has since risen to more than $1,200.
That means the payoff could come soon to the company that is just a little over five years old, and watching the prices rise has created a strong sense of optimism at Timberline.
"Is it going to be there when we get there in the bubble?," Hardy said. "Personally I'm very positive on gold prices, I think they're going to stay pretty strong. I wouldn't be surprised to see them drop a little bit, even to $900, $1,000, but I also think the possibility is there that it could go up to $1,500. Some people are calling for $2,000 gold by the end of the year. I personally don't think that's going to happen."
Timberline closed on its acquisition of Staccato Gold Resources on June 3, which brought a cash infusion of $5 million and about 15,000 acres in Nevada's Battle Mountain, believed to hold significant gold reserves.
Even at the most pessimistic end of the scale, with a production cost of about $450 per ounce or less, the company is poised to perform well with more than 1 million ounces of gold expected to be found in the Montana and Nevada properties.
"This mine at Butte Highlands we've had for three years," Hardy said. "If we go into production next year, that's amazingly quick to put a mine into production. A lot of these projects can take five years, 10 years, even longer."
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Was the Staccato deal the biggest yet for Timberline?
The purchase of the drilling company in 2006 was big, and integrating it over the next couple of years was a big project, but certainly acquiring Staccato was a big step for this company. Not only did it bring a very good property, down in Nevada, that we're very excited about getting down and drilling on, it's a very large property that already has a resource and we're going to expand that resource and confirm that resource. We're pretty certain that we'll be able to bring that in within a year to a year and a half we'll be able to make a production decision.
If we were to bring that into production, it would be a lower cost, open pit type operation.
Then also, a good shareholder base. They have some good institutional shareholders, as well as a fairly good retail base. A lot of Canadian investors, because it was a Canadian company, and Canadians are very savvy when it comes to resource investing, and they understand the resource market.
If they have the optimism and confidence in Timberline, that is a good sign?
A hundred percent of our shareholders, as well as their shareholders, everybody was very supportive. We did offer a pretty good premium to their stock price, but we felt like their stock price was a bit depressed. Ours also, we're undervalued as well. We felt like it was what we needed to do to get our foot in the door. There were other companies that bid on that company, and ours was the better offer. We really were aggressive about going after it.
So you do plenty of due diligence?
Paul Dircksen, our VP of exploration, spent a lot of time looking at their data and talking to their geologists and we became comfortable there was a good resource there. We don't know the exact number. They had reported a resource of over 800,000 ounces. There are some assumptions you can question about that. When we get to it, we think it will be a little bit smaller than that, but still a very nice resource for our company, our size. That's kind of what our target is, is smaller deposits that we can operate profitably that aren't of interest to the big boys.
Did the drilling division turn into a significant piece of the cash flow?
It did. In fact the last four quarters, we have been profitable, even in this economy in the drilling company. It provided some good cash flow. We'll pay down some debt that we had to buy drills and things, but it's going well. The drilling company is doing quite well, actually.
What do you learn from watching the other companies like Hecla and Coeur? Do you learn some pitfalls, and good moves to make?
It's interesting being in this area, with all the Hecla, Coeur, the other mining companies around here, the mines in the Silver Valley, the whole history that's there. I think one of the things you learn is to be cautious, and to do good due diligence, and not get emotional about decisions, base them on hard facts. This is a risky speculative business that we're in, so you need to have as much solid evidence as you can.
Where do you stand now on debt?
On the exploration side, we have about $5 million in debt. It's all related to our largest shareholder and one of our directors, so it's kind of an inside debt, but it's debt none the less. It's convertible debt, into common stock.
It's due in October, and we're working on an extension for that. (That $5 million convertible note with Small Mine Development, LLC, Timberline's equal partner in Butte Highlands, was extended until April 30, 2012, soon after this interview.)
Are you fairly comfortable with that?
I feel comfortable that we're going to work something out there. With the drilling company there's some debt with that, around $1 million there as well. But it's paying down it's debt.
That's the nature of this business, isn't it?
It's capital intensive, so generally speaking you're going to use some debt to acquire equipment.
If things go as you hope and expect, are you looking forward to a good solid five, 10-year future?
Yeah, we are. We are very confident about what we've got going right now. We're a small company, but we're listed on the New York Stock Exchange, Amex, we're listed now in Canada as well. We think in terms of shareholder base and in terms of our ability to attract capital if we need to, we're confident about our ability to do that. But we also are confident about bringing this mine at Butte Highlands into production during 2011. When we do that, based on gold prices, if gold prices stay up around where they are we're looking at a margin to us in cash flow exceeding $17 million a year. That we can then use for further exploration. We think once we get to that point and start that we're looking at a 10-year mine life on that mine. That boosts us into a different category.
Do you plan to stay focused on gold?
If we had the opportunity for silver we're certainly not opposed to that. A lot of the time you get into the base metal properties, with copper and things, they might be much larger, and we could still do some exploration on those. The likelihood of us taking one of those into production, if we had a property that came along well with a base metal we would likely sell that property or joint venture it.
Are mining shareholders more involved in the company?
I would say there probably is some emotional attachment, because they follow the gold market or the silver market and so they expect to see results as prices go up. Everybody wants to participate. There is a certain degree of speculative nature, too about precious metal investors, because it is a risky industry. We try to take the risk out by working through hard facts.
We are very protective of our share structure. We see that as an asset. We now have about 56 million shares outstanding and we don't see the need, at this point anyway, of increasing that. To have a company that goes into full production with 56 million shares outstanding is pretty good. Not unheard of but it's a good thing to have. It does seem like a big number but look at other mining companies, exploration companies. Staccato for example, they had one main property they were working on, they had some money in the bank, they had 100 million shares outstanding.
Date of birth: Jan. 6, 1961
Family: Wonderful wife of 28 years, Gina; two daughters, Karissa, 25, Chantel, 23; son, Joshua, 19, a computer engineering student at Gonzaga; and two amazing granddaughters, Ellie and Jolie.
Education: Bachelor of business administration in finance, Boise State University
Number of hours sleep in a night: 6-7
Number of hours you work: 40-50 per week and frequent travel
Hobbies: Golf, boating and water sports, family activities
Favorite music: All sorts of music - especially my son's band!
Favorite book: Business books
Favorite movie: Comedies - Steve Martin movies
Favorite vacation spot: Anywhere with my family
Favorite spectator sport: NFL football and college basketball
Best advice you ever received: Don't give up what you want most for what you want now!
One person who most influenced you: My dad was an educator and a great example who instilled in me the importance of education and a strong work ethic
Qualities you admire most in a person: Integrity and perseverance
Any one thing you would change about yourself: I'd be able to sleep in on weekends!