Hi Larry, <<Why is PRIMEWEST paying 18% div ???>>
I have been asking this question about the royalty trusts achamchen.com , and I will first respond “I do not know”, and then I say:
(a) PWI is not actually yielding 18%, even though one is getting money in pocket every month, month after month, and then after month amounting to 18% of current unit purchase price (CAD 25.5)
(b) If one were to stop PWI from acquiring new fields, prevent it from divesting of existing reserves, forbid it from tweaking efficiency of current operations, and just have it produce from existing reserve and pay out the income and amortization/depletion charge, and one holds PWI until its net asset value (accounting assets less accounting liabilities) equals zero (estimated to happen in year 2009, when it still has enough reserve to produce until 2013), then PWI yields exactly zero % if the realized oil/gas price stay as is, and one pays CAD 25.50 for the unit achamchen.com (see the third worksheet);
In theory, if PWI do as in (b), then its unit price will decrease with each distribution by approximately equal amount as the distribution.
PWI has value above and beyond CAD 25.50 because:
(a) Implicit call option value on gas reserve
(b) Expected gas price increase
(c) On-going concern value (the beast can acquire new fields with new cash raised, and can tweak existing efficiencies, until such time the world runs out of gas)
(d) Realizable gas price will gradually rise as its hedged sales are delivered, and new hedges put in place at successively higher prices, approaching spot price, if spot price remains stable or rises from current levels
(e) Possible legislative change that enables institutions to invest in trusts
So much for mind jerk nonsense, let's go make some money:0)
Chugs, Jay |
