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Gold/Mining/Energy : Big Dog's Boom Boom Room

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To: Grommit who wrote (74611)	11/5/2006 5:01:25 PM
From: KyrosL	of 206209

My aim was not to calculate the precise NAV loss of a particular trust but rather do a back of the envelope comparison of NAV loss of short RLI trusts versus very long RLI trusts (such as COS). I did this in trying to understand the stock market reaction to the tax change and assumed some numbers to make the comparison less abstract. My basic assumptions were that cash flows will be taxed at 20% and the RLI of a typical trust is 8 years. You can argue about the precise numbers but the final conclusion that very long reserve life trusts should have dropped more than the typical short reserve life trust, rather than less, remains the same regardless of the tax rate, or whether you apply it to cash flows or profits: The percent loss of NAV of the typical oil/gas trust with low reserve life is about half compared to the loss of a very long reserve life one, like COS. This is because the four front end tax free years mean a lot to a short RLI trust but relatively little to a very long RLI one. I make no assumptions about how the tax change affects the chances of takeover. Some people believe that it greatly enhances them.

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