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July 6, 2010 Dear Friend,
We estimate the new
Aussie MRRT tax proposal is somewhere between "nil and
5%," but could also turn out to be a net tax reduction
or deduction. In short, the combination of writedowns
of all cap ex as made represents nearly 8% to 9% of
stock market value, and the writedown of "market
value" based depreciation could be another 5% if based
on a 20 year life or even larger if lives were deemed
shorter. We believe this could easily wipe out the
22.5% proposed tax rate. Further, the Western
Australian and other state royalties are deductible
against the MRRT, the MRRT is deductible against the
federal income tax and NOL rollovers apply.
It is possible that
after the Labor Party comprehends what its new leader
agreed, the Labor Party itself may withdraw the
proposal. After all, how can any government "budget"
future outlays when the tax income has been so vaguely
defined? The entire episode appears farcical.
Further, the original
40% Resource Super Profit Tax and the new MRRT continue
to have right-wing oppositions, including a Western
Australian provincial challenge at the Supreme Court,
the Green Party dropping its support, the Labor Party
holding just 28 of the 76 Senate votes in favor of the
tax assuming the losses of both Green or Western
Australian senators and the potential for Labor to lose
more ground in the pending election. On top of its
other problems, the 2008 founding of the Communist
Alliance party and the 2009 founding of the Sex party
each could take several percentage points of the
popular vote away from Labor.
Nonferrous
inventories continue to fall, but the pace slowed for
copper, nickel and lead last week while continuing
strong for aluminum, zinc and tin. We believe
production restraint and cap ex restraints benefit
markets more than commonly understood in a bullish
manner.
It is possible that
Vale Inco settles its Canadian strike, but we believe
many Sudbury underground miners moved to emerging gold
producers on a permanent basis. We expect a
Newfoundland production restart with replacements
whether or not a settlement occurs, and at best a 50%
Sudbury restart with a settlement. We believe Vale has
"re-engineered" practices with the benefit of this one
year hiatus.
Fatihfully,
John C. Tumazos, CFA
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Copyright © 2008 John Tumazos Very Independent Research,
LLC
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