hillgrove goes it alone on kanmantoo project, page-43

Hi Yaqona,

HGO has an estimated $23M tax bill for the sales of ESG shares - almost the size of the Capital to be raised.

(cf. Quarterly Report: It is anticipated that Hillgrove will book a profit on the transaction of approximately $94 million before tax for the half year ending 31 July 2009. Tax payable on the transaction is estimated to be approximately $23 million after utilising anticipated carry forward tax losses.).

I trust HGO's management should have thought through all the tax effective approaches for the Kanmantoo project.

As the Kanmantoo JV would be a seperate business entity, there is definitely a disadvantage for HGO unable to use its CapEx and Op losses to offset the tax liability of the upcoming ESG top-up windfall - it would be over $50M tax bill for the $170M topup (assuming $1 per share.) As the expenditure in Indonesia and other projects is still relatively low, the available offset would be minium.

I know very little about corporate taxes, so I might be wrong or worried too much.

To summarise, I estimate that:
1. HGO would have a $25M shortfall if it can't dodge the $23M tax bill. In that case, further SPP to ordinary shareholders and/or bank loans would be necessay.
2. To go alone with the Kanmantoo project, HGO will have substantial tax benefit when the ESG windfall do occure.