Great Basin Gold Ltd. (fka GBGLF)

[amarksp]

RBC: New SA royalty bill could erode upside for gold investors
Analyst says royalty payments are another hurdle to deliver earnings in line with market expectation.

http://www.mineweb.com/mineweb/view/mineweb/en/page33?oid=44303&sn=Detail

Author: Tessa Kruger
Posted: Saturday , 12 Jan 2008

JOHANNESBURG -

The timing of South Africa's proposed new mineral and petroleum resources royalty bill to be enforced on gold mining companies from mid-2009 could imply that upside for gold investors is eroded. This comes as battling gold miners in the country would either need to have their cost base in shape or have found new higher-grade ores by this time.


RBC Capital Markets analyst Leon Esterhuizen said in a recent Equity Research Report that the South African government's third draft royalty bill would have significant impact on gold companies' earnings potential. The recently released draft proposed a royalty rate on revenue that varied according to company profitability compared to a flat rate proposed in the first draft.


Had the royalty been in effect in the September quarter, the average impact on gold company earnings would have been a reduction of 20%, said Esterhuizen.


The new royalty rate structure will be based on a formula that takes into account the profitability of a company. The rate will be equal to Ebitda divided by Gross Sales multiplied by 12.5, multiplied by 100.


Formula:

Y (%) = EBITDA X 100

(Gross Sales multiplied by 12.5)



"Essentially, the new proposal will be significantly more lenient to marginal producers, but take markedly more from richer mines."


Esterhuizen said there was no disputing that royalty payments would be "just another hurdle" to delivering earnings in line with market expectation - particularly in light of the high and potentially increasing gold price.