DGR discount to Solgold, page-9

I was able to get through to the company Secretary and did recieve a prompt reply. My question was in the event of a cash buyout of SOLG what would the tax consequences look like for DGR Global. Here is his reply:

"Essentially, in the situation you described, DGR Global would pay 30% corporate tax on the “profit” made on any sale of SolGold shares (proceeds less cost of investment).

In Australia, tax paid by companies gives rise to “franking credits” which are passed on to shareholders as a tax credit when the company pays a dividend.  This is a system to essentially avoid double-taxation of the same underlying profit (once in the hands of the company and again in the hands of the shareholder).  Accordingly, franking credits are “valued” by the investment community, as they can give rise to tax refunds in some circumstances and for some investors – particularly for superannuation fund (US = pension fund) investors.

As such, the effect of DGR having to pay tax on its uplifted investments is a factor, but in my view it wouldn’t account for the full discount being applied by the market.

When I say the market “values” franking credits, i don’t mean they mathematically model it, just that a company paying franked dividends is seen as an attractive investment."

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I also suggested that DGR Global step up their Investor Relations game and have someone answer the emails sent to the email address provided on their website.

He agreed and is looking into where those email have gone and how they fell through the cracks.

Hope that helps.