Tabell’s Market Letter – March 26, 1964

Tabell’s Market Letter – March 26, 1964

Tabell's Market Letter - March 26, 1964
View Text Version (OCR)

Walston &Co. –;'-Inc —– M(lIIlel'. Xell' 'ol'k Sinck EclwlIge NEW YORK SAN FRANCISCO LOS ANGELES PHILADELPHIA CHICAGO OFFICES COAST TO COAST AND OVERSEAS TABEll'S MARKET lETTER March 26, 1964 MESABI TRUST Current Price Current Dividend Current Yield 14 7/8 . 70 (E) 4. 70/0 There are many reasons for buying securities. Some investors are interested in growth, others in generous income. Many security buyers Long Term Debt Beneficial Interest None are concerned about protecting their capital from inflation, others worry about high income tax Certificates 13,120,010 units rates. A rather unique combination of growth prospects, relatively generous income, inflation Earn. per Ctf. 1964-5(E) -'- – -Ea-rn–per-etf- .70 protection, and partial tax exemJtio.!!,..JlPRea.rs to .. 0 -58- – – -l)i;-available in-the Certificates of Beneficial In—– – – Mkt. Range – 1963-61 153/8 – 93/8 terest in the Mesabi Trust. Mesabi Trust is a fairly simple operation to understand. The Trust owns the mineral rights to a huge body of taconite ore in Minnesota containing some 50 years' supply at present production rates. This ore body has been leased to Reserve Mining Company – – jointly owned by Republic Steel and Armco Steel. Under the terms of the lease, Mesabi Trust receives a basic royalty of about 1. 00 per ton of pellet- ized concentrated iron ore produced from this property, subject to various adjustments. Un- der the trust form of organization, expenses are nominal and virtually all the royalties re- ceived are paid out to Trust certificate holders. With this background in mind, it is fairly easy to demonstrate how Mesabi combines the four attributes mentioned above. Let us discuss each 0 GROWTH PROSPECTS – In 1956, the year of its or a i erve Mining shipped some 3 1/2 million tons of concentrate. Shipments inc sed to the then exist- ing plant capacity of 6 million tons, and an unde en to increase rated capa- city to 10.5 million tons. Some 7.7 million n the year ended January 31, 1964, and well over 9 million tons are e s' ed in the current fiscal year. Ex- perience—oLboth, been favorable and – iT ,e.RUlrlic Steel and Armco will find it to their in- terest to push expansion. Thus, which have increased sharply since 1961, could continue to s around 70 per Ce .0)-Y a growth. For fiscal 1964-65 they should amount to INCOME – B n t nticipated distribution of 70';, the current yield on Mesabi Trust Certificates is a 0 and payout will, of course, increase along with royalties. The tax shelter featur this income will be discussed below. INFLATION PROTECTION – Mesabi Trust's contract with Reserve has a unique fea- ture which provides for the adJustment of the 1. 00 base royalty annually, based on the B. L. S. Index of Wholesale Prices. Thus, any important increase in commodity prices will result in increased royalties to Mesabi Trust, and increased income to holders of the units. TAX PROTECTION – The tax protection afforded the holder of Mesabi Trust is two- fold. First of ali, due to depletion laws, a substantial portion of annual income distributions are used to reduce original cost rather than reported as income. This portion of the distribu- tion is exempt from tax as long as the units are held. It is estimated that 27'; of the antici- pated 1964-65 70'; distribution will be so treated. Secondly — and this is a provision of the new tax bill remaining porti()l1js taxable at capita rather.!han ta rates. Thus, the tax payable-on this portion is half the holders' normal tax rate and a maxi- mum of 25, depending on his tax bracket. Thus, the effective tax rate on Mesabi distribu- tions should be a maximum of around 15. To demonstrate the importance of this feature, assuming a cost of 15 per unit and a distribution of 70';, the effective post-tax yield is 4. 3 to an investor in the 25 bracket and 3.9 to an investor in the 50 bracket, or any higher bracket. This is equivalent to a pre-tax yield of 5. 7 in the 25 bracket, 7.8 in the 50 bracket, and 15.6 in the 75 bracket. Mesabi Trust,. which..has been on our recommended list for some time, has held for over two years in the'10-1S area; EV'etftual penetration of this area on the upside would indi- cate higher levels and the stock is again recommended for clients seeking income and capital gains, plus tax and inflation protection. Dow-Jones Ind. 815.91 Dow-Jones Rails 192.16 ANTHONY W. TABELL WALSTON & CO. INC. 1 hl- mnrlH't letlt'l not ,nul uni('l IHI 10 he con..,tl Ul'\ '\', all fTCI to II or n .,,,lutlll,OIl to h\ll' III) ,,('('Ill I er'11 ed to llCll'lll The Illf1Il1,ll\n (nnlaHH'd hf'tcrll I, nut Io!ll.ll.llllel'li .1; to ul ,11111 thl' thI('r lIt ,lUll 1111,11'1 un UIClllllbt.l!lt(' h 10 1.1' ,I ,I tlf)n h\ & Co. 1m All ()f O)ITlWn nil' l1lljl'('1 I \\lthlIt utlll' & C. Ill( .llItl OIIC.\.O) IItH\ hmplm'l'l's thereof bell nnd m'ly hrl\c .In III thl' mClltll.lIcd hCIUIi 1111' IImlel Id\PI . ml.llIle. ,llIrl nH'lci) ,I…l mfn. nwl ('()mmcnt.IlY nn ,iny tn rl.ly m,\! !tet new.. and 11,,1 ,1-' n I'mpil'tc on Addll1ll,tl IIIfl 11\,ll,,,n ,,!th H''''H!d 1 ,111) I !.'fl'lled tu hu Cill Illll 1,1' illltll … hcu \\ \ ,1)1

Download PDF