Intrepid -- summary under Capital distributions

Overview

Intrepid Mines, an Australian company, is proposing to distribute approximately 87% of its assets in cash as a capital distribution.

Company

The Company is listed on the ASX and the TSX and which received US$80 million in settlement of all disputes surrounding ownership of the Tujuh Bukit copper/gold project in Indonesia.

Capital distribution

If shareholder approval is given, the Company will pay US$0.258 per share (or US$143.6M in total) as a return of paid-up share capital pursuant to s. 256B of the Corporations Act, resulting in most of its cash reserves being distributed. There will be no effect on the outstanding number of shares. Listing Rule 7.22.3 provides that in a return of capital, the number of options must remain the same, and the exercise price of each option must be reduced by the same amount as the amount returned in relation to each ordinary security. The distribution will reduce the Company's total assets from US$177M to US$23M, and its equity to US$21M.

Canadian income tax consequences

As a matter of Australian corporate law, the Company is of the view that the payment to be made constitutes a return of capital (as opposed to a dividend, a return of share premium or contributed surplus, or any other type of distribution). ... This summary is not applicable to…a Canadian shareholder in respect of which the Company is a "foreign affiliate." ...

CRA's administrative practice is that where a distribution from a non-resident corporation is a return of legal capital under the foreign corporate law, that characterisation will generally not be challenged by the CRA. Accordingly, based on the characterisation of the payment under Australian corporate law described above, Canadian Shareholders who receive payment of the return of capital from the Company should not be required to include the amount of such payment in computing income… . The aggregate amount (expressed in Canadian dollars) received on the return of capital will be deducted in computing the adjusted cost base to the Canadian Shareholder of their Shares.

Australian income tax consequences

The Company is seeking a Class Ruling from the Australian Taxation Office (ATO) in relation to the tax treatment of the return of capital for certain Shareholders. Once the Class Ruling has been issued by the ATO, a Shareholder may rely on that Class Ruling in preparing their income tax return. ... The Class Ruling...does not apply to those Shareholders who hold their Shares as "revenue assets" or as "trading stock". The return of capital received by these Shareholders will be taxed under the general provisions of the income tax laws.

Australian Resident Shareholders

• No part of the proposed return of capital should be treated as a "dividend" for Australian income tax purposes.
• The cost base for each Share acquired after 19 September 1985 should be reduced by the return of capital amount (on a cents per share basis) for the purpose of calculating any capital gain or loss on the ultimate disposal of that share.
• If the cost base (after any adjustment, as may be relevant, for any indexation or any previous return of capital) of Shares acquired after 19 September 1985 is less than the return of capital amount (on a cents per share basis), then a capital gain may arise for the difference.
• For certain Shareholders that have held the Shares for greater than 12 months prior to the payment of the return of capital, the amount of the capital gain may be reduced by 50% (individuals, trusts) or 33 1/3% (complying superannuation funds).
• No capital gain or loss should arise in respect to Shares acquired on or before 19 September 1985.

Non-resident Shareholders

• No Australian income tax implications should arise as a consequence of the return of capital.
• It is anticipated that the final Class Ruling will be published on the ATO website before the date of the Meeting although this is not certain.