Terrene Investments, Ltd., Deerbrook Construction, Inc., Tax Matters Partner - Page 23




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          but small enough to have an impact on the rate of production                
          since smaller operators use lower-volume equipment and are                  
          somewhat less efficient.  We found credible the evidence Terrene            
          offered that one nearby quarry produces at about 25,000                     
          tons/month on a 28-acre parcel, and that one large operator whom            
          Ebanks interviewed estimated 40,000 tons/month would be                     
          reasonable for an operator working on the Hamblen Road property.            
          The 30,000 tons/month that Terrene suggests seems, in these                 
          circumstances, to be reasonable.  We therefore find for Terrene             
          on this point, and will use a 30,000 tons/month extraction rate.            
          This amount could have easily been absorbed into the Houston                
          market, where annual consumption of sand and gravel exceeded 60             
          million tons in the late 1990s.  Cf. Cloverport, 6 Cl. Ct. at               
          199.  Given our prior finding of 2,754,111 tons of recoverable              
          materials, extraction at this rate would mean that the operation            
          would take place over 92 months.12                                          
               3.   Royalties                                                         
               The royalty rates for sand and gravel in the Houston area              
          are not uniform.  Some operators pay a single rate based on                 
          volume; others pay different rates for the different materials              
          (e.g., concrete sand, masonry sand, etc.).  Local operators                 
          around Houston paid anywhere from $0.25 to $1.00/ton to                     


               12 2,754,111 divided by 30,000 equals 92 months with                   
          rounding.  If production began after a three-month delay for site           
          preparation, the hypothetical income stream begun in 1998 would             
          peter out by the end of 2006.                                               





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