Price forecast inputs – commodity prices, mineral price forecast, exchange rate, cash flow discount rate.Cost of exploration and production – working cost assumptions (the cost per ounce provides a comparison of how much it costs to produce each ounce of a mineral), capital expenditure forecasts, rehabilitation costs (regulations in most mining regions require the miner to reserve rehabilitation liability funds to remediate environmental damage.).Production levels and forecasts (used to determine the future cash flows of a project) – production yields, potential recoveries.Minerals type and quality – the type of mineral resource, quality of in situ-grade, depth below service (deeper reserve deposits will be more capital-intensive to mine).We can say that there are 4 main parameters that you should be aware of: The valuation of mineral rights takes into consideration production and potential production levels, the costs of production, and factors affecting the commodity market price. This valuation is different from that of a real estate appraiser valuing the land, which may or may not include surface and subsurface mineral rights. Appraised value – An appraiser will focus on comparing the valuation of mineral rights with those of nearby properties.Though an insurer may use the fair market value, they have an incentive to lower the valuation to reduce future insurance payouts. Insurance value – This is the appraised value by an insurance company, used to set the price of insurance as part of its risk assessment.It is the liquidation value of a company in bankruptcy. Book value – Book value is the worth of the mineral interests after the project has paid off all its debts (assets – liabilities).Fair market value – Used in buying and selling and investing in mineral properties, fair market value is the value determined on the open market among parties doing business at arm’s length.The 4 main types of mineral rights value are: This potential seller was blindsided by the market opportunity to sell his gold rights at a high price because he used the wrong valuation method as a market reference point. When his neighbor’s insurance company valued the adjacent mineral rights at $1,500 per acre, he decided to hold onto his interests.īut a month later, another neighbor sold his mineral rights for $2,250 per acre just before gold prices declined. assessing of mineral rights taxes and insuranceĪ mineral owner selling mineral rights will not seek the same valuation as an insurance adjuster or even necessarily rely on the same valuation methods.Īn inheritor of gold mineral rights on his grandfather’s property learned this expensive lesson.
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In contrast, buyers of mineral rights seek the lowest price, and both parties have a financial incentive to place a higher or lower value, respectively, on mineral interests.Īll parties can ensure a fair market price for mineral rights and avoid costly misguided valuations by using a valuation method that is consistent with market practices and at arm’s length – that is, each party acts in their own self-interest in determining the value.Ī misguided valuation will not only affect the sale price of mineral rights but also impact the economic viability of all aspects of mineral rights exploration and development, including these: Since sellers of mineral rights try to get the highest price.
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This article explains how to value mineral rights using reliable valuation methods, assess the most critical factors in mineral rights valuation, and maximize your mineral rights value. These mineral rights valuation risks (price risk, production risks, etc.) can be minimized when the correct mineral rights valuation methods are used. With valuations further sabotaged by unforeseen black swan events (political coups, extreme weather events), mineral values are on a never-ending rollercoaster ride. The booms and busts of the global mineral market make forecasting future mineral prices tricky. The value of mineral rights constantly changes with fluctuating commodity prices and mineral production levels. To stay away from such situations, it is crucial to know how to determine mineral rights value properly. More likely, you were the victim of shoddy valuation methods. Discovering you have paid too high a price for mineral rights can be a costly mistake. Mineral Rights Value – 4 Common MistakesĬalculating mineral rights value properly is something that many investors struggle with.
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