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Quarry Appraisal Primer


Engineer taking photo of rock quarry with tablet

A quarry appraisal mimics the thought process of a mining investor. Two concepts are at play: analysis of mining technical factors, and market conditions.


In the real estate industry, appraisers are well-accomplished at gathering historical market data. In the mining industry, engineers and geologists are experts at assessing minerals and determining what could actually be profitably mined as excavation work initally begins, or progresses further into a deposit. It is a forward-looking feasibility model for each unique mining property.


A mine appraisal combines both an appraiser's analysis of historic market data with the engineer/geologist's assessment what could actually be mined in the future. First, productivity of the deposit is measured using standard, mining-industry technical analysis. Next, assessment of market conditions and what an investor would pay for the potential income stream are analyzed. Consider the following practice areas required to perform a mine or quarry appraisal:


How to Evaluate a Rock Quarry Transaction

As a rule of thumb, rock quarries do not frequently transact. However, market value can still be estimated by evaluating the geologic and technical characteristics of the mineral resources, environmental factors, mineral process, logistics framework and end-use specifications for the market. In addition to technical factors contributing to a reliable quarry valuation, comparable market transactions may underpin the offer to purchase an operating quarry.


Limestone royalty rates are frequently compared to establish the land and mineral value of the quarry. Analysis of quarry income, the local market, competition, and barriers to entry are considered at depth when valuing the entire business.



Limestone Royalty Rates

Continuing with a limestone quarry example, careful application of royalty rates to the deposit can help address the question regarding the value of minerals. A quarry lease agreement alongside analysis of the geologic extent, character, alteration and an engineered mine plan are of irreplacable value when appraisaing limestone materials. A lease agreement commonly includes a royalty rate (and other provisions) paid to the fee simple property owner. This royalty compensates the landowner for significant and heavy use of the property, including occupancy of the land, recontouring the land, depletion of the minerals, and all inherent rights required to operate the quarry business. During the lease term, the property owner usually cannot use the property and has limited rights to access it.


Upon termination of the lease, the property owner will generally recoup the property as a vacant quarry tract with minerals depleted. See Sand & Gravel and Quarry Royalty Rates for lease examples we've observed ranging from $0.20 per ton to $5.00 per ton throughout the United States.



Quarry Business

Aggregate companies typically search for sand and gravel or limestone sources by targeting numerous geologic prospects throughout a regional market. To maximize profits, aggregate companies often aim to secure rights to a mineral property that is affordable and offers the greatest strategic advantage. A mining cashflow analysis can help companies determine profitability of the mining project over time.


Aggregate Value vs Enterprise Value

A properly executed mineral appraisal will separate the fair market value of mineral rights from the value of a quarry business. Sale transactions involving aggregate mines are carefully examined. The reliability of sale transactions is influenced greatly by factors such as the commodity, regional geology, prevalence of minerals, engineered design of the mine, quantity and alteration of aggregate reserves, and current property development level. A mineral appraiser analyzing quarry sales will always consider "in-place" aggregate value vs enterprise value.



Conclusions

Mine appraisals require a productivity study of mining property (engineering and geology) and analysis of current real estate market conditions (real property appraisal).

Mining engineers and mining geologists assess the technical and operational framework of a mine site. Professional evaluation of the viable minerals, mining and mineral processing, and risk factors is required to characterize property productivity.

Mining is a proposed construction activity that will transform the property. Accurate assessment of how the property will change over time, and accurate assessment of the resulting cashflow risks is the foundation of a credible quarry appraisal.


Rock Associates completes certified, licensed, mineral appraisals assessing all required areas - geology, engineering and market value.

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