| Mineral
property appraisal or mining business valuation is not so much a matter of obtaining the
"correct answer" as it is of how the appraiser selected the relevant data,
analyzed this data and applied logical reasoning to arrive at a value conclusion that has
the necessary level of reliability, supportability and defensibility for the purpose and
intended use of the appraisal. The value of a qualified minerals appraiser to a client is
a combination of his being a fiduciary (by law) and that he is able to apply his
experience and judgment to a variety of mineral property and mining business appraisal
situations and to arrive at reasonably probable solutions that are consistent with the
purpose and intended use of the appraisal and meet the client's needs as well as the
requirements of USPAP and those of any professional societies the minerals appraiser may
belong to. In appraisal
theory there are no truly "correct values", there are only estimates or opinions
of value that are implicitly assumed to be based on some amount and quality of facts that
are then interpolated and/or extrapolated as the appraisal situation demands. The
appraiser's assumptions and limiting conditions are added to this imperfect information.
In the end the appraiser must usually decide on a single number that is a reasonably
probable estimate of value that is governed by the purpose and intended use of the
appraisal as well as the client's time and money constraints.
From the initial assumptions and limiting
conditions that are inherent in the definition of value to be found and the purpose and
intended use of the appraisal, to the final ones employed in any reconciliation, the value
of the appraisal service is not the appraiser's ability to add or subtract, or to dazzle
the client with elegant high level mathematical skills, or to recall some obscure factoid,
but is the appropriate use of education, training, experience, and professional judgment
to arrive at a conclusion of value that is appropriate for a given appraisal situation.
The following is from Kieso and
Weygandt’s Intermediate Accounting, with substitution of "appraisal"
or "valuation" for "accounting" and seems to apply with equal validity
to appraisal.
"Mineral appraisal may appear to be
primarily procedural in nature. The visible portion of appraisal - collecting and
verifying data and preparation of valuation reports - too often suggests the application
of a low-level skill in a mundane occupation that offers no challenge and demands no
imagination. In minerals appraisal today a large body of theory does exist, however.
Philosophical objectives, normative theories1, interrelated concepts, precise
definitions, and rationalized rules constitute this body of theory (the conceptual
framework) which may be unknown to many people that mineral appraisers work with. Thus
minerals appraisers theorize, judge, create and deliberate as a significant part of
their professional practice. The subjective aspects that are so critical to current
mineral valuation practice, such as searching for truth and fact, judging what is fair
presentation and considering the behavior induced by presentations, are often overshadowed
by the appearance of exactitude, precision, and objectivity that accompanies the use of
numbers to express a value estimate of a mineral property or mining business interest.
"The principles of mineral appraisal
are unlike the principles of natural sciences and mathematics, because they cannot be
derived from or proved by the laws of nature, and they are not viewed as fundamental
truths or axioms. Mineral valuation principles cannot be discovered; they are created,
developed or decreed. Minerals appraisal principles are supported by intuition, authority
and acceptability. Because it is difficult to substantiate minerals appraisal
principles objectively or by experimentation, arguments concerning them can degenerate
into quasi-religious dogmatism. As a result, the sanction for and credibility of mineral
appraisal principles rest upon their general recognition and acceptance, which depend upon
such criteria as usefulness, relevance, reliability, cost-benefit, and materiality
considerations.
"Possibly the most influential
environmental force flows from user groups. User groups consist of parties who are most
interested in or affected by mineral valuation standards, rules, and procedures. User
groups play a significant role because the setting of minerals appraisal standards is a
social decision: that is mineral valuation standards are as much a product of political
action as they are of careful logic or empirical findings."
(1, normative theories are
judgments about "what ought to be". Normative appraisal views cannot be proved
false, because they are based on value judgments, while positive theories are based on
studies of "what is" among economic relationships.)
Discuss your mineral
property appraisal, mining business valuation, or other mineral industry
related concerns with Mineral Business Appraisal:
Michael R. Cartwright michael@minval.com
Five Claret Court, Reno, NV 89512-4744
Tel/Fax: 775-322-9028
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