Rock Products

JUL 2015

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www.rockproducts.com ROCK products • July 2015 • 21 focuses on a mining land assemblage "as improved," that is, already improved to the H&BU considering a single econom- ic unit centered on active mining, with all operating permits in place, remaining reserve life with some duration, and an active market for construction aggregates exists in the addressable market. H&BU is one step in the critical thinking process where- in market values are concluded. While often considered in typically real property valuation settings, it is also proper- ly applied in many other appraisal assignments where real estate contributory value and earning power is an import- ant element of overall value, whether of equity, total invested capital or a financial interest. Such contributory value, gauged using H&BU analysis, is relevant when separately valuing mineral reserves or inter- ests. Some examples where H&BU and non-mineral buffer land may be key matters in a larger context valuation setting include the following: • Reserves valuation for allocating partial interests or pur- chase price. • Valuing total stockholders' equity. • Buy-sell agreements. • Estate and succession planning. • Mine site reversion analysis. • Life-of-mine planning shifts. • Valuations of business enterprise. • Condemnation. • Real property tax assessment. • Shareholder dissent matters having focus on excess land versus buffer adequacy. In applying H&BU in these settings, other principles and con- cepts for consideration in real property valuation include interim use, consistent use, assemblage/plottage and prac- tice guidance about special-use properties. Interim Use Mining use of land is sometimes considered to be an inter- im use, defined as "The temporary use to which a site or improved property is put until a different use becomes max- imally productive." The extent of post-mining reclamation efforts, driven by any or all the following factors, may be pivotal to whether a mining use becomes an interim use or a terminal use. The legal requirements are: • Economic redevelopment. • Hydrologic and geologic factors. • Scale and geometry of past surface mining. • Cost of infill and grading. Consistent Use "The Appraisal of Real Estate" presents the concept consis- tent use as follows: "The concept that land cannot be valued on the basis of one use while the improvements are valued on the basis of another use." Under this concept, the highest and best use of an improved property shifts to the highest and best use of the land "as vacant" once the land value, plus the cost of demolishing and removing the improvements, exceeds the value of the prop- erty as improved. Plottage and Assemblage Plottage is the increment of value created when two or more sites are combined to produce greater utility. Assemblage is the combining of two or more parcels, usually but not neces- sarily contiguous, into one ownership or use; [it is] the pro- cess that creates plottage value. Special-Use Properties Mining operations are a prime example of special-use prop- erties. The intricacies of discerning the highest and best use of special-use properties are noted in "The Appraisal of Real Estate" as follows: "The highest and best use of a special-use property as improved is probably the continuation of its current use if that use remains viable and there is sufficient market demand for that use. If the current use of a special-purpose property is physically, functionally or economically obsolete and no alternative uses are feasible, the highest and best use of the land might be realized by demolishing the structure and selling the remains for their scrap or salvage value, if possible." Functioning buffer land, including an issue of its scale, is integrated with all special-use mine property, and certain- ly is a prerogative of control by ownership and adherence to setbacks. Such holdings may have strategic market value not highly evident to market participants nor appraisers. Well-supported analysis of the facts and circumstances, including meaningful insights gained from research, due dil- igence, and industry practice experience, leads to reasonable value conclusions. Highest and Best Use as Improved The highest and best use of a property as improved is the use that should be made of a property as it exists. The use must also be currently viable, and reasonably expected to remain so, and yield the highest economic return. The initial analysis must therefore focus on the H&BU of the overall economic unit, and not on just a land parcel (or group of parcels) that encompasses control of the minerals. In situations of long-term control via ownership or lease of land with relatively scarce construction aggregates in reserve, aggregate-producing properties – especially those

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