Rock Products

JUL 2015

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22 • ROCK products • July 2015 Valuation Guidance near large user bases and/or major transportation arteri- als – will not likely be challenged by other land uses. In sit- uations where this is not true, or a combination of factors exists, H&BU analysis of the economic unit may indicate that an alternative use is best to be considered in the valu- ation. Thus, H&BU as improved depends on many factors, but mainly on the relative value of the assemblage as one economic unit in comparison to other uses as contemplated through H&BU, with appropriate consideration of interim use, consistent use, plottage and assemblage, and guidance about the nature of special-use properties. Mining Buffer Adequacy, Highest and Best Use, and Valuation The issue of highest and best use analysis has heightened importance in a contentious setting where buffer acreage adequacy is in play. Assuming that the H&BU conclusion indicates that the economic unit is not being challenged, an issue remains if all buffering land is truly required, or has the potential to be considered surplus land or excess land for current or future development. Surplus land is land that is not currently needed to support the existing use but that cannot be separated from the prop- erty and sold off for another use. Surplus land does not have an independent H&BU and may or may not contribute value to the improved parcel. Excess land is land that is not needed to serve or support the existing use. Excess land has the potential to be sold sepa- rately and must be valued separately. If buffer land is found supportably to be excess, its value would be additive such that it could be sold for cash at the appraised amount and its sale would not harm the overall on-going business. In considering the adequacy of buffer acreage for valuation purposes, minimization may only be taken to the mine plan's required setback distances set by local zoning ordinanc- es. These legal boundaries are generally established in the mutual interest of the miner and the neighbors to insulate and establish a barrier from activities associated with sur- face mining. The land use just beyond this insulating acreage becomes a matter of valuation comparison as to market needs and pricing of nearby land for other uses. A mine owner's moti- vation may be to own the buffer simply to insulate the prop- erty from externalities in the form of potential challenges (and related cost avoidance) from neighbors who may bring complaints and potential legal action against the business, including jeopardizing the permit or important future per- mitting actions. Summary When the value of a property "as improved" is greater than the value of a site in a vacant state, the highest and best use of the property is usually the "improved" property. Conversely, once the value of the vacant site scenario is greater than the improved (including all costs for legally obligated restoration efforts in a mining setting), H&BU analysis would usually call for the improvements to be demolished or transformed to make way for the incrementally better economic alternative. Generally, valuation service providers cannot purport to provide engineering-based land-use studies, nor do they typically challenge an operator's engineering-based or oth- erwise practical determination of whether to extend its con- trol over land areas that may provide incremental buffering utility to a current mine plan or a future one. In arriving at a value opinion for a mining business property, including the contributory value of non-mineral buffer land, an appraiser often must have a practical understanding of the issues of mining buffer, current and/or foreseeable development pat- terns near the mining site, local issues and other guidance. One must also be aware of market tendencies and prefer- ences of mine operators to control more acreage versus less for buffering and/or mine planning purposes, and recog- nize the need for balance in relations between the commu- nity and mine operators. It is from this general perspective, as well as taking into account characteristics and practice guidance about H&BU as improved, along with principles of interim use, consistent use, plottage and assemblage, and special-use properties, that one appropriately considers the supportable value of buffer land, and whether surplus land and/or excess land value exists. s Gary Loke is a director in the Energy and Mining Practice at Duff & Phelps. He provides direction and technical support for special-purpose, large multiproperty and multidiscipline engagements.

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