Choosing A Minerals Appraiser
There are substantial differences between conventional real estate - single family residences, apartment houses, and downtown commercial office buildings - and mineral property appraisal. Mineral properties are a unique combination of geology, land, property rights, and mineral markets, possessing special attributes and characteristics that conventional real estate appraisers are normally not aware of. A mineral property is a location specific and dependent, special-purpose, limited-market property, and to properly perform an appraisal or evaluation of a mineral property and to communicate the results requires an appraiser with specialized knowledge, skills, and abilities. Acquiring the necessary geologic, mining, minerals industry, and appraisal competency is a long and arduous process, but it is absolutely essential for increasing client and third party confidence and reducing uncertainty in the results.
Questions for screening prospective minerals appraisers: Any appraiser you intend to engage for performing an appraisal of your mineral property or mining business should be able to answer these questions to your satisfaction. Listening carefully to the answers should help guide you in your selection.
(1) What percentage of your time is devoted to the appraisal of mineral properties and mining businesses?
Ideally, the appraiser would be performing only mineral property appraisals and mining business valuations, but the percentage of minerals appraisals should at least be greater than 50%. Some companies may be more interested in property or business brokerage, mining and processing equipment sales, private lending or investment schemes, or other non-valuation activities and may be using their appraisal services only as a lead-in for these activities.
(2) How long have you been appraising mineral properties and mining businesses?
You want a minerals appraiser with a minimum of five years experience actually appraising many different kinds of mineral properties and mining businesses for a broad variety of clients and for many different purposes. A conventional real estate appraiser who normally appraises houses or shopping centers would not have the required geologic, mining, and mineral marketing skills necessary for a credible appraisal. A typical geologist or mining engineer may only be capable of telling you how many tons you have because he does not understand the requirements for bank lending, estate and gift taxation, or legal proceedings such as business dissolution, divorce, or condemnation.
(3) Are you a Certified or Designated member of the American Institute of Minerals Appraisers (AIMA) and/or the Mines and Quarries discipline of the American Society of Appraisers (ASA)?
Are you current with your organization's Continuing Professional Development and Recertification requirements?
These are the only two professional appraisal organizations in the United States that certify or designate members as an appraiser with a specialty in appraising mineral properties or valuing mining businesses. Both of these organizations require their designated members to possess an appropriate mineral industry college degree such as geology, mining engineering, metallurgical engineering, mineral economics, or accounting. In addition they require at least five years of full-time progressively more responsible professional minerals appraisal experience during which full competence has been demonstrated in the application of professional principles and methods involving the understanding of the appraisal approaches utilized in the market for valuing mineral rights and properties and mining businesses interests.
Both the American Institute of Minerals Appraisers and the American Society of Appraisers require applicants to submit actual appraisal reports for peer review of their work product in order to establish the required knowledge and experience requirements. The American Society of Appraisers also requires its applicants to complete a comprehensive examination covering both minerals and appraising knowledge. The American Society of Appraisers also requires it members to complete 100 hours of continuing education in their area of specialization every five years.
(4) Are you a Certified General Real Property/Real Estate Appraiser in your state of residence? What is your license number?
All states require real estate or real property appraisers to be certified as a general appraiser under the Financial Institutions Reform, Recovery and Enforcement Act (FIRREA) of 1989 in order to appraise property for lending by a bank. Some states require this certification for any and all appraisals of real estate and interests in real property.
(5) Are you a Registered Professional Geologist or Mining Engineer in your state of residence? What is your license number?
Currently,early 1998, 22 states require some form of registration, certification, or licensing of persons performing geologic services for the public according to the National Association of State Boards of Geology (ASBOG). All states require registration as a Professional Engineer, but not all states recognize engineering specialties such as Mining Engineer, Geological Engineer, or Metallurgical Engineer. For bank lending purposes and certain legal proceedings some states may have a requirement for licensing or registration as both an appraiser and a mineral industry professional.
(6) Are all of your mineral property appraisals and mining business valuations performed and reported in accordance with The Appraisal Foundation's Uniform Standards of Professional Appraisal Practice (USPAP)?
Many otherwise competent mining engineers or geologists may be able to provide you with useful information about mineral resource potential, mineable reserves, or expected cash flows, but they are not normally aware of such appraisal issues as highest and best use, encumbrances, partial interests, comparison to sales of similar mineral properties, and other USPAP requirements. The Appraisal Foundation has been authorized by the US Congress as the organization responsible for establishing real property appraisal standards and appraiser qualifications. The Internal Revenue Service and other taxation and financial accounting authorities also have specific requirements relating to the appraisal of mineral properties and the valuation of mining businesses.
(7) Have you performed appraisals on mineral properties or mining businesses that are like mine for similar purposes and uses?
Do not be too surprised if a minerals appraiser has not performed an appraisal on a property exactly like yours or for exactly the same reasons. No minerals appraiser has appraised every type of mineral property. There are so many different kinds of mineral properties and mining businesses and reasons that they may be appraised that absolute agreement with yours may be asking too much. What you want is a minerals appraiser who has appraised a broad cross section of different types of mineral properties and mining businesses for a variety of purposes and who will be open and honest with you about his education and experience. Some minerals appraisers tend to specialize in certain types of mineral properties and may be reluctant to take on an assignment that concerns a different type of property and some are unwilling to perform appraisals related to litigation.
(8) Are you willing to sign explicit appraisal and confidentiality agreements?
It is always a good idea to obtain a written agreement of some form, from an engagement letter to a detailed contract, for the performance of a minerals appraisal or consulting engagement. At a minimum this agreement should specify the mineral property to be appraised or the mining business interest to be valued, the scope of the work necessary to complete the minerals appraisal engagement, the purpose and intended use of the appraisal, any special conditions that may exist, along with an estimated completion time, working days and calendar days, and cost and payment terms. It is also a good idea to use an explicit confidentiality agreement because the confidentiality requirements of USPAP are significantly different than most mineral property owner's expectations. Any agreement should also specify who owns and has control of the appraisal report. This can be an important consideration for minerals appraisals performed for litigation purposes.
(9) How long do you think this assignment should take and how much will it cost?
The prospective minerals appraiser probably cannot give you a highly accurate time and dollar answer without knowing more about the type of mineral property, its stage of development, and the purpose and intended use of the appraisal, but he should be able to provide you with a range of completion times and professional fees and business expenses that similar engagements have required.
(10) Will you give me the names and phone numbers of three clients for whom you have performed similar minerals appraisals?
Follow up and call each one.
(11) Will you give me the names of other minerals appraisers who also perform appraisals of the type and complexity I need?
This may be asking too much, but at the least the prospective minerals appraiser should be willing to provide you with a contact name and phone number of the two nationally recognized minerals appraisal professional societies.
American Institute of Minerals Appraisers: 303-443-2209
American Society of Appraisers: 800-ASA-VALU (800-282-8258)/703-478-2228
(12) What types of information will you need form me in order to successfully complete this mineral property appraisal or mining business valuation engagement?
Qualifications of a Mineral Property Appraiser
Estimating the value of a mineral property is a unique challenge requiring the specialized knowledge and experience of an appraiser and the expertise of a licensed geologist with mining industry experience.
A geologist with a background in mining is necessary to accurately evaluate the unique, three-dimensional geological characteristics of a mineral property, namely the orebody. Applying supply and demand economics to the geological characteristics of a property results in the development of an ore reserve, or the quantity and quality of minerals that can reasonably be expected to be extracted from the property at a profit over a period of time. If the economic evaluation of the property indicates that there are no anticipated mining profits, then there is no orebody, and an appraisal of the mineral rights is not necessary.
A certified general appraiser is necessary to perform a Uniform Standards of Professional Appraisal Practice (USPAP) compliant appraisal report that can be utilized by the mining industry, banks, governments agencies, etc. Valuing mineral properties using the USPAP guidelines has become the generally accepted method in the mining industry, government and academia. Any selected appraiser/geologist must have the experience and knowledge to interpret the geological data, economic feasibility studies, ore reserve analyses, mining plans, accounting records, and other mining property specific information that is necessary to complete an appraisal of a mineral property.
The Data Requirements for Mineral Property Appraisal and Mining Company Valuation Data Requirements pages that are part of this website will provide you with a good idea of the types of data that will normally be required.
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