Mineral Rights
Mineral Rights Valuation
• Mineral rights consist of the right to extract
all minerals contained in or below the
surface of a property.
• Mineral and surface rights can be
separated creating a “mineral estate.”
• The mineral estate represents the
dominate tenant in most states.
• The owner of the mineral estate has the
right to occupy the amount of surface area
necessary to extract the minerals.
• However, the mineral rights holder must
pay the surface owner any damages.
• Minerals include:
– sand and gravel
– precious metals
– building stone
– gem stones
– oil and gas
• Water rights are separate to mineral rights
and are not included in the mineral estate
• Valuations of minerals fall into two broad
categories
– Operating units with delineated reserves
– Prospects
• Analysis of sales of similar properties is
the most desirable method for valuing
minerals; however, it is often difficult to
perform because minerals are seldom sold
apart from the surface.
• Appraisers typically estimate leased fee
value or the contribution to the surface
estate if the minerals are being leased.
Mineral Reserves
• Reserves are the volume of accessible
mineral material of acceptable quality that
will produce a return, after operating
expenses, under present economic
conditions.
• Reserves may be classified as:
– Proven
– Probable
– Possible
Proven Reserves
• To value mineral properties several basic
items are needed:
– The amount and quality of the reserves
– The extraction rate or production life
– The net value per unit extracted
– A discount rate based on investment rates
• The income approach is a good method to
value mineral-producing properties.
• The discounted cash flow – net present
value technique is generally used.
Probable or Possible Reserves
• Non-operating reserves are more difficult
to value.
• The sales comparison approach where
properties with mineral interest have sold
is useful in valuing probable or possible
reserves.