Market Valuation

MARKET APPROACH TO VALUE

The Market Approach to Value is based upon the principle of substitution. The property to be valued is compared to properties having similar characteristics that have been transacted in the open market, with an adjustment of the sales price or other terms performed to account for the differences between the comparable and the property being valued.

Many authors acknowledge the difficulty with applying this Approach to Value to mineral properties, as the unique nature of many mining properties makes it difficult to apply. Two mineral properties are seldom alike. Mines differ in reserves, size, geology, mining depth, costs, location, salaries, geologic occurrence, waste, markets, local requirements of government agencies, access, etc. Mining properties change in value rapidly so that a sale would only be valid for comparison purposes very close to its actual sale date.

Sales Comparison Method

The Sales Comparison Method (also known as the Comparable Transactions Method) is commonly used (for example) in the real estate appraisal industry. A common application is when a residential real estate appraiser selects numerous sales transactions from a sales transaction database, performs adjustments and derives a valuation of the subject, based on the adjusted comparable transactions. Many additional factors must be considered when performing the Comparable Transactions Method to a mineral property.

In adopting the Market Approach for Mineral Interests, it is essential to determine whether the transaction was between parties who were both cognizant of the property’s mineral potential. Arm’s length transactions, distress/duress and other motivations need to be evaluated. Furthermore, the quality and quantity of the reserves underlying the comparable property should be determined in order to compare them with the reserves under the Subject Property. Additional considerations of importance, from a mining viewpoint, include the location, size and shape of the property, permitting, geology, markets and the percentage of minable land.

Transaction Analysis is used to analyze transactions involving gold, silver, and other precious metals mineralized rock properties, and deriving economic parameters from the information. In particular, a common unit basis of transaction is derived for use in a Transaction Adjustment Table for the Sales Comparison Approach. Sometimes, such as in this case, one metal is converted to units of another metal being mined from the subject, such as Lead being converted to Silver equivalent ounces to streamline the analysis and make comparison of resources compatible.

Option (and Farm-In) Agreement Method

Options, Joint Ventures and Farm-In Agreements can be common in the minerals industry, especially with properties containing metal, oil, gas or ore resources that are undeveloped, being explored or non- producing. This method is a primary valuation method under the Market Approach to Value.

Value Per Unit Method

Information about sales of mineral properties on a Value Per Unit basis (e.g. $ per ton or ounce), sometimes can be utilized to evaluate other mineral properties. This method is a secondary valuation method under the Market Approach to Value.

Value Per Unit Area Method

This method is typically used for large Exploration Properties and is a secondary valuation method under the Market Approach to Value. This method is similar to the Value Per Unit method, but is expressed in terms of value per area (acres or hectares).

Market Capitalization Method

This method is used with mineral properties owned by companies whose shares are listed and traded on a stock exchange. This method is a secondary valuation method under the Market Approach to Value.

Common critiques about this method are as follows: “Market capitalization is the value of a company if its sole asset is that property, or a collection of similar exploration properties, or if the property is adjacent to one with an identifiable public market value. For thinly traded stocks, the price of share transactions on any particular day are not indicative of the price for which the entire company could be sold. Furthermore, the trading price of a junior mining company is affected by many factors, often having little relationship to the fair market value of the company’s properties. This can be misleading, particularly, if the public company holds only a minority interest in the property. For these reasons, market cap generally is an inappropriate valuation method. If there is substantial trading volume, however, this method may provide an indication of value.”