Quarries, Gravel Pits

[Verne Hebert]

Anybody out there valuing quarries or gravel pits? I looked at a very interesting piece of property. HBU may well be mining and wholesale sale of boulders, gravel, and shale. It is a very unique piece of property; it is situated on a 160 acre parcel and is currently recreational residential-high end home, barn, stables, fencing, xfencing.

 

[Lloyd Bonafide]

How hard is it to change the zoning to mining?

Down here it might be possible, if it was 50 miles outside of any town, and if the owner was willing to spend a few million dollars and 5+ years.

 

[Howard]

Sounds like you have a HBU problem......trying to decide what it is.

On the valuation of a mineral/property rights when use is any type of quarry or pit operation for mineral extraction, it's generally a discounting problem. How much total product is available to extract, how soon can you exact it and what does the holder of the mineral estate earn, either as a net to operations, or in a cleaner fashion, as royalty income. A royalty rate cleans up the cash flow picture a lot. Later on, when the property is mined out, what is the HBU of the reversion?

So the goal is to predict annal cash flows and reversion, which you discount at a rate. The question then becomes, what rate? If you were doing a direct cap rate, theory would have you load the rate at least 1/n for recovery of the investment in the wasting asset, plus risk, etc. Depreciation almost sounds like a changing value scenario, which it is, so you can expect to load a discount rate too. This is NOT a band of investment solution. Much more complicated than that.

Best to find sales and work the discount rate from them. Typically it's high....double digit high. A lot can go wrong with this stunt, so risk it higher than you might think.

 

[Verne Hebert]

Thanks for the input.

I have appraised quite a bit of timberland and to value timberland, a "cruiser" is hired to cruise the timber and produce an itemized report of quanitity, quality, species, etc..

Is this, or can this be done for quarry/gravel sites? If so, do you any guidance on a list of quarry/gravel "cruisers".

 

[Howard]

The "cruise" for this is done by a consulting engineering company. In this case, they do core drillings in a grid pattern over the proposed mine area to ascertain quantity, quality and location of recoverable material, as well as depth of overburden. From that, they should be able to estimate the total quantity and quality of material available, along with a map of where it's located. In most aggregate operations, rock or gravel is the mother lode......sand a byproduct.

The owner or pit operator most likely have already done this if it's an operating pit. Ask for a copy. If proposed, the owner may have done this or is simply guessing. If the latter.....well, your guess is as good as his (or mine). If it's up to you to hire the engineer, I hope you have this factored into your fee. Pucker up.....it won't be cheap.

If the owner provides you with core sample results, you then have to ask yourself if it's believable. If the pit is operating, there will be a hole in the ground where the material has been removed. That hole can be measured for volume and that compared to historic production records to see if it matches up. So many tons per cubic yard of solid rock or mixed aggregate in place. In some areas you can walk up to the face of the extraction site and measure overburden, and examine rock in place. If it checks out to your satisfaction, and you are going to rely on it, you may want to make an extraordinary assumption that the study you have been given is correct and valid.

 

[murray stroupe]

Re; Commercial Pit

How hard is it to change the zoning to mining?

Down here it might be possible, if it was 50 miles outside of any town, and if the owner was willing to spend a few million dollars and 5+ years.

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Sounds like a bargain compared to attempting to get a CA unleaded gas refinery.