Highest and Best Use Analysis and Its Application in Appraising Undeveloped Mineral Properties
For Presentation at the 2019 SME Annual Meeting
February 24-27, 2019 | Denver, Colorado | Alan K. Stagg, PG, CMA
Abstract
There is continuing disagreement in the mineral appraisal community over the appropriate technique to use in valuing an undeveloped mineral property when using the Income Approach to Value, with the alternatives being the use of a royalty income or an operating-based income. As background, it is noted that a lease of mineral rights creates two new estates in a property—the Leased Fee and the Leasehold. In those instances in which a lease exists for an undeveloped mineral property, the appropriate technique will be reflective of which of these two estates is being valued. For properties that are not under lease at the date of the appraisal but for which the Income Approach to Value is being used, the issue becomes which of the two estates should be the basis for the appraisal. In the author’s experience, this decision is best approached as part of the Highest and Best Use analysis. Support for this concept and a hypothetical example are provided in this presentation.
Bio
Stagg, a graduate of the University of Tennessee with a degree in geology, is the president of Stagg Resource Consultants, Inc. He has more than 54 years’ experience in the mineral industry, with the last 40 including an increasing emphasis on mineral appraisals. He has conducted appraisals in more than 40 states and internationally. Stagg is a registered professional geologist in 14 states, a registered member of SME, and a certified member of the International Institute of Minerals Appraisers.
