Federal Land Management:

Appraisal of Crown Butte Mines' New World Property

RCED-98-209: Published: May 29, 1998. Publicly Released: May 29, 1998.

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Pursuant to a legislative requirement, GAO reviewed the appraisal of Crown Butte Mines, Incorporated's New World property, focusing on: (1) whether it complied with federal appraisal standards and and how the value of the appraisal was derived; and (2) key assumptions used in the appraisal.

GAO noted that: (1) GAO did not identify any areas in which the appraisal of Crown Butte Mines' New World property interests deviated from federal appraisal standards; (2) federal appraisal standards state that the government should appraise a property to be acquired at its fair-market value; (3) the appraiser relied on two approaches to derive this fair-market value: (a) evaluating comparable sales; and (b) estimating the gross income from future mining operations and adjusting this amount to the present value of the reserves in the ground; (4) following these standards led the appraiser to estimate the value of the property at $72 million and reduce this amount by about $3 million to account for reserved mining royalty interests granted by Crown Butte to a third party and a conservation easement limiting mining on parts of the property; (5) GAO's work found that four key assumptions made during the appraisal process tended to raise the value of the appraisal; and if other assumptions were used, the appraised value might have been lower; (6) GAO does not, however, question the reasonableness of the assumptions made; (7) in particular, the appraisal assumed that: (a) mineral rights associated with a portion of the property subject to a conservation easement have no value because the easement will prevent mineral development; (b) the mining operations that Crown Butte had planned would have been issued permits by state and federal agencies in a timely manner; (c) known hazardous waste conditions would not affect the property's value; and (d) Crown Butte's estimate of gold reserves is valid; (8) GAO did not estimate the specific monetary impact of these assumptions; (9) however, GAO believes these assumptions could have tended to increase the appraised value in comparison with the value that would have been estimated using others; (10) for example, if permits had been delayed for a year, the present appraised value would have been lower; (11) the appraiser noted that the appraisal could not have been completed without making assumptions to address these issues; and (12) GAO does not believe that use of these assumptions invalidates the appraisal estimate.

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