Basic Valuation Concepts

"There are two characters to the value of mining properties-one mine may have a value, owing to its real intrinsic worth; an- other (having no intrinsic value) may have a value by being so situated as to harass the working of the really valuable mine-in mining camps one is looked upon as much of ligitimate enterprise as the other.'' -Victor Clement to Simeon Reed, Wardner, Jan. 11, 1890, Reed Mss. APPROACHES TO VALUATION Value and costs are two terms basic to financial analysis which cause, perhaps, the greatest amount of misunderstanding in mine valuation studies. When discussing the value of an asset or the costs of producing a product, it is absolutely essential that the speaker define the terms being used. There are many types of value and many categories of costs. Without specific accompanying definitions, value and cost data are not very meaningful. Value refers to a measure of the desirability of ownership of property. Some of the types of value which might be encountered in a mine valuation study are: 1) Market value 2) Full cash value 3) Salvage value 4) Replacement value 5) Capitalized value 6) Book value 7) Assessed value 8) Insured value Each of these has a specific meaning which can be applied to determine a monetary amount in a specific situation. The major item of interest here is the broader question of "what is the value of the mine?" or "what is the mine worth?" In this case, we are speaking of market value. Market value is the value (price) established in a public market by ex- changes between a willing buyer and a willing seller when neither is under duress to complete the transaction. Market value fluctuates with the degree of willingness of the buyer and seller and with the conditions of the sale. The use of the term market suggests the idea of barter. When numerous sales occur on a market, the