Metal Mining - Enhancement and Hazard Factors as Related to Mine Valuation

The method of treating hazards wherein value is decreased, is cited by R. D. Parks. Quite properly, the theory of probabilities is made use of when multiple hazards are under consideration. E. F. Fitzhugh, Jr. $ deals with the enhancement phase graphically and uses percentage of expectancy as derived by a study of conditions and the selection of a chance factor. It is believed that both of the authors referred to fully recognize the part which human judgment plays, and as coupled with experience, training, and the application of the theory of probabilities; in that respect the composer of this paper is in accord. Within the past year, the task of arriving at a mathematical method for handling the enhancement phase, and, additionally, coupling the negative and positive phases, was explored. In citing the hazard, or negative phase, reference is made to the text by Parks. Types of Items far Consideration On the hazard, or negative, side some of the common items to be considered are: 1. Subsidence and resulting damage. 2. Flo wage of water above that anticipated. 3. Geological. (a) Decline in quality of probable ore, and/or (b) Decline in quantity of probable ore. 4. Depressed economic conditions. 5. Litigation. Similarly, on the enhancement, or positive, side common items to be considered are: 1. Flo wage of water below that estimated. 2. Geological. (a) Increase in quality of probable ore, and/or (b) Increase in quantity of probable ore. 3. Elevated economic conditions. 4. Litigation. 5. Technological advance in the art. Tn all of the above items no consideration is given to placing a value on, or giving consideration to, possibilities. For example, referring to Table 1, the estimated normal present value (Vp) of a property, exclusive of risk consideration, is taken as $100,000. If subsidence affects the usefulness of the shaft, the present value of the property will decrease to $60,000, and it is judged that there is a 1 in 4 chance that the shaft will be impaired;, consequent.ly, if subsidence took place, the present value would be reduced ($100,000-$60,000) $40,000, but since the chance is 1 in 4, the allowable reduction would be only one-fourth of $40,000, or $10,000, or a discount of 10 pct (hazard factor) of the original value; the related safety factor is taken as unity minus 0.10, or 0.90. Thus, the original Vp, $100,000, multiplied by the safety factor ($100,000 X 0.90) gives $90,000, which is the adjusted present value of the property in this single instance. Additionally, there is a water hazard, which, if encountered, will reduce the present value to $85,000. The chance is 1 in 3. Following through with the same reasoning as shown above, the derived safety factor will be 0.95. To arrive at a single multiplying factor which will express the combined risks, the two safety factors are multiplied together, 0.90 X 0.95 = 0.855. That factor when multiplied by the origirial Vp will give the adjusted, and