Papers - Coal Lands Valuation - Plant Capacity and Carrying Charges, and the Effect Thereof on Value of Coal Properties (With Discussion)

The scope of this article covers only the mathematical principles involved in discounting to present worth future expected profits and it is believed answers definitely two questions, which were raised at a recent meeting of the Committee on Methods of Valuing Coal Properties, as follows: 1. The accumulative effect of carrying charges on the value of coal mines showing definitely the number of years beyond which the coal may not be mined at a profit and subsequent to which the possession of any unmined coal will be a liability rather than an asset. 2. The effect on the valuation of coal mines, in the presence of the carrying charges described in question 1, of an increase in plant capacity and production. In general, in considering these questions, it may be stated that the consideration of an increase in plant capacity and production follows as a matter of course after a determination has been made of the year beyond which no profits are to be realized (giving the carrying charges accumulative effect, or in other words capitalizing the carrying charges, as shown hereinafter). For example, if it is determined that any coal that is unmined after 45 years will have no value or less than no value, the question immediately arises as to whether or not a plant should be constructed that would result in a yearly production great enough to extract the entire tonnage in a time less than 45 years, and if so the number of years less than 45 years that would, from a financial standpoint, be the most desirable, all under the assumption that the market for the product or the transportation facilities are such that the yearly production can be increased to the desired amount. Specifically, the carrying charge is considered herein as yearly expense, such as state or local taxes, which are assessed each year against the total tonnage remaining in the ground (or the total coal acreage remaining) at the beginning of the year, at a fixed rate per ton (or a fixed rate per acre) OF a fixed percentage of the assessed value, in the latter case it being necessary to convert such percentage into a rate per