Facing increasing opposition to the proposed project over concerns for the park’s water quality and other resources, in August 1996 Crown Butte and the federal government agreed to exchange Crown Butte’s New World property for up to $65 million in federal assets (subject to an appraisal that the property has a fair market value of at least this amount). These standards state that the government should appraise a property to be acquired at the fair market value. He derived these estimates from sales prices and reserve estimates for the properties. The appraiser then made two adjustments that reduced the $72 million value to the appraised value of $69,076,000. Key Assumptions Used

In estimating the fair market value of the proposed mine, the appraisal relied on several assumptions that could have tended to overstate the appraised value. The key assumptions made in the appraisal were that (1) mineral rights associated with the private property have no value because the conservation easement prevents mineral development; (2) the mine would have been issued permits to commence operations in a timely manner; (3) hazardous waste conditions would not affect the property’s value; and (4) Crown Butte’s revised estimate of gold reserves is valid. Government Assumed Mine Operations Would Have Been Issued Permits

The appraisal also relied on the assumption that the New World mine would have received the required governmental permits and been able to commence operations in a timely manner—or, in the words of the appraisal, it assumed that permits were a “non-factor.” Mine operators are required to apply for and receive various permits prior to mining, including mine and water quality permits. We believe the net present value of future income from the mine would have been lower if delays had occurred. Observations

In our review of the Crown Butte appraisal we did not identify areas in which the appraisal deviated from federal appraisal standards. Although we could not determine how much the assumptions affected the value, they tended to increase the value in comparison to the value that would have been estimated using different assumptions. However, given the imprecision involved with appraising mineral properties, we did not find that the use of these assumptions was unreasonable. However, it expressed concern about the wording and possible misinterpretation of the assumption made by the appraiser that mineral rights for the portion of the Crown Butte property under a conservation easement have no value. We discussed both the standards and the appraisal with the Chief Appraiser and a field review appraiser of the Forest Service and the contract appraiser who conducted the appraisal.
Why GAO Did This Study

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.

What GAO Found

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.