Over the last few years, FactRight has reviewed a number of investment programs that offer investors a mining or conservation easement strategy. Specifically, investors could elect to cause the investment program to mine an underlying property for minerals, such as granite or limestone, which could produce cash returns to investors over a 20-plus year period. Alternatively, investors could elect to place a conservation easement on the property, which would limit the future use or development of the property and provide investors with a charitable contribution federal income tax deduction based on the value of the easement.
A lot hinges on mineral valuation reports
When putting together these programs, product sponsors generally engage a consulting geologist to complete a mineral valuation report to support the viability of the mining plan. The mineral valuation report usually addresses estimated reserves on the property, mineral pricing, production costs, market supply and demand, and other factors, which the geologist assesses to estimate the value of a potential mining operation. The mineral valuation report is one of the most important documents to focus on when performing due diligence on these types of investment programs, because:
- The product sponsor relies on the mineral valuation report to project investor returns if investors pursue the mining option, and
- Oftentimes, the qualified appraiser relies completely on the mineral valuation report to estimate the fair market value of the conservation easement, used to arrive at the value of the charitable contribution federal income tax deduction.
Regardless of the option pursued, it is imperative to evaluate whether the assumptions and projections in the sponsor-obtained mineral valuation report is defensible.
Gain confidence through independent assessment
Because of the vital role that the mineral valuation report plays for these offerings, and FactRight’s commitment to providing a detailed assessment of offering risks, FactRight has engaged Dr. Andrew Schissler, professor of practice and adjunct at the Colorado School of Mines, to perform an independent assessment of sponsor-obtained mineral valuation reports. Dr. Schissler’s assessments will include evaluation of numerous assumptions in sponsor-obtained mineral reports, including the following:
- Reserve estimates
- Mining timeline
- Mineral pricing
- Production and equipment costs
- Market supply and demand
- Operator availability
Our partnership with Dr. Schissler bolsters FactRight’s due diligence on mining strategy programs and will provide more transparency to broker dealers and RIAs reviewing investment programs with mining options.
You’ll want to view the webinar
Please join us on Monday, August 20th at 3:00 pm (CST), for a webinar with Dr. Andrew Schissler and me, to learn more about:
- Why mineral valuations are important when considering mining and conservation easement strategies.
- How Dr. Schissler assesses the estimated value of mineral rights.
- Key due diligence considerations to consider when reviewing investment programs that have a mining strategy.
About the presenters
Dr. Andrew Schissler, PE, is a professor of practice and adjunct at the Colorado School of Mines in Mining Engineering and coordinates the national examination for Professional Engineering Licensure for Mining/Mineral Processing for the Society for Mining, Metallurgy, and Exploration. Dr. Schissler has 44 years of experience in mining engineering and the business of mining, including more than 30 years working directly for mining companies in various capacities, ranging from laborer to executive vice president. Dr. Schissler has performed more than 65 due diligence mineral studies and valuations worldwide in all mineral lines, including energy, metals, and industrial minerals. Dr. Schissler earned his doctorate and bachelor of science degrees from the Colorado School of Mines and an MBA from Regis University.
Russell Putnam is FactRight’s primary analyst for due diligence of conservation easement, oil and gas, and private placement investments. Prior to joining FactRight, Russell served as a document review attorney and a compliance consulting analyst. Before earning his juris doctor degree, Russell managed the acquisition due diligence process, collateral pooling, and distribution process for the issuance of asset- and mortgage-backed securities. Russell is a magna cum laude graduate from Hamline University School of Law and earned a bachelor’s degree in economics and political science from St. Olaf College.