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Assessing the “Value-at-Risk” of a Quarry Operation Using Monte Carlo Simulation for Valuation Purposes

InSitu Advisory Pty Ltd In some cases, a quarry operation can be the highest and best use of a real property. In the valuation of a quarry, the traditional real estate comparative market valuation method in most instances does not suffice. Unlike residential and commercial properties, quarry sales do not transact frequently and so there are limited sales evidence. In addition, no two quarries are ever the same as there are many operational parameters that can differ. These can include, but are not limited to:
  • Size of the resource that is finite and a wasting asset
  • Quality of the resource that determines the range of possible products that can be produced
  • Volume of sales dictated by the local and national markets
  • Range of products and associated pricing
  • Cost of production relating to the range of products produced
  • The age, efficiency and specification of the processing plant
  • Distance from the market that affects the ex-bin selling price
It is for these reasons that the best way to value real property used for quarrying is to consider the cash in and out flows generated from the property and analyse these using various valuation methods. One such method is the discounted cash flow (DCF) method.