Federal Land Management

Congress set aside up to $65 million to acquire mining interests held by Crown Butte Mines, Inc., in an area near Yellowstone National Park. Before the acquisition can occur, however, four conditions must be met, including an appraisal of the property and a Comptroller General review of the appraisal within 30 days. The Crown Butte interests are located on land in the Gallatin National Forest, and the land will be managed by the Forest Service once it has been appraised and acquired. This report presents the results of GAO's review of the appraisal, which was arranged by the Forest Service. GAO (1) determines whether the appraisal complied with federal appraisal standards and how the value of the appraisal was derived and (2) assesses key assumptions used in the appraisal.

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.