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Since the Kehn Pit is in operation and partially mined out, the income <br />approach is regarded as the most appropriate methodology for the valuation of the <br />income stream relating to the royalty income plus office and shop building rental <br />income and the eventual sale of the subject property for wetlands and open space. <br />Therefore, the income approach ufilizing discounted cash flow analysis is the only <br />method being utilized. <br />} The first step in the process is to determine the royalty revenue for the <br />mining operation. Many pit owners mine and sell their own aggregate or use it in <br />their cement or asphalt operations. For those operators who do not possess <br />sufficient aggregate or who need it in places where they do not have supplies, they <br />typically enter into an agreement with a property owner to mine his or her pit and <br />pay what is referred to as royalty based on the amount of aggregate mined from <br />• the property. Phis is typically based on an agreed upon price per ton, which is <br />i paid to the property owner during the operation of the pit. The royalty represents <br />' the income stream to the property owner during operation of the pit. <br />It is also necessary to estimate market rent for the office and shop building <br />during the period that they can be utilized. <br />~ As part of the mining agreement, the pit operator also typically agrees to <br />reclaim the pit in accordance with the formal reclamation plan. In this scenario, <br />the reclamation is planned for wetlands and open space in conformity with the <br />United States Army Corps of Engineers 404 permit. After mining and reclamation <br />~ of the property is completed, the wetlands or open space is typically sold to a <br />municipality or similaz user on the basis of price per acre. This will represent the <br />!, reversionary value of the investment at the end of the holding period. <br />In order to be able to mine the gravel pit, it is necessary to obtain the <br />,' necessary permits from both the State of Colorado Division of Minerals and <br />~ Geology and Latimer County jurisdictions. As part of the application process, <br />FOSTER VALUATION COMPANY LLC <br />-29- <br />PRIMARY VALUATION ~ ~ <br />