Fisher German's Minerals Expertise
Fisher Germans minerals expertise
• Fisher German’s core aim is to maximise revenue earning opportunities from minerals and landfill and whilst maintaining the value of the property.
• Lease and option agreement negotiations.
• Unrivalled knowledge of the royalties and rents to be achieved.
• Ongoing management of the quarry / landfill operations
• Management of the final restoration scheme
• Experience and knowledge of the complicated tax regime in relation to minerals.
Royalty Payments versus Capitalisation of Income.
When entering into the leases with minerals operators there were 2 ways of approaching the matter of income derived from the extraction of minerals for the benefit of the Landlords.
The first approach would be to capitalise the future income receivable over the expected term of mineral extraction and take the present value of this income. In carrying out such a calculation the valuation would discount the figure receivable taking into account risk uncertainty and other factors. Typically the discount is in the region of 25%, this reflects the risk of production being delayed by, for example, archaeological finds or pockets of inferior product. A further discount is then applied by the purchaser to reflect the advance payment of capitalised future income and the cash flow disadvantage this creates.
The net result of adopting such a valuation approach often results in the landlords taking a significantly reduced sum which does not reflect the full income generating ability of the lease and could leave the landlords in a financially worse position.
The alternative approach is to take a royalty rent, based on the value of every tonne of minerals sold under the terms of the lease. The royalty rent under such an arrangement would be based on comparable evidence derived from similar leases in the region and would ensure the royalty rent is reviewable on a basis that ensures that the rent keeps up to date with current royalty rents being paid in the region.
By adopting this approach, and taking a royalty rent as opposed to a capital sum, the landlords have the benefit of a full income stream over the term of the lease as opposed to a reduced income if they chose to take a capital sum.
For further information in this complex area of land management, please contact Christopher Hicks at the Market Harborough office.
- Ashby de la Zouch
- 01530 412821
- Banbury
- 01295 271 555
- Knutsford
- 01565 757970
- Market Harborough
- 01858 410 200
- Newark
- 01949 851815
- Southampton
- 02380 883150
- Stafford
- 01785 220 044
- Worcester
- 01905 453275
