Victorian Statutory Revaluation
Valuer-General Victoria and Municipal Group of Valuers
Guidelines on Valuation Methodology for
Quarries and Landfill Sites
Introduction
These guidelines are to be used when valuing Quarries and Landfill Sites for rating and
taxation purposes.
The guidelines need to be used in conjunction with the General Provisions for Specialist
Guidelines, which refer to the general requirements, legislation and procedures relating to
all statutory valuations.
Background
The extractive industries sector in Victoria operates quarries that produce a range of hard
rock, clay, sand and gravel products to support the building and construction industry.
From 1 January 2010 Victoria’s extractive industries have been regulated under the
Mineral Resources (Sustainable Development) Act 1990 (MR(SD)A). The legislation provides
for:

the mineral exploration and mining industry including gold, coal, and mineral
sands; and

extractive industries (quarries) for the extraction of stone resources including
gravel, sand, soil, building stone and clay (but does not include fine clay, kaolin or
salt) – this in combination with land use controls under the Planning and
Environment Act 1987.
The MR(SD)A addresses licensing and approvals, as well as compensation, rehabilitation
and royalties for extractive industries, mineral exploration and development activities 1.
1
www.new.dpi.vic.gov.au/earth-resources/about-earth-resources/legislation-and-regulation
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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New work plan requirements
The following is an extract from Part 2 of the Extractive Industry Work Plan Guideline,
September 2010 –
Operators of quarries on land covering an area of one hectare or greater, and or at a
depth of two metres or deeper, must hold a work authority under the Act.2 A work
authority can be obtained by application to the Department of Primary Industries
(DPI).
If the proposed quarry is less than one hectare in area and less than two metres in
depth, a work authority, and therefore a work plan is not required.
If a work authority is required, a work plan may need to be prepared and approved
before the work authority can be granted. A work plan is not required if the proposed
extractive industry:




is on land that has an area of less than five hectares;
has a depth less than five metres;
does not require blasting; and
does not require clearing of native vegetation.
If a work plan is not required, the site must comply with the Code of Practice for
Small Quarries.
A complete copy of the guideline can be obtained from:
www.new.dpi.vic.gov.au/earth-resources/whats-new/workplan-guide
A copy of the Code of Practice for Small Quarries can be obtained from:
www.new.dpi.vic.gov.au/earth-resources/whats-new/code-practice-small-quarries
Environmental Protection Authority (EPA) has revised guidance for landfills
The EPA has published a revised landfill BPEM* (‘Siting, design, operation and
rehabilitation standards of landfills’). Standards for buffer distances, landfill design,
construction, gas management, rehabilitation and community engagement have been
updated. The EPA is currently developing guidance on landfill gas monitoring for release
in 2011 and continues to work with wider Victorian government on buffer issues.3
*The Best Practice Environmental Management – Siting, Design, Operation and
Rehabilitation of Landfills (Landfill BPEM) is used by the EPA, industry and others in
relation to works approval applications and compliance activity. Applicants for a works
approval or licence for a landfill must meet the objectives and required outcomes set out
in the Landfill BPEM.4
A works approval must be obtained before a landfill can be constructed except for
municipal landfills serving a population of fewer than 500 people. A licence under the
Environment Protection Act 1970 is required for all landfills apart from municipal
landfills serving a population of fewer than 5000 people. The licence sets the
performance objectives of the operating landfill, defines operating parameters and
requires monitoring to check on environmental performance.5
There are a number of other exemptions that apply. These are all listed in the most recent Victoria Government
Gazette.
3
State Government Victoria, Environmental Protect Authority, www.epa.vic.gov.au/waste/landfill.asp viewed
August 2011
4
Ibid
5
Ibid
2
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Definition
The following definitions are contained in Section 4 of the Mineral Resources (Sustainable
Development) Act 1990.
Extractive industry means the extraction or removal of stone from land if a primary
purpose of the extraction or removal is the sale or commercial use of the stone or the use
of the stone in construction, building, road or manufacturing works and includes:
the treatment of stone or the manufacture of bricks, tiles, pottery or cement products on
or adjacent to land from which the stone is extracted; and
any place, operation or class of operation involving the extraction or removal of stone
from land, declared by the Minister, by notice published in the Government Gazette, to be
an extractive industry for the purposes of this Act;
Extractive industry work authority means a work authority relating to an extractive
industry granted under Section 77I.
Quarry means
(a) a pit or excavation made in land below the natural surface for the purpose of
extracting or removing stone if a primary purpose of the extraction or removal
is the sale or commercial use of the stone or the use of the stone in
construction, building, road or manufacturing works; or
(b) any place or operation involving the removal of stone from land,declared by the
Minister by notice published in the Government Gazette to be a quarry- and
includes access ways on private land and the works, machinery, plant,
equipment, buildings and structures above or below ground used for or in
connection with
(c) making, enlarging or deepening the pit or excavation; or
(d) carrying on the operation; or
(e) the extraction or removal of stone from the pit or excavation; or
(f) the treatment on or adjacent to the land in which the pit or excavation is made
of stone extracted or removed from the land or the manufacture on or adjacent
to that land of bricks, tiles, pottery or cement products substantially from
stone so extracted or removed.
Work authority means an authority granted under Section 42 to the holder of a mining
licence.
Landfill – landfills have served a key role in the management of solid wastes and are
likely to continue to be an important component of the waste management system. The
implementation of the waste management hierarchy of waste avoidance, reuse, recycling,
recovery of energy, treatment, containment and finally waste disposal has resulted in
significant diversion of waste from landfill. 6
The four types of landfill are as follows:
 Clean fill – rock and soil
 Solid Inert Waste – building materials such as timber, concrete etc.
 Putrescible – Household waste
 Category C Prescribed Industrial Waste – Contaminated soils and some other lowhazard prescribed industrial wastes.
Note: A landfill must be licensed by the EPA to receive Category C wastes; there are
current approximately 25 landfill sites in Victoria that hold this licence. The Environment
Protection (Industrial Waste Resource) Regulations 2009 contain the definitions for
Category A, B and C wastes in Schedule 2.
EPA - The Best Practice Environmental Management –Siting, Design, Operation and Rehabilitation of Landfills
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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Victorian Statutory Revaluation
The following industry terminology is in alphabetical order:
Annual return – extractive industry – Every quarry that has a work authority has to
report annually by 31 July the prescribed information in accordance with Schedule 2 of
the Mineral Resources (Sustainable Development) (Extractive Industries) Regulations 2010.
The information required, under a statutory declaration, is the type of rock and quantity
produced as well as the value of total sales at gate.
It would be reasonable to verify the annual extraction rate quoted by the owner against
the amounts reported in the annual return.
Buffer land – a strip or area of land maintained in permanent vegetation that helps to
control pollution such as air, soil, noise, quality of water and other environmental
problems primarily on the land used for extraction. Different levels of extraction will
have different requirement for buffer land.
Practical note: Buffer land is effectively quarantined land around the extraction zone
A buffer zone can be required for blasting purposes and/or mandatory town planning
distances from surrounding land uses. Buffer land is distinct from ‘reserves bearing
land’, that is reserved for future quarrying purposes or other surplus land not required
under the permit provisions.
Buffer land may add little or no value over and above the quarry operation; however,
the valuer needs to consider the reversionary value the land might have at the end of
the quarry life. Where there is surplus land that is occupied separately e.g. for farming
or grazing the valuer should determine if a separate assessment is required.
Environment effects statement – In accordance with Section 77T of the Mineral
Resources (Sustainable Development) Act 1990:
‘If under a planning scheme a permit is required to be obtained for carrying out an
extractive industry on the land covered by an extractive industry work authority in
accordance with that work authority, the holder of the work authority is not required
to obtain a permit if—
(a)
(b)
(c)
an Environment Effects Statement has been prepared under the Environment
Effects Act 1978 on the work proposed to be done under the work authority;
and
an assessment of that Statement by the Minister administering the Environment
Effects Act 1978 has been submitted to the Minister; and
the work authority was granted by the Minister following the Minister's
consideration of that assessment.’
Environment Protection and Biodiversity Conservation Act 1999 (EPBCA) – The EPBCA
is the Australian Government’s central piece of environmental legislation. The EPBCA
provides a legal framework to protect and manage nationally and internationally
important flora, fauna, ecological communities and heritage places — defined in the Act
as matters of national environmental significance. 7
Practical Note: Extraction permitted under an existing work authority can differ from
what may be possible under a new or extended quarry having regard to Native vegetation
and/or indigenous heritage considerations.
Geological survey – An exploratory programme directed to the examination of rock
sediments obtained via boring or drilling by inspection of surface out croppings.
Geological surveys of Victoria are available on the following website:
www.new.dpi.vic.gov.au/earth-resources/geology
7
Environment Protection and Biodiversity Conservation Act 1999 (EPBC Act) – Fact Sheet
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Licence – Issued pursuant to Section 20 of the Environment Protection Act 1970 and
grants, subject to approval by the relevant Authority, the ability to discharge waste, emit
noise and/or treat/store any prescribed industrial waste from/at the scheduled premises
and commission any works subject to works approval.
Overburden – Surface material such as earth, sand and boulders, covering the winnable
resources.
Rehabilitation plan – Section 78A of the Mineral Resources (Sustainable Development) Act
1990 (MRSDA) requires all land affected by extractive industry to be rehabilitated in
accordance with the rehabilitation plan approved by the Department of Primary
Industries, the conditions of the work authority and any requirements of the relevant
planning scheme, any planning permit and any Section 173 Agreement.
‘A rehabilitation plan must:
(a) take into account
(i) any special characteristics of the land; and
(ii) the surrounding environment; and
(iii) the need to stabilise the land; and
(iv) the desirability or otherwise of returning agricultural land to a state that
is as close as is reasonably possible to its state before the mining licence
or extractive industry work authority was granted; and
(v) any potential long term degradation of the environment.’8
Rehabilitation Bonds – A rehabilitation bond is a financial security that must be provided
by an operator prior to work commencing to ensure that rehabilitation can be undertaken
by the department should the operator be unable to meet their rehabilitation obligations.
Section 80 of the MRSD Act requires a licensee or an applicant for an extractive industry
work authority to enter into a rehabilitation bond for an amount determined by the
Minister. The condition of a rehabilitation bond is that the authority holder rehabilitates
the land as required by section 78 or 78A of the MRSD Act.
The Minister may use the bond to fund necessary rehabilitation works not satisfactorily
completed by the work authority holder.
Practical note: The former Extractive Industry Licences (EIL), which were the
predecessors to Work Authorities, sometimes have negligible rehabilitation liability
while the more recent rehabilitation plans are focused on progressive rehabilitation.
Quarries that don’t have progressive rehabilitation may substantially decline in value
in the last years of the life of the quarry if there are onerous rehabilitation
requirements. There is a possibility that at some point the cost of rehabilitation may
exceed the remaining value of the stone reserves.
When assessing the accrued cost of rehabilitation, it is important to distinguish between
rehabilitation liabilities that have already accrued and liabilities that will accrue
through future quarrying; i.e. guard against double counting between annual costs and
capital costs.
Rehabilitation cost vary according to the proposed end use; for example, residential,
rural, industrial or parkland - the proposed end use concepts are specified in the Work
Plan, but need to be assessed on a case-by-case basis.
Reserves – The amount of a mineral resource remaining that can be mined profitably.
Resource – The calculated amount of material in a mineral deposit, classified as
measured, indicated, or inferred, based on the density of drill hole information used.
Mineral Resources (Sustainable Development) Act 1990, Section 78A
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Royalties (Crown) – The holder of a work authority relating to an extractive industry to
be carried out on Crown land ‘...must pay royalties (to the Crown) in accordance with the
rate or method of assessment and at the times –
(a) specified in the work authority; or
(b) prescribed, if not specified in the work authority –
(c) unless the Minister decides to waive or vary the royalties under subsection (4).’9
Practical note: When a quarry extracts from adjoining Crown land; either adjacent or
land below the title (most titles show if there is a minimum depth, which is usually 50
feet) an extractive industries lease is taken out to use the Crown land, the Crown land
then forms part of the rateable property.
The Mineral Resources (Sustainable Development) (Extractive Industries) Regulations
2010 describes the definitions and the current royalty for stone as follows:
Schedule 3 – Rate of Royalties (Crown) - Regulation 20
1. Definitions
M3 means a cubic metre of material in the form that is the loose measurement of the
material sold, removed or extracted;
tonne means a tonne of material in the form that is the loose measurement of the
material sold, removed or extracted.
2. Rates
Type of stone
All stone (except dimension stone and marble)
Dimension stone and marble
Rate per m3
$1.43
$8.07
Rate per tonne
$0.87
$3.23
Royalty – A form of rent paid by a company operating a quarry to the actual owner of the
mineral rights (usually the owner of the land). The amount payable may be based on so
much per tonne produced or by a percentage of revenue or profits.
Practical note: Leasehold quarries are rare; most are owner operated. A lease usually
includes a land rent (or ‘Base Rent’), or a minimum annual royalty, plus a royalty on
the material extracted.
The Crown royalty is a flat amount set by the regulations and covers all materials and
all locations; it doesn’t necessarily equal the, market royalty.
Where a land title is limited in depth to 50 feet, then above 50 feet the royalties go to
the land owner and below 50 feet, the specified or prescribed Crown royalty is payable
to the Crown.
Stone means –








sandstone, freestone or other building stone; or
basalt, granite, limestone or rock of any kind ordinarily used for building,
manufacturing, road making or construction purposes; or
quartz (other than quartz crystals); or
slate or gravel; or
clay (other than fine clay, bentonite or kaolin); or
peat; or
sand, earth or soil; or
other similar materials.10
Waste management facility includes a landfill, a transfer station, a composting
facility, a facility to store or contain solid waste and a material recovery facility;11
Ibid Section 12
Mineral Resources (Sustainable Development) Act 1990 – Definitions
11
Environmental Protection Act 1970 – Definitions
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10
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Waste includes –
(a) any matter whether solid, liquid, gaseous or radio-active which is discharged,
emitted or deposited in the environment in such volume, constituency or
manner as to cause an alteration in the environment;
(b) any discarded, rejected, unwanted, surplus or abandoned matter;
(c) any otherwise discarded, rejected, abandoned, unwanted or surplus matter
intended for –
(d) recycling, reprocessing, recovery or purification by a separate operation from
that which produced the matter; or
(e) sale; and
(f) any matter prescribed to be waste.12
Work authority – Under Section 77I of the Mineral Resources (Sustainable Development)
Act 1990 a person who proposes to carry out an extractive industry may apply to the
Minister for a work authority.
Practical note: While a work authority is issued to a person it is specific to a work plan
and related to a particular parcel of land. You can have one work authority only on a
parcel at any one time. A work authority only relates to one property and cannot be
transferred to other properties. In these respects they are similar to a Planning Permit.
A copy of the work authority can be obtained from the owner.
Work plan – In accordance with Section 77G of the Mineral Resources (Sustainable
Development) Act 1990:
1. A person who proposes to apply for an extractive industry work authority to carry
out an extractive industry must lodge a work plan with the Department Head.
2. Subsection (1) does not apply to a person who proposes to apply for an extractive
industry work authority to carry out an extractive industry –
(a) on land that has an area of less than 5 hectares and a depth of less than 5
metres; and
(b) that does not require blasting or the clearing of native vegetation unless the
Minister declares, in writing, that the applicant must lodge a work plan.
3. A work plan must –
(a) contain the prescribed information contained in Schedule 1 of the Mineral
Resources (Sustainable Development) (Extractive Industries) Regulations 2010.;
and if the extractive industry work authority relates to a declared quarry, in
addition to the prescribed information referred to in paragraph (a), prescribed
quarry stability information; and
(b) include a rehabilitation plan for the land proposed to be covered by the work
authority; and
(c) in relation to extractive industry activities proposed to be carried out under the
work authority, include a plan for consulting with the community prepared in
accordance with the regulations and any guidelines issued by the Minister
relating to such plans (a community engagement plan).
Practical note: the work plan is part of the work authority. Some of the older work
authorities originally issued as an Extractive Industry Licence (EIL) often have less
onerous requirements, and can therefore be considered more favourably in the market
place because the level of constraints and costs of rehabilitation is less.
Works approval – required pursuant to Section 19A of the Environment Protection Act
1970 for works at scheduled premises which will or is likely to alter or increase the
discharge of wastes or emission of noise to the environment, or be used for the
treatment/storage of prescribed industrial wastes.
Environmental Protection Act 1970 – Definitions
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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A works approval must be obtained prior to commencing works, or use that will make the
premises or any alteration in plant regardless of use or impact on discharge at a
scheduled premises.
The following are other definitions that apply in this guideline:
Benches – a level cut or tiers along the quarry face.
Bund wall – earth mound usually around the perimeter of the quarry.
Conversions
Volumes


Bank cubic metres (volume
in the ground)
Loose cubic metres (volume
after extraction)
Tonnes







1 bank metre = 2.4T
1 loose metre = 1.6T
1 loose metre=1.5T
$1.43M3 or $0.87 T
Fine
Medium
Coarse

Conversion Basalt
Conversion Sand
Royalties (Crown)
Sand
Practical notes:
 Royalties (Crown) are for all stone materials in all locations on Crown Land.
 Reserves sometimes quoted in ‘bank metres’ (length x width x depth)
 Loose metre is the stone material after extraction that is broken up as opposed to a
bank metre which is compressed in the ground. A loose metre will vary for different
materials and different coarseness and density of material.
 As a guide for sand for example –
 1 m3 metre = 1.5 tonnes
 Reserves are usually quoted in m3.
 Income and extraction rates are usually quoted in tonnes.
Ex-bin price – the price of extracted material at the gate.
Slimes – the fine clay washed out of extracted sand.
Stock piles – stock pile of extracted and treated material.
Terminal face – the final extracted face of the quarry.
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Additional Victorian legislation and cases applicable to quarries and landfill
The following Acts are also relevant to this topic:









Mineral Resources (Sustainable Development) Act 1990
Mineral Resources Development Regulations 2002
Mineral Resources (Sustainable Development) (Extractive Industries) Regulations
2010
Planning and Environment Act 1987
Commonwealth Native Title Act 1993 (Commonwealth)
Environment Protection and Biodiversity Conservation Act 1999
Environment Protection and Biodiversity Conservation Regulations 2000
Environmental Protection Act 1970
Environment Protection (Industrial Waste Resource) Regulations 2009
Court cases:
The following court cases are applicable to extractive industry. Each case has the
catchwords sourced from the cited case.
 Shannon Beach Pty Ltd v Commissioner of State Revenue (Taxation) [2005] VCAT
Taxation List; Stamp Duty; Sale of land conditional upon approval of transfer and
transfer of Work Authority under Extractive Industries Development Act 1995;
Whether duty paid by reference to entire consideration shown on contract and
transfers or upon a lesser sum reduced by a value attributed to work authority
 Burdett Enterprises Pty Ltd V Frankston City Council [1998] VCAT
Valuation of Land Act 1960 – proper basis for assessing Site Value, Capital Improved
Value and Net Annual Value – Work Authority Issued Under Extractive Industries
Development Act 1995.
 Roads Corporation v Love [2010] VSC 32 (23 February 2010)
LAND VALUATION AND COMPENSATION - Compulsory acquisition of part of land
utilised for agricultural and quarry purposes - Highest and best use of land - Claim
for loss of landfill potential - Uncertainty of access not affecting prospects of land use
approval - Low prospect of land use approvals for landfill use – Uncertainty of access
not affecting market value at date of acquisition or thereafter - Market value
reflecting future industrial value of land - Hypothetical development calculations
rejected - Discounted cash flow analyses rejected - No special value in landfill
potential - No severance claim reflecting landfill potential - No disturbance claim
reflecting landfill potential - Special value of trees, residence and access tracks Disturbance claims – Solatium - Environment Protection Act 1970, ss 4, 16, 38, 40, 44,
50E, 50F, 50G, 50H, 50R, 50RE - Extractive Industries Development Act 1995 - Land
Acquisition and Compensation Act 1986, ss 30, 40, 41, 43, 44, 90, Part IV - Planning
and Environment Act 1987, ss 4, 7, 149, Part 1A - Valuation of Land Act 1960, s 5A.
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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Identification of properties
To appropriately categorise extractive industry in a municipality, refer to the Australian
Valuation Property Classification Codes (AVPCC) available at www.dse.vic.gov.au/valuation.
There are 36 AVPCC that relate to extractive industry under the following secondary codes:
40
41
42
43
44
45
46
47
48
– Extractive industry site with permit or reserve
– Quarry
– Mine (open cut)
– Mine (deep shaft)
– Tailings Dumps
– Well/Bore
– Salt Pan (evaporative)
– Dredging operations
– Other Unspecified
For valuation purposes for quarries, the following classification codes are applicable:
Quarry
 Sand – AVPCC 410
 Gravel/Stone – AVPCC 411
 Manufacturing Materials – AVPCC 412
 Soil – AVPCC 413
There is only one categorisation for landfill as the methodology is very similar for all
classification codes.

Sanitary Land Fill - AVPCC 632
Note: The four main types of landfill are all to be classified as AVPCC 632
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Rental questionnaire – specific requirements applicable to quarries and landfill
In additional to the general requirements for rental information, the following is a guide to
the specific information required for quarries.
Property data
1.
2.
3.
4.
Size of quarry/landfill i.e. Land area attributed to
the sandpit/quarry.
Does the property have a current work authority?
Land area subject to the work authority or licence Please provide the land area that the work
authority relates to.
Improvements – What improvements are on the
property i.e. buildings, sheds, weighbridge
Yes  No 
Years
Extraction
1.
2.
3.
4.
5.
6.
7.
8.
Estimated life of the quarry
Estimated level of reserves: Please specify the type
and quality of reserves for example, gravel, basalt,
coarse of fine grade of sand.
Estimate annual rate of extraction?
Average charge (Ex GST) for extracted ex-bin
material.
Revenue - Gross revenue for past three financial
years (Ex GST)
Expenses - Gross operating costs for past three
financial years (Ex GST)
Break-up of operating costs
a. Depreciation
b. Interest/loan
c. Managements costs
d. Asset schedule
e. Depreciation schedule
f. Other
P&L – Last 3 years profit and loss statements
9. P&E - Book value for plant and equipment
10. Rehabilitation – Is there any known rehabilitation
obligations and if so the order of costs.
11. Royalties - Are royalties paid on any material
extracted, if so how much?
Landfill
Tonnes
$
per Tonne
$
Yes  No 
$
Yes  No 
$
1.
Type of landfill accepted?
Clean fill  Inert 
2.
Estimated airspace reserves?
___________ Tonnes
3.
Estimated annual filing rate?
___________Tonne per annum
4.
Estimated life of airspace?
___________years
5.
What is your gate price?
___________ per m3
6.
What are your EPA levies
___________per m3
Revenue – Gross revenue for past three
financial years (Ex GST)
8. Expenses – Gross operating costs for past
three financial years (Ex GST)
9. Break-up of operating costs
 Depreciation
 Interest/loan
 Managements costs
 Asset schedule
 Depreciation schedule
 Other
10. P&L – Last 3 years profit and loss
statements
11. P&E - Book value for plant and equipment
Putrescible  Category C 
7.
12. Rehabilitation – Is there any known
rehabilitation obligations and if so the order
of costs.
$
Yes  No 
$
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Lease particulars
1.
2.
Is there an extractive industries Lease applicable to
this property?
Is there any other lease applicable to this property?
Yes  No 
Yes  No 
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Property inspection – specific requirements applicable to quarries and landfill
1. Investigate documents to be sighted:






Approved work authority, works approval or licence.
Work plan (view the work plan with the owner/operator as this is usually a very
bulky set of plans and specifications.
Planning permit
Certificate of Title
Crown lease (if applicable)
Section173 Agreement (if applicable)
2. Inspect property and determine components of the property such as:




quarry hole
weighbridge
plant and equipment
landfill site
Note: Must make an appointment to carry out an inspection as the owner/operator will
accompany the valuer on the inspection. The quarry/landfill manager is the most
appropriate person to call to make an inspection and to send the request for rental
information.
3. Clarify any data if required with manager/owner. Essential information will include:





size of reserves
annual extraction rate
sale price of extracted material (at the gate) e.g. Ex-bin or gate price.
operating costs
rehabilitation plans, on-going costs and end-of-life costs (if any).
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Methodology

Site value
The General Provisions for Specialist Guideline outlines the procedure and
considerations when determining site value. The following are more specific factors that
relate to quarry and landfill/tip sites that may be relevant in determining the site value.
Methodology
The primary valuation methodology is the analysis of comparable sales. Comparable
sales provide the best evidence to determine land value. Sales should be analysed on an
appropriate unit of comparison and applied to the subject accordingly.
A secondary approach is the capitalisation of market royalties. If you have a quarry that
has an actual lease and royalties payable then this approach is appropriate; however, the
following should be considered:


The royalty rate being paid is at a market rate and is not historic.
Identify who is the responsible landlord or tenant for the cost of rehabilitation. If it is
the tenant, the royalty rate will already reflect the rehabilitation costs, so it is not
appropriate to make a rehabilitation deduction from the site value calculation.
Capitalisation of royalty income may also be a useful method when you do not have
comparable sales, but there is comparable royalty evidence.
The following is an example of this approach:
Average annual extraction rate
Market royalty (assuming a ‘net’ lease)
Equals
210,000 Tonne
$1.10/Tonne
$231,000 p.a.
PV quarry life say 20yrs at cap rate 10%
8.51356 Years Purchase*
Quarry use land value
Equals
Plus - reversion/ end use value.
PV due 20yrs@5%
Less rehabilitation liability*
$231,000 * 8.51356
$1,966,632
$ 320,356
Site value
SV rounded
$2,286,988
$2,275,000
$
0
* This method assumes that the tenant/occupier is doing all (normal) rehabilitation. If
this is not the case then the PV of the rehabilitation needs to be deducted.
Practical notes:
 The calculation of site value has regard to the fact that the land has a work authority
(circumstances affecting the land). In current times these are often difficult to obtain
given the environmental constraints etc. and associated costs that involve expensive
consultancies and can take several years to get approvals.
 In some cases the quarry use may not be the highest and best use of the site. An
alternate permitted use under the actual zoning may have a higher market value.
Under this scenario the alternate use of the hole in the ground needs to be considered.
 A greenfield parcel with known reserves and work authority may not be geologically
unique to an area. They may even be quite common, in which case the presence of
reserves, alone, might not show much premium above alternative use land value. Good
reserves however are often land banked.
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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Victorian Statutory Revaluation




It is unusual for a quarry with significant high quality reserves and current economic
viability to be dormant and not be worked. If it is in that circumstance, then the valuer
needs to ascertain why and question whether the quarry potential adds value.
Ascribing a separate value to a work authority is very difficult. In most cases the
quarry will sell with the work authority because they are interdependent.
All discount rates should be applied on an annual basis.
Capital Improved Value
Quarries
Methodology
The primary valuation methodology is the summation approach. Comparable sales
provide the best evidence to determine the value of each component. Sales should be
analysed on an appropriate unit of comparison and applied to the subject accordingly.
Alternatively, in the absence of sales the contractor’s method (cost less depreciation )
can be adopted. Refer to Specialist Property Guidelines for Plant and Equipment.
An example is as follows:
Plus
Plus
Equals
Site value (previous example)
Structural improvements
Plant and equipment
Capital improved value (CIV)
$2,275,000
$ 150,000
$ 1,200,000
$3,625,000
A secondary approach is the capitalisation of earnings method. This method is complex
and usually only adopted when detailed financial information can be ascertained.
In the following example an extraction rate of 300,000 tonnes per annum and a gate
price of $15.00 per tonne are assumed. Total reserves 4,500,000 tonnes.
Revenue *
Example
$4,500,000 (Ex GST) ^
Less
Annual operating costs (including
allowance for depreciation or/leasing
of plant and equipment, but not the
costs of rehabilitation work)
$9.00 per tonne
Equals
EBIT13
$1,800,000 p.a.
($6.00 per tonne* 300,000
tonnes)
PV of $1,800,000 p.a. for 15 years~ @
22%
(Years purchase 4.315215 = value
excluding Plant & Equipment)
= $7,767,000
Note: it is important to exclude all elements of the operation including
business and goodwill, except the land. Hence the discount rate adopted
is higher than that expected for a return on the investment. Having
capitalised that income stream to reach the value of the land any fixed
improvements can be added back to get the CIV. Alternatively a market
rate can be adopted and the value of the individual components
including business and goodwill derived from the audited accounts can
be deducted. In this case there is no need to add back fixed
improvements.
In this example rehabilitation is done at the end of the quarry life. If rehabilitation is undertaken progressively it
will be included in the operating costs and therefore will not be deducted as a one off item.
13
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
Page 15 of 21
Victorian Statutory Revaluation
Less
PV of cost of rehabilitation liabilities at
end of life (if ANY)
$ 1,998,924
(e.g. $8.35 mill due in 15 years @ 10%
deferral rate.
Plus
PV of reversionary use (if any)
+ $721,525
For example – hobby block $1,500,000
PV in 15years at 5%
Plus
Plant & Equipment
Structural improvements
$250,000
$150,000
Equals
CIV
CIV (rounded)
$6,889,601
$ 6, 890,000
EBIT = Earnings before Interest and Tax
PV = Present Value
Rate of Extraction = Average amount of material extracted per annum.
* Revenue and costs should use last three years as benchmarks.
^ Be sure to remove from revenue the value of any transport services supplied to
customers (i.e. the revenue needs to be at an ex-bin price).
~ Life of the quarry equals the estimated reserves divided by the average annual
extraction rate.
Practical notes:

‘Ex bin’ costs (i.e. the price ‘at the gate’) can be sometimes sourced from the internet or
other industry sources but are best to be provided from the owner. Transport costs can
vary significantly over a short distance, so it is important to ‘strip’ all transport related
costs/revenues from your calculations if the quarry provides delivered products.

Operating costs need to include an adequate allowance for management wages.

Potential after quarry use needs to be determined as this can have a big effect on the
rehabilitation costs. The valuer should refer to the rehabilitation plan as it is required
to include plans that address the concepts for the end utilisation of the site.

Confirm if EBIT takes into consideration ongoing rehabilitation costs. If it doesn’t, and
rehabilitation will happen entirely at the end, then an allowance needs to be made.

Ensure that the operating costs DO NOT include allowances for ‘write-off’/amortisation
of the quarry reserves. As with any other type of property, any such allowances need
to be stripped out before capitalising the net income.
When using the capitalisation of earnings valuation method it is important to ensure your
calculation does not also capture elements of business goodwill (if there are any). This is a
complex topic but the key issues to look for in identifying any operator’s goodwill are:



Exceptional management, which is artificially increasing the profitability of the quarry.
The correct test is good, average management.
The presence of supply contracts, which unusually have beneficial terms (e.g.
exceptionally high prices).
The presence of ‘internal demand’ (from related companies), which would clearly be
lost if the quarry were sold.
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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Victorian Statutory Revaluation
In the final analysis, the capitalisation rate you apply to the sustainable EBIT is derived
from comparing the sale prices of quarry lands, with their EBIT for the quarry. So this
method inherently excludes any elements of separate goodwill that might have passed
between the parties. (There is of course some debate about the appropriate capitalisation
rate on EBIT because sales of operating quarries are a rarity).

One factor that affects a quarry’s viability is transport costs. If a site is too far away
from the customer, high transport costs can result in a unviable site.
Other methodology
Dual rate capitalisation
The purpose of using a dual rate capitalisation approach is because a quarry is a wasting
asset (i.e. the reserves won’t last forever), and a dual rate capitalisation recognises that
there is a difference between the return OF capital (i.e. recapturing your investment) and
the return on the investment (i.e. the ‘profit’ above getting your money back).
Dual rate calculations are useful when there are no sales (e.g. of quarries) and it is
necessary to derive market rates of return from ‘normal’ properties that are viable in
perpetuity. Dual rate calculations are theoretically sound however they are difficult to
explain (and justify) to non-experts.
A similar result can be achieved using a single rate capitalisation calculation but the rate
adopted needs to be high enough to recognise that the investment is being exhausted
over time.
For statutory purposes, unless extremely detailed financial information is available on
the subject property and the available sales the dual rate approach is not recommended.
After use of quarry
The after-use value may vary depending on the potential use. Approval for a landfill site
is usually a complex and expensive process regulated by the Environmental Protection
Authority (EPA). Proposed end use concepts included in the Work Plan are useful but
need to be assessed on a case-by-case basis.
Quarries in urban areas can have high value for residential or commercial after-use,
particularly any unquarried areas of the holding such as any buffer or surplus land. The
actual hole itself can be utilised for aesthetic purposes such as a lake.
A work authority (or Section 173 Agreement) that states the designated after use as
parklands or reserve would usually have a nominal end value.
Where land is zoned rural any further development would most likely be marginal.
Landfill
The three methodologies for valuing landfill are:
1. Direct comparison with sales
2. Summation method
3. Capitalisation of profits (attributable to the land)
Direct comparison of sales
Comparison is performed on a $/m3 of useable air space.
Comparison factors are:
1.
2.
3.
4.
5.
Fully approved versus prospective versus remotely speculative.
Type of landfill permitted (e.g. Inert, Category C etc.).
Location to target market.
Proven profitable operation versus start up.
Size – large landfill voids have considerable lower $/m3 airspace than small
voids. This is due to steep discounts prevalent in this industry.
6. Environmental risks (such as approval barriers/costs and aftercare costs).
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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Victorian Statutory Revaluation
Summation method
The site value can be derived via the capitalisation of inferred air space royalties
although it will take in-depth knowledge of the business parameters (or comparable
royalty examples – very rare) to be accurate.
An example is as follows:
Plus
Plus
Equals
Site value (previous example)
Structural improvements^
Fixed plant and equipment#
Capital improved value (CIV)
CIV (rounded)
$2,275,000
$ 250,000
$ 1,500,000
$4,025,000
$ 4,000,000
Capitalisation of profits (attributable to the land)
This method only applies to operating landfill sites.



Strip out from profit all elements not related to the land e.g. plant and equipment,
goodwill, management, overheads, EPA levies, constructed cells.
This will enable the valuer to arrive at an income attributable to the land.
Then capitalise the land attributable income to arrive at the site value.
Practical Notes:
 Due to the risks capitalisation rates for these properties are higher (circa 18 to 25%)
than for other types of properties.
 Approvals for landfill sites are rigidly rationed by the EPA and each location will have
a priority list.
 Environmental requirements means that it takes a long time (many years) and large
costs (multiple consultancies) to obtain the necessary planning permit and EPA licence.
 Tipping rates for clean fill are significantly lower than other approved fill types.
Approval for clean fill should not be automatically treated as having significant levels
of value, as demand is sporadic and tipping rates are frequently commercially not
viable. Enquiry is required on each site to determine if the cleanfill activity/potential is
commercially viable in the foreseeable future.
 There will be a substantial rehabilitation liability in terms of costs and risks which
need to be taken into consideration.
 All discount rates should be applied on an annual basis.
 For landfills that used to be a sand quarry, be aware there may need to be a
requirement to manage slimes, IF, the sand quarry operator didn’t rehabilitate the
slimes dams. As slimes are typically stored in dams and build up over the life of a sand
quarry, this situation is unique to a sand quarry.

Net Annual Value (NAV)
Refer to The General Provisions for Specialist Guidelines. For NAV purposes the EAV
would normally be expected to be in the range of 12 to 20 per cent of the CIV.
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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Victorian Statutory Revaluation
Industry information
Department of Primary Industries (DPI)
The Earth Resources Division (ERD) (formerly Minerals and Petroleum Division) is
responsible for the promotion and regulation of the extractive, oil and gas, pipelines,
geothermal energy, minerals exploration and mining industries in Victoria. Geological maps
of mineral, ore and other resources can be sourced from this site.
On 2 February 2009 the Minerals and Petroleum Division of DPI was renamed the Earth
Resources Division. The division was renamed to reflect its enhanced role in respect of
geothermal and carbon storage (geosequestration) activities. These activities appear likely to
become key aspects of Victoria's resource future. This information has been sourced from
the following website: www.new.dpi.vic.gov.au >earth resources.
Institute of Quarrying Australia (IQA)
A professional body and advocate for standards and legislation: www.quarry.com.au.
Australian Institute of Mining and Metallurgy (AusIMM)
The AusIMM represents all professionals in the minerals sector and promotes the value of
the minerals industry to the wider community: www.ausimm.com.au.
Australasian Joint Ore Reserves Committee (JORC)
JORC is sponsored by the Australian mining industry and its professional organisations. The
Code for Reporting of Mineral Resources and Ore Reserves (the JORC Code) is widely
accepted as a standard for professional reporting purposes.
It was first published in 1989, with the latest revised version being published late in 2004.
Since 1989 and 1992 respectively, it has been incorporated in the Listing Rules of the
Australian and New Zealand Stock Exchanges, making it mandatory to list public companies
in Australia and New Zealand: www.jorc.org.
The Internet is a valuable resource and the following sites may be useful:



Department of Primary Industries – www.dpi.vic.gov.au >earth resources
Australian Institute of Mining and Metallurgy – www.ausimm.com.au
Environmental Protection Authority (EPA) Victoria – www.epa.vic.gov.au
The following guidelines are applicable to these guidelines:







Extractive Industry Work Plan Guideline – www.new.dpi.vic.gov.au/earthresources/whats-new/workplan-guide
Code of Practice for Small Quarries –
www.new.dpi.vic.gov.au/earth-resources/industries/extractive/extractive-industryrequirements
Guidelines for Environmental Management in Exploration and Mining –
www.new.dpi.vic.gov.au/earth-resources/industries/extractive/guidelines
Native Vegetation Guide for Mines and Quarries –
www.new.dpi.vic.gov.au/earth-resources/industries/minerals/guidelines/nativevegetation-guide-for-mines-and-quarries
Aboriginal Heritage Act 2006/Heritage Act 1995 Guidance Notes –
www.new.dpi.vic.gov.au/earth-resources/industries/extractive/extractive-industryrequirements
Industrial Waste Guidelines –
www.epa.vic.gov.au/waste/industrial-waste-guidelines.asp
Siting, Design, Operation and Rehabilitation of Landfills –
www.epa.vic.gov.au/waste/landfill.asp
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
Page 19 of 21
Victorian Statutory Revaluation
The following are industry terms from the Joint Ore Reserves Committee Code 2004
Edition
Modifying Factors – The framework for classifying tonnage and grade estimates to reflect
different levels of geological confidence and different degrees of technical and economic
evaluation. Mineral Resources can be estimated mainly by a geologist on the basis of
geoscientific information with some input from other disciplines. Ore Reserves, which are a
modified sub-set of the Indicated and Measured Mineral Resources require consideration of
the Modifying Factors affecting extraction, and should in most instances be estimated with
input from a range of disciplines. Measured Mineral Resources may convert to either Proved
Ore Reserves or Probable Ore Reserves. The Competent Person may convert Measured
Mineral Resources to Probable Ore Reserves because of uncertainties associated with some
or all of the Modifying Factors which are taken into account in the conversion from Mineral
Resources to Ore Reserves.
Mineral Resource – A ‘Mineral Resource’ is a concentration or occurrence of material of
intrinsic economic interest in or on the Earth’s crust in such form, quality and quantity that
there are reasonable prospects for eventual economic extraction. The location, quantity,
grade, geological characteristics and continuity of a Mineral Resource are known, estimated
or interpreted from specific geological evidence and knowledge. Mineral Resources are subdivided, in order of increasing geological confidence, into Inferred, Indicated and Measured
categories.
Inferred Resource – An ‘Inferred Mineral Resource’ is that part of a Mineral Resource for
which tonnage, grade and mineral content can be estimated with a low level of confidence. It
is inferred from geological evidence and assumed but not verified geological and/or grade
continuity. It is based on information gathered through appropriate techniques from
locations such as outcrops, trenches, pits, workings and drill holes which may be limited or
of uncertain quality and reliability. An Inferred Mineral Resource has a lower level of
confidence than that applying to an Indicated Mineral Resource.
Indicated Mineral Resource – An ‘Indicated Mineral Resource’ is that part of a Mineral
Resource for which tonnage, densities, shape, physical characteristics, grade and mineral
content can be estimated with a reasonable level of confidence. It is based on exploration,
sampling and testing information gathered through appropriate techniques from locations
such as outcrops, trenches, pits, workings and drill holes. The locations are too widely or
inappropriately spaced to confirm geological and/or grade continuity but are spaced closely
enough for continuity to be assumed. An Indicated Mineral Resource has a lower level of
confidence than that applying to a Measured Mineral Resource, but has a higher level of
confidence than that applying to an Inferred Mineral Resource. Mineralisation may be
classified as an Indicated Mineral Resource when the nature, quality, amount and
distribution of data are such as to allow confident interpretation of the geological
framework and to assume continuity of mineralisation. Confidence in the estimate is
sufficient to allow the application of technical and economic parameters, and to enable an
evaluation of economic viability.
Measured Mineral Resource – A ‘Measured Mineral Resource’ is that part of a Mineral
Resource for which tonnage, densities, shape, physical characteristics, grade and mineral
content can be estimated with a high level of confidence. It is based on detailed and reliable
exploration, sampling and testing information gathered through appropriate techniques
from locations such as outcrops, trenches, pits, workings and drill holes. The locations are
spaced closely enough to confirm geological and grade continuity. Mineralisation may be
classified as a Measured Mineral Resource when the nature, quality, amount and distribution
of data are such as to leave no reasonable doubt, in the opinion of the Competent Person
determining the Mineral Resource, that the tonnage and grade of the mineralisation can be
estimated to within close limits, and that any variation from the estimate would be unlikely
to significantly affect potential economic viability. This category requires a high level of
confidence in, and understanding of, the geology and controls of the mineral deposit.
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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Victorian Statutory Revaluation
Ore Reserve – An ‘Ore Reserve’ is the economically mineable part of a Measured and/or
Indicated Mineral Resource. It includes diluting materials and allowances for losses, which
may occur when the material is mined. Appropriate assessments and studies have been
carried out, and include consideration of and modification by realistically assumed mining,
metallurgical, economic, marketing, legal, environmental, social and governmental factors.
These assessments demonstrate at the time of reporting that extraction could reasonably be
justified. Ore Reserves are sub-divided in order of increasing confidence into Probable Ore
Reserves and Proved Ore Reserves.
Probable Ore Reserve – A ‘Probable Ore Reserve’ is the economically mineable part of an
Indicated, and in some circumstances, a Measured Mineral Resource. It includes diluting
materials and allowances for losses which may occur when the material is mined.
Appropriate assessments and studies have been carried out, and include consideration of
and modification by realistically assumed mining, metallurgical, economic, marketing, legal,
environmental, social and governmental factors These assessments demonstrate at the time
of reporting that extraction could reasonably be justified. A Probable Ore Reserve has a
lower level of confidence than a Proved Ore Reserve but is of sufficient quality to serve as
the basis for a decision on the development of the deposit.
Proved Ore Reserve – A ‘Proved Ore Reserve’ is the economically mineable part of a
Measured Mineral Resource. It includes diluting materials and allowances for losses which
may occur when the material is mined. Appropriate assessments and studies have been
carried out, and include consideration of and modification by realistically assumed mining,
metallurgical, economic, marketing, legal, environmental, social and governmental factors.
These assessments demonstrate at the time of reporting that extraction could reasonably be
justified.
A Proved Ore Reserve represents the highest confidence category of reserve estimate. The
style of mineralisation or other factors could mean that Proved Ore Reserves are not
achievable in some deposits.
Practical note: Ore reserves may not be a dominant factor in the valuation once the life of
the operation exceeds 20 years
Guidelines on Valuation Methodology for Quarries and Landfill Sites – August 2011
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