240 VALUATION, DEPRECIATION AND THE RATE-BASE
valuation has been applied to some extent in coal regions.
Because coal becomes more valuable from year to year the
value of a leasehold will increase. The annual profits exceed
the royalties by continuously increasing amounts and a valua-
tion based on the average royalty payments in a district cannot
be a gauge of the actual values, particularly districts where the
leases have been in effect for some length of time. In addition
to the value of the mine or colliery determined from royalty
values, the leasehold itself has a value which increases as the
value of the mineral product goes up and the actual value of
the property must be the summation of these two values. As
the leasehold value is determined by subtracting the valuation
based on royalty values from a valuation of the property, itself,
by some other method, it is evident that the royalty value
method cannot be independently used to determine the value
of the property.
(4) Valuation by Capitalizing Profits. — By this method the
valuation is based on a capitalization of the net annual profits.
It requires an estimate of the remaining life of the property but
does not take into account the fact that incompetent manage-
ment may so deplete the profits that a valuation with these as
a basis may not approximate the actual value of the property
in competent hands.
This method should only be adopted when estimated profits
instead of actual profits are used as a basis. It is then appli-
cable in the case of oil properties and other deposits the extent
of which is indeterminable. If the life of adjoining or neighbor-
ing properties has been proven, an approximate basis may be
had for estimating the life of the property which is to be valued.
The depths to which mineralization extends in neighboring
mines often is used to determine the expectation of a prospect
when such information supplements the geological features of
the deposits.
(5) Valuation by Estimation Method. — This method is
adopted by mining engineers in the valuation of mineral prop-
erties when these are to be bought, sold or financed. Deter-
