What is my Quarry Worth?

DARREN LURIE, Director of Aquila Corporate Advisory Pty Ltd reports on the valuation of quarries.

EVER-INCREASING regulation, the difficulty of obtaining new Work Authorities and the depletion of quarry resources close to major centres all impact on the demand for quarry resources and the valuation of quarries. Determining the value of a quarry generally arises for a number of reasons, including the sale of the quarry as part of a family succession plan, to support an application for finance or settlement of a business partner or family dispute.

Different valuation methodologies have historically been applied to the valuation of quarries, including royalty based, comparable sale or “rule of thumb” calculations. These methodologies may not have considered the nature of the likely purchaser, the valuation metrics that such a purchaser might apply or the unique characteristics of the quarry in the context of the broader market.

Some quarries will have consistent, historical earnings which enable the capitalisation of maintainable earnings valuation methodology to be adopted.

Discounted cash fl ow (“DCF”) and capitalisation of maintainable earnings (“CME”) are the traditional measures of business valuation. Many quarries will have the consistent, historical earnings which enable the CME methodology to be adopted. The appropriate multiple to be applied will depend upon many factors including those described below. The resulting valuation might then be converted into a dollar per tonne value for the resource or other industry “rule of thumb”. The size, quality and location of the resource, any restrictions on extraction or transportation of materials will all impact on the ability to generate earnings from a quarry and hence the valuation. In these respects, the value of a quarry is determined in a manner similar to other industrial businesses.

These buyers are typically sophisticated with a deep understanding of valuation methodologies coupled with extensive experience in participating in sale transaction processes.

ASX and overseas listed construction materials companies with an interest in acquiring selected quarry assets add another dimension to the potential value of a quarry. These companies are required to report to shareholders and analysts with a demonstrable track record of increasing profitability and earnings per share. They have a need to replace depleted resources in order to maintain or increase earnings. These companies are typically valued by the market on either a CME, earnings per share or DCF basis.

Vertically integrated, they will typically only be interested in acquiring quarries with larger resources located in areas which complement the requirements of other areas of their business. The attractiveness of a quarry to larger, well funded acquirers can mean that size will have a major impact on the value of the quarry. The concentration of ownership of resources in some areas may restrict some potential acquirers from purchasing a particular quarry due to any impact on competition as assessed by the Australian Consumer and Competition Commission (ACCC).

These buyers are typically sophisticated with a deep understanding of valuation methodologies and sale transaction processes. It is important for quarry owners to engage with such purchasers on a level-playing field in order to maximise their transaction outcome.

The transaction may be able to be carried out on a more “confidential” basis with potential acquirers able to be directly approached rather than advertised or placed on a business broker website.

The pool of potential acquirers for smaller or more remote quarries will often differ from larger quarries located closer to major residential or industrial centres. Less certain demand for the resource may impact on both the measure of earnings and earnings multiple to be applied to the valuation. Potential acquirers may already be known to the owners, including customers, suppliers or neighbours. In these smaller cases, the land may have a more significant relative impact on valuation.

Aquila Corporate Advisory is an independent corporate advisory firm specialising in mergers and acquisitions and capital raisings for larger privately owned businesses across Australia, with specific experience in the quarry industry.

For more information contact:
Aquila Corporate Advisory Pty Ltd
ACN 154 495 780
Level 14, 50 Queen Street, Melbourne VIC 3000
Telephone: (03) 9009 7228

You must be logged in to post a comment Login