Valuers will often intuitively express the probability that property value
will exceed a certain amount . . . 'I think the chances that the value will
exceed $50 million are excellent. The chances that they will exceed $80
million are poor'. This paper shows how it is possible to combine the
uncertainties of the value of several key items to provide an estimate of
the probability of a certain overall value being achieved. The valuation of a large copper/gold deposit was naturally influenced
by uncertainties in the base assumptions of costs and metal prices.
Potential acquisition of the property through share purchase raised the
issue of what was a reasonable intrinsic value for the shares. Market
considerations could be used to appropriately adjust the intrinsic value. After a range of possible metal prices and operating costs were
determined, estimates were made of their probable distributions. By
combining these probabilities in a random selection, a range of property
values was calculated. Each value had its respective probability of
occurrence. This allowed a most likely value of shares to be calculated. This paper demonstrates how the valuer's intuition is complemented by
numerical analysis.