The ""comparable sales"" method of valuation
attributes value to an asset by reference to actual sales
of comparable assets or to the market capitalisation of
companies with comparable assets. This methodology
is widely used in real estate valuations. The real estate approach can be used to value mining
and exploration properties where there are actual sales
of comparable or similar assets in the recent past. The practical limitations of the comparable sales
method are well known and self evident: limited number
of transactions, limitations on comparability and
inadequate data. The real value of the comparable sales method is in
its use as a validity check. Estimates of value of mining
and exploration assets are so sensitive to so many
variables that all valuation methods have limitations.
Accordingly there is real value in attempting to establish
benchmarks from comparable sales. Apparently sophisticated valuation methods can
mislead by creating the impression that valuation is a
precise science. The judgement of the valuer is critical
and judgements can be wrong. Any available evidence
from actual sales that are even remotely comparable
can provide useful input to the valuation process.