Crown Butte Mines, Inc., applied for a permit to construct and operate a mine—to produce gold, silver, and copper—in the New World mining district in November 1990. Located about 3 miles from the northeast boundary of Yellowstone National Park, the New World mining district has had mining activity since the 1860s. Facing increasing opposition to the proposed project over concerns for the park’s water quality and other resources, in August 1996 Crown Butte and the federal government agreed to exchange Crown Butte’s New World property for up to $65 million in federal assets (subject to an appraisal that the property has a fair market value of at least this amount). Of this amount, $22.5 million is to be placed in an escrow account to fund environmental response and restoration in the district, which, according to Department of Justice officials, the United States will direct. Any cost above the $22.5 million will be borne by the United States. The federal government plans to permanently withdraw any lands acquired from subsequent mineral development. The Congress, in its fiscal year 1998 appropriation for the Department of the Interior and related agencies, authorized and appropriated up to $65 million for Crown Butte’s New World property. We noted in a report last year that there was uncertainty about the property’s fair market value, and the Congress subsequently required that it be appraised before it is acquired by the Secretary of Agriculture. According to the law’s conference report, the appraisal must be done in compliance with federal appraisal standards and other applicable laws and regulations governing federal land acquisitions. According to the law, the appraisal must be reviewed by the Comptroller General within 30 days of receiving the appraisal from the Department of Agriculture and must be provided to the list of committees in the mandate. Separately, as Chairmen of the Subcommittees on Interior and Related Agencies, Senate and House Committees on Appropriations, you also requested that we do this work. The Forest Service entered into a contract with an appraiser to determine the property’s value as of the date of the agreement—August 1996—and expected the appraisal to be completed in early March 1998. This schedule was extended to allow time to review extensive additional information provided by the company—a task that the appraiser hired two subcontractors to do. After the appraisal was reviewed and approved by the Chief Appraiser of the Forest Service as meeting federal appraisal standards, and accepted by the Forest Service, it was forwarded to us on April 30, 1998. The appraisal covers the mineral interests that Crown Butte owns and leases on private property in the Gallatin National Forest, totaling 101 separate mining parcels that cover about 1,625 acres. All of these parcels were mining claims that were patented under the Mining Law of 1872, which means the owners have title to the property and are entitled to use the surface and subsurface lands for any purpose. Of the 101 parcels, the company owns or has a part-ownership interest in 44 parcels covering about 694 acres, leases from an individual 47 parcels covering about 756 acres, and jointly owns with the same individual 10 parcels covering about 175 acres. The appraisal established a value for the property of $69,076,000 as of August 12, 1996, the date of the agreement to acquire the property from Crown Butte. Under the terms of the agreement, Crown Butte was to acquire title to the 57 parcels owned in full or in part by the individual. Crown Butte was subsequently unable to do so and instead paid the owner to acquire a conservation easement for these lands. Under the terms of the conservation easement, the owner retains title to the property but is prevented from developing if for mining. The appraised value includes a reduction of about $1 million to reflect this situation. In its contract for the Crown Butte appraisal, the Forest Service instructed the appraiser to follow federal appraisal standards in valuing the property. These standards state that the government should appraise a property to be acquired at the fair market value. According to the standards, fair market value is the amount for which a property would be sold—for cash or its equivalent—by a willing and knowledgeable seller who is not obligated to sell to a willing and knowledgeable buyer with no obligation to buy. According to the Forest Service’s Chief Appraiser, the appraisal of natural resources, particularly mineral deposits, is imprecise because measuring the extent of mineral deposits is difficult. Furthermore, he stated an appraised value can vary by 10 percent yet still reflect the market value of the property. The standards provide for several methods of determining fair market value, including analyzing prior sales of comparable properties or of the property itself. While the standards indicate that the use of a sales comparison approach is normally the most accurate method, they also provide that property containing known minerals may be appraised using the income approach. The income approach involves estimating the value of a resource on the basis of the present value of anticipated future income from production, including income such as royalties (a percentage of the value of the minerals produced that is paid to the lease owner). Generally, the income method values the estimated future income stream from a project and adjusts the value of this income stream to its value today by using a discount rate. In cases in which the government does not acquire a full property, but acquires only a piece of it, federal appraisal standards state the preferred way to value the partial property is to use a “before and after” method. In this method, the appraiser estimates the value of the whole property before the transaction and reduces it by the value of the property remaining in private ownership after the transaction is completed. The Forest Service’s instructions directed the appraiser to estimate a single value for the Crown Butte property, using a “before and after” method to account for the portion of the property remaining in private ownership under the conservation easement. As a result, the appraiser assumed that the use of the property before acquisition would have been mining and that the use of the private land left after the acquisition will be for recreational purposes such as cross-country skiing, hunting, and snowmobiling. To determine the value of the property before acquisition, the appraiser estimated the fair market value of the property as required in federal standards, assuming it would be developed for the proposed mine. In establishing the fair market value, the appraiser considered four approaches—resulting in a range of values between $70 million and $79 million—but relied on two in making his final estimate: a sales comparison approach, as allowed under the federal appraisal standards, and a bulk sale discount approach, which the appraiser stated, and the Forest Service’s Chief Appraiser confirmed, is an income method developed specifically for mineral properties. The appraiser concluded, on the basis of the results of the two approaches, that the value before acquisition was $72 million. Under the sales comparison approach, the appraiser estimated the price paid per ounce of gold in other mine sales, including one prior sale of the New World property. He derived these estimates from sales prices and reserve estimates for the properties. He then applied the estimated prices per ounce for the prior sale of the New World property and the sale that he judged most comparable to the estimated reserves for the New World property to obtain an appraised value for this property. Under the bulk sale discount approach, the appraiser used data on prior sales to calculate for each the ratio of the sales price to the potential retail income from the estimated gold reserves on that property. He inferred from these ratios, particularly the ratio for the most comparable sale, a comparable ratio for the New World property. He then applied that ratio to the estimate of potential retail income from the New World property to estimate the likely sales price. The appraiser then made two adjustments that reduced the $72 million value to the appraised value of $69,076,000. The first adjustment reflects a royalty interest owned by Kennecott Corporation for its interest in several claims. This money would have been paid from future income from the proposed mine. The appraiser discounted the proposed mine’s projected cash flow and estimated the present value of the outstanding debt to be $1,900,000. The second adjustment reflects the restrictions imposed by the conservation easement on the private lands. The appraiser assumed that 931 acres—those acres associated with property owned by the individual—would remain in private ownership and could be used only for recreational activities, in accordance with the terms of the easement. Accordingly, the appraiser identified comparable sales of land for recreational use and reduced the Crown Butte appraisal by $1,024,000. In estimating the fair market value of the proposed mine, the appraisal relied on several assumptions that could have tended to overstate the appraised value. In general, the need to make assumptions about key unknown factors increases the uncertainty associated with any estimate of appraised value. Although we have not determined the cumulative effect of relying on these assumptions, it appears to us that they would tend to increase the appraised value compared to the value that might have been obtained with different assumptions. The key assumptions made in the appraisal were that (1) mineral rights associated with the private property have no value because the conservation easement prevents mineral development; (2) the mine would have been issued permits to commence operations in a timely manner; (3) hazardous waste conditions would not affect the property’s value; and (4) Crown Butte’s revised estimate of gold reserves is valid. The “before and after” method used in the appraisal relied on the assumption that the mineral rights still attached to private property have no value because of the conservation easement. Specifically, the value before the transaction reflects full ownership of all mineral rights attached to both the Crown Butte and private properties.