CMA CMA Due Diligence & Risk Assessment

Question 1

Which category of risk specifically refers to the possibility that actual production from a mineral property falls short of reserve estimates?

Accepted Answer

Reservoir risk

Answer

Reservoir risk encompasses geological uncertainty about whether the reserves exist in sufficient quantity and quality and whether they can be economically produced as estimated.

Question 2

During due diligence on a mineral acquisition, what is the primary purpose of reviewing a 'chain of title'?

Accepted Answer

To confirm the seller has clear, unencumbered ownership of the mineral interest being conveyed

Answer

A chain of title review traces all historical conveyances of the mineral interest from the original patent to present ownership to ensure the seller holds valid, marketable title.

Question 3

What does a 'title opinion' from an attorney provide in a mineral acquisition due diligence process?

Accepted Answer

A legal professional's assessment of ownership validity and identification of any title defects or encumbrances

Answer

A title opinion is a legal document prepared by an attorney after examining public records, opining on whether title is good and marketable and identifying any liens, gaps, or defects.

Question 4

In mineral due diligence, what is the significance of a 'lis pendens' filing on a property?

Accepted Answer

It indicates active litigation involving the property that could affect title or ownership

Answer

A lis pendens is a notice recorded in public records that warns of pending litigation affecting the property, signaling title risk to potential buyers.

Question 5

Which type of insurance is commonly obtained in mineral acquisitions to protect the buyer against pre-existing but undiscovered title defects?

Accepted Answer

Title insurance

Answer

Title insurance protects the mineral interest buyer against financial losses arising from pre-existing title defects, liens, or encumbrances not discovered during the due diligence process.

(CMA) Certified Minerals Appraiser Practice Test

(CMA) Certified Minerals Appraiser Practice Test

CMA CMA Due Diligence & Risk Assessment