CMA Due Diligence & Risk Assessment Flashcards
6 cards from real CMA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 6 CMA Due Diligence & Risk Assessment flashcards as text
Which category of risk specifically refers to the possibility that actual production from a mineral property falls short of reserve estimates?
Answer: Reservoir risk
Reservoir risk encompasses geological uncertainty about whether the reserves exist in sufficient quantity and quality and whether they can be economically produced as estimated.
During due diligence on a mineral acquisition, what is the primary purpose of reviewing a 'chain of title'?
Answer: To confirm the seller has clear, unencumbered ownership of the mineral interest being conveyed
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.
What does a 'title opinion' from an attorney provide in a mineral acquisition due diligence process?
Answer: A legal professional's assessment of ownership validity and identification of any title defects or encumbrances
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.
In mineral due diligence, what is the significance of a 'lis pendens' filing on a property?
Answer: It indicates active litigation involving the property that could affect title or ownership
A lis pendens is a notice recorded in public records that warns of pending litigation affecting the property, signaling title risk to potential buyers.
Which type of insurance is commonly obtained in mineral acquisitions to protect the buyer against pre-existing but undiscovered title defects?
Answer: Title insurance
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.
When assessing commodity price risk during mineral appraisal, which analytical tool best helps quantify the impact of price volatility on value?
Answer: Sensitivity analysis or Monte Carlo simulation
Sensitivity analysis tests how value changes across a range of price assumptions, while Monte Carlo simulation probabilistically models value distributions given commodity price uncertainty.