IMPLEMENTING INDONESIA’S MINING LAW DURING THE DEVELOPMENT OF THE KUCING LIAR MINE PT FREEPORT INDONESIA IN PAPUA PROVINCE

• Main Author: SETIAWAN 29115140, IWAN
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/22659
• Institution: Institut Teknologi Bandung

Mining is a high-risk business since it usually requires high development costs with so many <br /> <br /> uncertainties, especially associated with the volatility of commodity prices. It is therefore <br /> <br /> critical for the mining industry to have solid and firm regulations in order to better assess profit <br /> <br /> expectations for shareholders. <br /> <br /> The implementation of the Indonesian Mining Law will have major impact on PT Freeport <br /> <br /> Indonesia (PTFI). The law requires PTFI to change its mining permit from Contract of Work <br /> <br /> (COW) to be Special Mining Permit (IUPK). There are still outstanding uncertainties regarding <br /> <br /> the tax and royalty scheme that will be applied to PTFI. <br /> <br /> This project evaluates the impact of mining permit transformation on the Development Plan of <br /> <br /> PTFI’s Kucing Liar Block Cave Mine in Papua Province using a Discount Cash Flow analysis <br /> <br /> supported by the Monte Carlo method to evaluate the risk. A commodity price simulation <br /> <br /> obtained from modeling using the Geometric Brownian motion (GBM) approach is used as <br /> <br /> input to calculate the predicted project cash flow. The analysis suggests that with current taxes <br /> <br /> and royalty rate, the permit change almost has no considerable impact to financial performance <br /> <br /> as Payback Period, IRR and NVP from both IUPK and COW are very similar. <br /> <br /> However, sensitivity analysis indicates that a change in tax and royalty rates will be the 3 <br /> <br /> most <br /> <br /> important aspect that could impact the mining project’s revenue after commodity price <br /> <br /> fluctuations and capital cost. Furthermore, the Monte Carlo analysis also suggests that IUPK <br /> <br /> permit incurs more risk than the COW arrangement. Despite the added risk of changing to the <br /> <br /> IUPK, some opportunities exist for business performance improvement to offset this risk. <br /> <br /> Considered in this study is an improvement of gold recovery in processing plant. A reduction <br /> <br /> in taxes (rather than the generally expected increase) is also considered in this report.