Economic Evaluation of Business Schemes Between Nickel Mining and Nickel Mining with Smelter Using the Real Option Analysis

• Main Author: RYANDA SEMBIRING (NIM : 22115013), RIZKI
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/30597
• Institution: Institut Teknologi Bandung

Nickel is one of the mining commodities that plays an important role in industry and everyday life. In accordance with the Regulation of the Minister of Energy and Mineral Resources of Indonesia, every holder of Metal Mining Operation Permit (IUP) and Special Metal Mining Operation Permit (IUPK) shall perform the processing and purification of mining proceeds in accordance with the minimum processing limit and purification of metallic minerals. In terms of business and investment, mining operations and nickel ore processing plants require a massive amount of investment. Mining industry is also an industry that has many external risks, with the most important factors are the condition of the country's economy and the selling price of commodities. According to Brennan & Schwartz (1985), investment in mining should be assessed by the stock market analogy due to the high level of uncertainty in cash flow in accordance of the fluctuations in commodity selling prices. The method of assessing mining investments is adapted from stock assesments options in the secondary market which is called the Real Option method. This research begins with creating three examples of investment scenarios that can accommodate business scale and government regulation, test it with discounted cash flow method, and then tested one more time with Real Option method to get the best business scenario to conduct nickel mining and processing activities.