ECONOMIC EVALUATION OF OPEN CAST NICKEL LATERITE MINE IN PT XYZ: MODEL COMPARISON BETWEEN DISCOUNTED CASH FLOW, MONTE CARLO SIMULATION, AND REAL OPTION VALUATION

• Main Author: Firdaus Utomo, Raka
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/51621
• Institution: Institut Teknologi Bandung

Investment on mining industry is one of the most high-risk investments that must be analyzed in order to get proper decision for the investment. In general, the economic feasibility analysis of a mining project is carried out by using Discounted Cash Flow (DCF) method, which is relatively simple when implemented. However, DCF method has disadvantages which not considering uncertainty factors that may arise in the future and does not accommodate the management flexibility in the decision making. Therefore, Real Option Valuation (ROV) and Monte Carlo Simulation is needed. Economic feasibility analysis started by using DCF method to determine Internal Rate of Return (IRR) and Net Present Value (NPV) by the input of cash flow model which have been created. After that, sensitivity analysis will be carried out, which divided into deterministic sensitivity analysis in showing the impact on the project NPV by the changes of the sensitivity parameters and determining the most impactful sensitivity parameter, and probabilistic sensitivity analysis with Monte Carlo simulation in order to estimate the possibility of every NPV that might be obtained from the project investment. The next step is analysis by using Binomial Lattice ROV method to determine the added value of the project. Economic feasibility analysis using the DCF method shows the project NPV of $ 15.203.967 and IRR of 20,81% so it can be concluded that this mining project is economically feasible. Deterministic sensitivity analysis shows a significant impact on the cash flow model as the changes of commodity price. Based on the Monte Carlo simulation, the average value of the project NPV is $ 75.989.531, by using the nickel selling price historical data for the past 14 years. And based on the ROV method, there is an option to delay this project for 1 year with the option value of $ 29.903.467.