VALUATION FOR HIGH-RISK COAL MINING PROJECT CASE STUDY: PT. BERAU COAL BLOCK PARAPATAN

• Main Author: Indrayana, Feri
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/53437
• Institution: Institut Teknologi Bandung

As a high-cost and high-risk business, the coal mining industry faces a significant exposure to high turbulence of uncertainties. Thus, the valuation and assessment of the business project require a comprehensive analysis. The Parapatan Block of Binungan Site, part of CCoW of PT. Berau Coal is an active mining area in the last year, which previously stopped operating for six years. This project is projected as a green-project for companies with low-cost production profiles but has challenges in the coal industry's condition, experiencing uncertain external conditions. Thoroughly consideration and review of the uncertainty both from inside and outside, the coal prices volatility, exchange rates, inflation, fuel price, demand, and regulation have been considered as significant challenges to face in the assessment of a mining project. The uncertainties on these business profiles estimated affect the projected project's cash flow significantly and outcome. Hence it needs to be assessed adequately. Moreover, it is also necessary to consider the company's management flexibility of accommodating the business condition during the project assessment and choosing the best alternative to maximize its value. A comprehensive assessment method is expected to help the management to find the best future uncertainty awareness strategy to be implemented. The valuation method used by PT Berau Coal to value a mining project is the Discounted Cash Flow (DCF) method. The management team of Berau Coal will then consider the calculation results to optimize the mining of coal reserves and the share holder's wealth. One of the methods that can be used for economic validation of mining projects in conditions of uncertainty and management flexibility is at different times where asset prices can move depending on the size of volatility. This study uses both the DCF and RO methods to evaluate the economic feasibility of the Parapatan Block planned project of Berau Coal. The studied mining project is financially feasible by providing the positive value of NPV for all three technical scenario options, reviewed with the DCF valuation methods, the base 4 years production period (base option), 18 years production period with LCT moda (option-1), and 18 years production period with bridge moda (option-2). Provide the NPV as US$ 10.62 million for base option, US$ 10.10 million for option-1, and US$ 8.30 million for option-2. Further studies to optimize coal reserves mining using the Real Options method resulted in an option-1 scenario as an option that could be proposed to management. Option-1 provides the best average NPV value i supported by the Expand Option scenario, a technical scenario in the form of accelerating investment and increasing production of the Parapatan Pit mine. Option-1 generates US $ 21.48 million NPV with 38% IRR. Furthermore, this option offers the opportunity for a statistically highest maximum NPV of US $ 248 million.