ECONOMIC EVALUATION OF OPEN COAL MINING SEQUENCE PRODUCTION SCHEME USING DISCOUNTED CASH FLOW AND REAL OPTION VALUATION METHOD

• Main Author: Dennis, Patrick
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/56488
• Institution: Institut Teknologi Bandung

Investment is the activity of using a number of funds with the aim of generating income. Investment analysis in a company needs to consider the uncertain global market conditions. This uncertainty affects the company in terms of profits or losses that can occur. In conducting investment analysis, the Discounted Cash Flow (DCF) method is used. The DCF method is a valuation method used to estimate the value of an investment based on future cash flows. Although widely used, the DCF method has drawbacks such as ignoring uncertainty and dynamics in the market. The parameters resulting from the DCF method are Net Present Value (NPV) and Internal Rate of Return (IRR). To overcome the problem of DCF uncertainty, there is a method that can be applied called the Real Option Valuation (ROV) method. The economic evaluation carried out on coal mines using the open pit method at PT XYZ was carried out using the DCF method on 3 alternative mining scenarios and pit designs and then carried out an economic evaluation using the ROV method through the binomial lattice approach. The results showed that the DCF method obtained an NPV of $287,289,822 for scenario 1, $290,859,903 for scenario 2 and $285,140,227 for scenario 3. For the IRR value obtained for scenario 1 of 28%, scenario 2 of 30% and scenario 3 of 29%. The results of the ROV method obtained an option value of $2,125,915,802 for scenario 1, $2,119,007,060 for scenario 2, and $2,038,629,938 for scenario 3. The result of the option premium value of the time delay is $1,838,625,980 for scenario 1, $1,827,484,239 for scenario 2, and $1,71053,489,239 for scenario 3. From the analysis, it is found that the cost of capital and working capital affects the value of the economic analysis based on the ROV method on alternative mining schedules and pit designs.