ECONOMIC VALUATION TO DETERMINE THE BEST OPEN PIT TIN MINING SCENARIO IN PT XYZ USING REAL OPTION VALUATION METHOD A BINOMIAL LATTICE APPROACH

• Main Author: Ihutondo, Calvin
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/61800
• Institution: Institut Teknologi Bandung

Projects in the mining sector will be analyzed based on several aspects in order to be considered feasible, one of which is the financial benefits of the project. Projects in the mining sector are a capital-intensive business activity and have a fairly high risk. Therefore, an economic evaluation or investment evaluation is very important before the start of mining operations. At present, especially in the mining sector, the investment analysis method that is often used in industry is the static discounted cash flow (DCF) method. However, the drawback of the discounted cash flow (DCF) method is that it ignores the uncertainty aspect because it assumes that there is no risk involved. Therefore, a study was conducted to analyze the economic value of a project by considering the flexibility of management options to deal with existing uncertainty factors, known as the Real Options Valuation (ROV) method. The economic evaluation carried out on both scenarios of tin mining using the open pit method at PT XYZ was carried out using the DCF method to obtain economic indicators using the DCF method. Furthermore, an economic evaluation will be carried out using the ROV method through the binomial lattice approach. The results showed that using the DCF method both scenarios were economically feasible where for scenario 1 the NPV value of $4,586,590.47 was obtained with an IRR value of 17.4% and for scenario 2 an NPV value of $4,823,636.25 was obtained and an IRR value of 17.8%. Then by using the ROV method, the results of the option value are $10,967,200.74 for scenario 1, and $11,480,813.26 for scenario 2. There is also an added value (option premium) of $6,380,610.27 for scenario 1 and $6,657,177.02 for scenario 2. Based on the research results, scenario 2 is obtained more profitable because the results obtained for each economic indicator in the DCF and ROV methods are greater than scenario 1 and result in a decision to delay the start of the project for one year to obtain the added value.