A VALUATION OF AN INDONESIAN NICKEL MINE FOR THE DOMESTIC NICKEL DOWN-STREAMING PROJECT NICO INA A CASE STUDY
A private Indonesian nickel mine named Nico INA owned by Sangkuriang Mining has been observing their potential to become a player in the global nickel supply. Given a 47 million wet metric tons (wmt) of nickel ore and an additional 160.80 million wmt, Sangkuriang Mining is interested in selling it...
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| Format: | Final Project |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/63291 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | A private Indonesian nickel mine named Nico INA owned by Sangkuriang Mining has been observing their potential to become a player in the global nickel supply. Given a 47 million wet metric tons (wmt) of nickel ore and an additional 160.80 million wmt, Sangkuriang Mining is interested in selling its ownership in Nico INA. Nico INA will operate from 2019 to 2048, a total 30 years in its worst and base case and up to 50 years in its best case. Another differentiating factor for each alternative case is the percentage change of global nickel price and operating expenses. This study expects nickel prices to be 3% and 6% higher than the initial forecast for the base and high case respectively. On the other hand, operating expenses are expected to be 7%, 5%, and 2% higher than the initial pro-forma forecast for the worst, base, and best cases respectively. Arriving at the total amount Nico INA expects to receive from its sale demands computing for Nico INA’s intrinsic value by the discounted cash flow analysis. This study utilizes free cash flows to equity and the cost of equity as its discount rate. This case study analytically determined Nico INA’s intrinsic equity value at a range of $306.55 million to $552.81 million, or 30 to 54 times its book equity value of $10.30 million. They will use this value as Nico INA’s price tag. This range is obtained through forecasting Nico INA’s financial statements, computing for its free cash flows to equity, and applying the most appropriate discount rate to arrive at the present value of its free cash flows to equity. With its current capital structure of 100% equity and its unlikeliness to change, potential equity investors can expect deviations to Nico INA’s value to be at a minimum. However, with their concerns on fluctuating nickel prices and a possibility that the expected production capacity could not be met, Nico INA could potentially arrive at a larger spread in its valuation range, from $239.45 million to $611.34 million, or 23 to 60 times its book value of $10.30 million.
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