ECONOMIC EVALUATION OF UNDERGROUND GOLD MINE WITH SHRINKAGE STOPING METHOD IN PT XYZ BY COMPARING UNCERTAINTY FACTORS THAT ARE USED IN REAL OPTION METHOD WITH BINOMIAL LATTICE APPROACH

• Main Author: Haryo Raharjo, Dimas
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/64043
• Institution: Institut Teknologi Bandung

An economic evaluation on a corporation is necessary if we want to invest in them or initiate a project. This holds true especially in mining industry. The most common method to do this is Discounted Cash Flow (DCF) method because of its simplicity. However, it’s not without its flaw in which it ignores uncertainty factors that exist due to the assumption of no risk may occur. In respond, we need another method that can make up for it which is Real Option Valuation (ROV). In this economic evaluation for the mining project, we first execute the DCF analysis. From this method, three instruments will be obtained which are Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period. The value of each instrument culminates into a conclusion that the project is economically feasible. This then follows by sensitivity analysis in the interest of observing an impact from a change in the parameter value against NPV so that we can determine which parameter is the most effected to the project value. The sensitivity parameter that will be observed are commodity price, exchange rate, and fuel price. Said parameters have an impact against the project value, even though only commodity price and exchange rate have a significant impact, but not fuel price. The next step is ROV analysis. For this method, Binomial Lattice approach is going to be used. The manner in which this is going to be conducted is by enacting seven different ways with each way is going to use the variation of the three uncertainty factors. The reason for this is to find out the relation between the use of uncertainty factors to the results that will be obtained. According to the analysis results from the three uncertainty factors, commodity price has the biggest volatility and premium and then follows by exchange rate and lastly fuel price. The order and magnitude of the volatility and option premium value is represented by sensitivity analysis where the shifting commodity price has the biggest impact on the cashflow. Using many uncertainty factors doesn’t guarantee the accuracy of the results, however it depends on how big a certainty factor brings an impact. The higher the volatility value, the more accuracy it brings. The project’s premium option can only be obtained if the project is being delayed for one year from the original plan.