ECONOMIC EVALUATION OF GOLD MINING CUT AND FILL AT PT XYZ: COMPARISON OF DISCOUNTED CASH FLOW METHODS, MONTE CARLO SIMULATION, AND REAL OPTION VALUATION WITH BINOMIAL LATTICE AND RAINBOW OPTION APPROACHES

• Main Author: Maulida Azka, Raka
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/66533
• Institution: Institut Teknologi Bandung

The cut and fill gold mining method which requires filling material into the mined stope makes the operating costs for mining higher. The general approach to economic evaluation with the Discounted Cash Flow method is deemed not sufficient to evaluate the economic value and other methods are needed that can overcome uncertainty and can provide great opportunities for project value. Real Option Valuation with Binomial Lattice and Rainbow Option will overcome uncertainty through management flexibility, and Monte Carlo simulation to predict project value opportunities. The evaluation begins with the DCF method which will produce the Net Present Value and Internal Rate of Return. From the sensitivity analysis of dynamic parameters, it will be known the effect on the project value due to these changes. To determine the probability of the project value to be obtained, a Monte Carlo simulation will be carried out. The economic evaluation will end by using the Binomial Lattice and Rainbow Option approaches to determine the added value of the project. The DCF method produces a project NPV of $8,220,872.33 with an IRR of 17.1%. Sensitivity analysis shows the selling price is the most sensitive parameter and operating costs are highly dependent on inflation with an R-Square value of 98%. By using historical data on selling prices and inflation in the Monte Carlo simulation, the probability of a positive NPV is 25.67% and an IRR is more than the discount rate of 26.84% for an 8-year data range, and for the last 12 years the NPV opportunity is 30, 03% with an IRR of 30.12%. Based on the Binomial Lattice approach for historical data for the last 8 and 12 years, the project has an option premium on the price parameter of $3,348,206.88 and $6,237,887.38, based on the inflation parameter of $8,999,903.09 and $8,394,719.71, respectively. based on price and inflation of $1,805,427.62 and $4,954,328.79, respectively. The project also has premium options based on Raibow Option on historical data for the last 8 years and 12 years on the selling price and inflation parameters, which are $13,190,552.48 and $14,775,486.37.