ECONOMIC EVALUATION OF UNDERGROUND GOLD MINING WITH CUT AND FILL METHOD AT PT ABC: COMPARISON OF DISCOUNTED CASH FLOW METHOD, MONTE CARLO SIMULATION, AND REAL OPTION ANALYSIS THROUGH BINOMIAL LATTICE AND BLACK-SCHOLES APPROACH

• Main Author: Calvin, Cornelius
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/67293
• Institution: Institut Teknologi Bandung

The mining industry is a capital-intensive industry and the business continuity depends on commodity prices and various risks which are relatively higher than other industries. Therefore, the assessment of mining projects requires an method that is able to justify the feasibility of the project appropriately. In terms of the conventional approach, one of the most frequently used is the deterministic methods discounted cash flow (DCF). The use of the DCF method utilizes static variables. This causes DCF to not be able to see the existing investment opportunities and create a dilemma to make a decision if the project is deemed unfeasible due to only taking into account the downside of the risks. Therefore, we need a method that can help complete the shortcomings of the DCF method. From the probabilistic method, this method utilizes a simulation modeled based on the uncertainty input variable to generate a probability distribution of the possible NPV. The Monte Carlo simulation is highly dependent on the input parameters and does not have any limitations in the given results. From the Real Option method, this method utilizes the management options flexibility strategy to conduct project evaluations that look at the uncertainty and flexibility of management. In this study, a project feasibility analysis was carried out starting with the DCF method to obtain the Net Present Value and Internal Rate of Return. Then, the uncertainty parameter is determined based on the sensitivity analysis and the uncertainty parameter is obtained from the selling price and inflation. Monte Carlo simulations were carried out for each uncertainty parameter and analysis of the Real Option method with the Binomial Lattice and Black-Scholes approaches was carried out. The DCF method generates an NPV of $6.64 million and the IRR of this project is 14.82% with a Discount Rate of 9.86%. The Monte Carlo simulation experimented 10,000 times on the input uncertainty parameter and on the uncertainty parameter of selling price and selling price combined with inflation, it can be seen from the volatility input parameter of 9 years, 14 years, and 18 years that the expected NPV is below 0 and the probability of project success is below 50%. The ROA method obtained Option Value is greater than the NPV DCF on any historical data used and the ROA method also provides a strategy for management for further decisions on the project.