APPLICATION OF REAL OPTIONS METHOD – BINOMIAL LATTICE WITH LEARNING OPTIONS IN OPTIMIZING TIN MINING PROJECT OF PT XYZ

• Main Author: Yolanda Indriyani O., Helen
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/70152
• Institution: Institut Teknologi Bandung

Indonesia is a country that has a significant role in supplying world tin raw materials. Based on the reference mineral prices released by the Ministry of Energy and Mineral Resources, tin price was fluctuating since the last five years. The uncertain tin price trend is one challenge faced by the manager in the process of valuing the economic feasibility of a mining project. Therefore, an appropriate valuation method is needed so that Indonesia’s tin reserves can be optimized. This research begins with creating several alternative mining designs which are carried out with the help of micromine software, then the selection of the alternative designs is carried out to obtain a design with optimum stripping ratio. Next, a mining schedule is created for the selected design. The valuation method begins with the discounted cash flow method, then continues with the standard binomial lattice, and binomial lattice with learning options. The result of data processing and calculations show that Scenario 2, which is mining from Block 3 the Block 1 serially, is the scenario that has the highest NPV, which is USD 2,500,876.45 and an IRR of 12.12%. However, the calculation results also show that Scenario 3, which has a negative NPV based on the DCF method, actually has the highest option premium value among the other designs, both by standard binomial lattice model and binomial lattice with learning options model. This shows that real options method can accommodate uncertain factors and utilize them to produce economic value for the project.