MINING PROJECT VALUATION IN FACING UNCERTAINTY AT THE END OF THE CCOW PERMIT

• Main Author: Afrianto, Siswo
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/71150
• Institution: Institut Teknologi Bandung

PT Berau Coal is one of Indonesia’s five largest coal mining companies. The mining area of PT Berau Coal, located in Berau District, East Kalimantan Province, is divided into five areas: Lati, Binungan 1, Binungan 2, Sambarata, and Gurimbang. The Sambarata Area is one of the critical mining sites for PT Berau Coal because it has much higher quality coal reserves than other areas. PT Berau Coal faces several challenges, risks, and uncertainties such as fluctuations in coal prices, production capacity, mining costs, and relevant legal aspects. Therefore, careful mine planning and strategies must be evaluated until the PT Berau Coal mining permit expires in 2025. We evaluated the financial aspect of long-term mine planning using the discounted cash flow (DCF) method with an interest rate to calculate several parameters, such as net present value (NPV), internal rate of return (IRR), and profitability index (PI). The coal price included in the calculation is deterministic or equal over the mining project’s life. However, the DCF method assumes that the risk of a project is a function of time, where the duration of the project is parallel to the risk level. The characteristics of the mining industry differ in which the level of risk of mining projects tends to decrease as the project progresses with the addition of technical data. In addition, the price parameter is the most sensitive aspect of the project’s economics. Therefore, the risks associated with price fluctuations should be separated from the discount rate on cash flows. Financial assessments must accommodate existing risks and uncertainties to overcome the weaknesses of the DCF method. The real option method serves as an alternative to make dynamic quantitative models for the mining projects. In this method, the discount risk factor is applied directly to the source uncertain variables, such as coal price, to increase the accuracy. Therefore, evaluating longterm mine planning in PT Berau Coal using the real option method is beneficial for making a better decision in production chemes, investment, and resource allocation.