STUDY OF THE EFFECTS OF INTERNAL AND EXTERNAL UNCERTAINTY ON RESERVE VALUE IN GOLD MINING PROJECT DEVELOPMENT USING CUT AND FILL METHOD

• Main Author: Aulia Az Zahra, Alamanda
• Format: Final Project
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/77023
• Institution: Institut Teknologi Bandung

Underground gold mining using cut and fill method requires fill the stope with filling material which increasing the risks of investment in mining businesses. One of the project’s economic evaluation methods is Discounted Cash Flow (DCF) method, but it does not consider uncertainty and management flexibility. Therefore, real option valuation approach with standard binomial lattice and learning options can overcome the weaknesses of other methods. The economic evaluation begins with DCF method which produces several parameters of economic feasibility, such as Net Present Value (NPV), Internal Rate of Return (IRR), Benefit Cost Ratio (BCR), and Present Value Ratio (PVR). Then, the sensitivity analysis is conducted to determine the most sensitive parameter and the economic evaluation is using the real option valuation with standard binomial lattice and learning options approaches to determine the added value of the project. The DCF method produces a project NPV of $54,826,726.72 with an IRR of 29.83%, a BCR of 2.05, and a PVR of 1.05. Sensitivity analysis shows the selling price is the most sensitive parameter and affect the value of the project. Based on historical data for 9 years, 12 years, and 18 years have an option premium of $0, $23,516,638.78, and $40,674,741.9 by using standard binomial lattice approach and $4,541,348.55, $28,143,489.05, and $45,690,871.58 by using binomial lattice with learning options approach. It is found that external uncertainty factors have more influence on asset values.