IMPLEMENTATION OF REAL OPTION VALUATION (ROV) TRINOMIAL HULL-WHITE FOR MINE PLAN SCENARIOS UNDER THE PRICE UNCERTAINTY OF KSM NICKEL PROJECT

• Main Author: Alibasya, Muhammad
• Format: Theses
• Language: Indonesia
• Online Access: https://digilib.itb.ac.id/gdl/view/77279
• Institution: Institut Teknologi Bandung

KSM nickel project was postponed from 2007 due to collapsing price caused by global financial crisis. The Base Case scenario has a potential reserve of 4,8 WMT and average Ni of 1.8%. It was obtained by utilizing maximum stripping ratio. However the management is considering re-evaluating this prospect in 2021 by planning more conservative scenario with optimum stripping ratio, known as low (reserve) scenario. The third scenario is introduced as alternatif Base Case that has different scheduling. These three production scenarios are developed to investigate the project profitability, by improving the decision making process. Both scenarios are evaluated by conventional NPV and ROV methods. This paper proposes an equilibrium model of Vasicek model of ROV, which is able to handle mean reverting process. The vasicek model does significantly explain the dynamic of nickel price movement, approximated by OLS. The result gives the values of parameter convergence speed of (a) = 0.39 and volatility (????) = 0.27. The conventional DCF evaluation at initial price of LME $22,459 (11 Mei 2023) showed the Base Case scenario with the highest NPV of $52.05 million, Alternatif Base Case NPV of $51.1 million, and Low (reserve) Case NPV of $50.5 million. Meanwhile ROV method using option to delay and abandon, the SNPV value of Base Case scenario is $47.27 million, Low (reserve) Case of $46.26 million, and Alternatif Base Case of $46.19 million. Both conventional NPV and ROV perform the same result at initial price $22,459. Further investigation was conducted by comparing the actual values that would be generated if the mine design were selected based on the recommendation of each technique. It showed that the ROV performs better than the scenario indicated by the NPV method for the various scenarios tested. The results show that the ROV approach is able to provide a better decision to continue working on Base Case scenario. If the initial price is above $15,008, the action is to commence the Base Case now, otherwise, the investment should be deferred for one year and the operation should be abandoned if it’s not financially economic. It assumed the delay option would cost of $1 million.