INVESTMENT VALUATION OF LONG-TERM COAL MINING PROJECT AT PIT J BINUNGAN 8 (CASE STUDY PT BC)

• Main Author: Indra Subroto, Andhika
• Format: Theses
• Language: Indonesia
• Subjects: Manajemen umum
• Online Access: https://digilib.itb.ac.id/gdl/view/83251
• Institution: Institut Teknologi Bandung

A coal mining project generally has a duration of more than five years. The long duration causes this project to be closely related to risk and uncertainty because the only source of income from mining is obtained from the sale of commodities so that fluctuations in coal prices become a critical aspect in the sustainability of a mining business. In a period of three years, 2020 to 2023, the price of coal experienced a very drastic change, including the lowest price of all time occurred in 2020 during the COVID-19 pandemic which caused many similar companies to stop their operations and the price increase to the highest point in history occurred in 2022 due to the decline in oil supply in Europe due to the geopolitical situation between Russia and Ukraine so that the demand for coal to meet energy needs in Europe increased. PT BC is one of the coal mining companies that has a Coal Mining Concession Work Agreement (PKP2B) Generation I license. PT BC's license will expire in 2025, but it still has the option to extend for 2x10 years by changing its license status to a Special Mining Business License (IUPK). The increase in coal prices since the end of the COVID-19 period has become the basis for PT BC to develop its mining projects even to the point of changing its license status to IUPK, one of which is Pit J in Binungan 8. Pit J is a new pit at Binungan 8 that will be developed to the west in 2024 and has a mine life of 9 years. The initial plan to develop Pit J produced around 23 million tons of coal. However, there is a second alternative that can increase Pit J production to 28 million tons. Therefore, a project investment analysis of these two alternatives was conducted to determine which mining scheme to take and is more profitable. This research uses two methods in conducting investment valuation of the Pit J Binungan 8 mine project, namely Discounted Cashflow (DCF) and Real Option (RO). A deterministic approach using DCF was conducted first to determine the value of economic feasibility parameters including net present value (NPV), internal rate of return (IRR), and payback period. This was followed by the identification of variables that most affect the NPV value through sensitivity analysis and the identification of the best and worst scheme of the project through scenario analysis. The probabilistic approach is carried out through the Real Option method by including risk factors for future prices using the stochastic method. Based on the research, both mining alternatives were declared financially feasible through the discounted cashflow method with the first alternative having NPV 65.8 million USD, IRR 60%, and payback period 4.77 years, while the second alternative resulted in NPV 88.4 million USD, IRR 65%, and payback period 4.55 years. Sensitivity analysis shows that the variable change in Coal price is the most sensitive variable to the valuation of Pit J. The Real Option method by considering Coal price risk of 6.25% and dynamic price prediction produces NPV 80 million USD, IRR 49.8%, and payback period 5.03 years for the first alternative, and NPV 108 million USD, IRR 54%, and payback period 4.94 years for the second alternative. Therefore, the second alternative is chosen as the best alternative to run.