THE REAL OPTION ANALYSIS METHOD AS AN OPTIMAL APPROACH ECONOMIC FEASIBILITY IN INVESTMENT PLANS FOR THE DOWNSTREAM ECOSYSTEM OF BAUXITE ORE PROCESSING PLANTS INTO ALUMINUM HYDROXIDE
Indonesia holds significant potential in the bauxite sector, with downstream processing policies serving as a national strategy to enhance the added value of this commodity. Bauxite downstreaming contributes to a 41.4% annual increase in hydrate exports while simultaneously reducing imports by 19...
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| Format: | Theses |
| Language: | Indonesia |
| Online Access: | https://digilib.itb.ac.id/gdl/view/86995 |
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| Institution: | Institut Teknologi Bandung |
| Language: | Indonesia |
| Summary: | Indonesia holds significant potential in the bauxite sector, with downstream
processing policies serving as a national strategy to enhance the added value of
this commodity. Bauxite downstreaming contributes to a 41.4% annual increase in
hydrate exports while simultaneously reducing imports by 19.7%. This study aims
to evaluate the economic feasibility of constructing a bauxite processing plant to
produce hydrate by utilizing the Real Options Analysis (ROA) method. This method
complements the evaluation performed using the Discounted Cash Flow (DCF)
approach, considering the uncertainty caused by price volatility of bauxite and
hydrate, and identifying the flexibility in investment decision-making.
The DCF analysis results indicate that Scenario 1 (direct sale of bauxite) yields an
NPV of USD 6,044,624 and an IRR of 35.93%, with a payback period of 3 years
and 8 months. Scenario 2 (integration of plant construction and hydrate sales)
generates an NPV of USD 15,313,846 and an IRR of 10.90%, with a payback period
of 13 years and 8 months. The ROA method increases project value, resulting in an
option value of USD 21,575,808 for Scenario 1 and USD 283,187,959 for Scenario
2 if the investment plan is executed immediately. The optimal delay period for
Scenario 1 is no longer than 4 years to achieve potential option premiums of USD
49,848,926, while Scenario 2 projects a longer delay period to maximize option
premiums of USD 351,897,432, aligning strategies with market dynamics.
The greatest risk, based on sensitivity analysis of factors with the most significant
impact on NPV in both scenarios, is commodity selling prices. Compared to bauxite
sales, hydrate revenues are approximately 1.7 times higher, with an average annual
growth rate of 15.13%..
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