Investment Project Analysis of PT. Berau Coal Block 5-6 Binungan Using Discounted Cash Flow Method

  • Ridho Ilham Mury Nanda
  • Taufik Faturohman

Abstract

The evaluation of business projects that have high complexity and uncertainty will require a thorough study since the coal mining industry is a business that has extremely high costs as well as a high risk where there are many uncertainty elements that impact this sector.


Blocks 5 and 6 are locations that have previously been mined by PT. Berau Coal in an effort to boost output. PT. Berau Coal now wants to reopen the block 5-6 region to optimize the area that was previously deemed unproductive for mining in an effort to boost coal output there. To assess if the block 5–6 region can be mined once more in an endeavor to increase PT. Berau Coal's production reserves, an analysis is thus required. PT. Berau Coal currently uses the Discounted Cash Flow (DCF) approach to determine the viability of an investment. The mathematical results of the DCF technique will be taken into account by management when making mining decisions. Further research is required to be able to maximize shareholder value because this technique has a restriction in that it does not offer flexible project for management. We obtain an NPV of $14,44 million, an IRR of 67,98%, and a Payback Period of 3.4 years based on the results of the DCF calculations performed on the Block 5-6 project from the mine plan for PT. Berau Coal. There are a number of preparations that must be made for the mining plan for this project, including the building of farm roads to replace existing roads that are part of the mining plan and pumping operations to lower the water level in the mining plan area. There is no new investment required because the infrastructure for mining equipment is already a part of the contractor selection component and the infrastructure for processing coal already uses it.

References

Damodaran, A., 2010.The Dark Side of Valuation Second Edition. New Jersey: Pearson Education.
Gitman, L. J., & Zutter, C. J., 2015. Principles of Managerial Finance. Kendallville: Pearson Education.
Haq, N. (2018). Modeling Valuation Risk Decision in Mining Projects. FIRA Publishing.
Published
2023-03-01
How to Cite
MURY NANDA, Ridho Ilham; FATUROHMAN, Taufik. Investment Project Analysis of PT. Berau Coal Block 5-6 Binungan Using Discounted Cash Flow Method. International Journal of Business and Technology Management, [S.l.], v. 5, n. 1, p. 50-54, mar. 2023. ISSN 2682-7646. Available at: <https://myjms.mohe.gov.my/index.php/ijbtm/article/view/21638>. Date accessed: 24 june 2024.
Section
Articles