Volume
3, No. 9 September 2024 (1919-1935)
p-ISSN
2980-4868 | e-ISSN 2980-4841
https://ajesh.ph/index.php/gp
Investment Analysis of Public Road
Relocation Project within The Mining Concession Area at Pit Gurimbang, Job Site
Gurimbang Mine Operation - PT. BC
Lukas Patandung1, Taufik Faturohman2
Institut Teknologi Bandung, Indonesia
ABSTRACT:
Gurimbang Mine Operation (GMO) is one of the mining concession sites
under a Coal Contract of Work (CCOW) licence granted by the government to
PT.BC. Mining at this location started in 2021 with 52 million MT of coal
reserves that are expected to be depleted within 12 years (2021-2033). However,
there are external challenges in the form of provincial roads crossing the GMO
mining area, especially in Pit West and Pit South, resulting in approximately
3.5 million MT of coal reserves that cannot be mined. To support energy
conservation on marginal coal reserves and maximise production, government
support is required in allowing the relocation of the provincial road, enabling
the entire coal reserves at the site to be exploited. This research aims to
analyse the economic aspects and external factors affecting PT.BC's business
environment related to the road relocation project. The research methods used
include PESTEL analysis to measure the external impact on the business
environment, as well as analysis of the company's tangible and intangible
resources to evaluate PT.BC's ability to implement the project. In addition,
Capital Budgeting was used to assess the financial feasibility of the project,
and sensitivity analysis was conducted to identify economic parameters that
have a significant impact on the feasibility of the project. The results show
that the road relocation is financially feasible and necessary to maximise the
coal reserves at the site. The implications of this study emphasise the
importance of government support and effective resource management in
overcoming operational challenges and ensuring the sustainability of mining
operations.
Keywords: Investment Analysis, Coal
Reserves, Road Relocation, Capital Budgeting, Financial Feasibility.
INTRODUCTION
The Gurimbang Mine Operation area is part
of the PT.BC's mining concession is located in Gurimbang, Sambaliung District,
Berau Regency, East Kalimantan. The Gurimbang Job Site is the new project area
in the coal mining operation that started in 2021. It requires many supporting
infrastructure facilities: mining roads and coal haul roads, coal processing
plants, jetties, and other facilities in the mining operation area (Nainggolan et al., 2021).
The Gurimbang Mine Operation is
one of the active mining areas owned by PT. Berau Coal has 7 pits, namely: Pit
L-FGH, Pit L-West, Pit L-East, Pit East-1, Pit East-2, Pit West and Pit South.
Of the 7 pits, there are 2 pits (West Pit and South Pit), which are traversed
by existing public roads. The current condition of the Gurimbang concession
area is shown in the map below (Figure 1.3):
Figure 1. The
layout of the Mine Plan Area overlays with
the existing
public road within PT.BC (concession area)
In the
Gurimbang mining operations area, particularly at the South Gurimbang job site
of PT.BC is faced with a challenge. A public road (about 5 km) cuts through the
mining concession area, making it difficult for mining activities to continue
efficiently. Particularly, this public road hinders access to the potential
coal deposits in the South Gurimbang area, which have been identified as key
mining zones. The continuation of mining activities without relocating this
road may lead to logistical, safety, environmental, and productivity issues.
The primary concern lies in the
constraints imposed by the presence of public roads within the mining
concession area of the Gurimbang site, which restrict the operation area for
mining activities. In the mining concession area located at site Gurimbang,
there exists a public road (provincial road) that traverses the mining
concession area belonging to PT.BC. As a result, certain coal reserves within
the concession area, particularly those located in Pit West and Pit South of
Gurimbang, are unable to be extracted optimally. Within the Gurimbang mining
concession area there are currently 8 KM of public roads, of which 5 KM of
public roads are included in the mine pit planning area at the Gurimbang
location. Failure to relocate public roads could lead to a reduction in coal extraction,
which in turn impacts company revenues.
The following is the Life of Mine
(LOM) plan, base on 2 scenario mine plan in Gurimbang. Based on coal reserve
data at the Gurimbang site, the coal production schedule with a detailed mining
plan as follows
Table 1. Life of Mine (LOM) base on coal reserve
at Block Gurimbang (2022-2033)
Description |
Unit |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
2031 |
2032 |
2033 |
Total |
Waste |
bcm |
21,358,000 |
21,178,500 |
21,743,000 |
26,399,000 |
20,671,600 |
15,579,400 |
17,500,000 |
17,500,000 |
22,000,000 |
37,500,000 |
37,500,000 |
37,500,000 |
296,429,500 |
Coal Getting |
ton |
4,128,100 |
3,844,000 |
3,689,300 |
4,514,431 |
4,356,187 |
3,132,841 |
2,700,000 |
2,700,000 |
3,362,000 |
6,500,000 |
6,500,000 |
6,500,000 |
51,926,859 |
Contract Strip Ratio |
bcm/ton |
5.17 |
5.51 |
5.89 |
5.85 |
4.75 |
4.97 |
6.48 |
6.48 |
6.54 |
5.77 |
5.77 |
5.77 |
5.71 |
Waste Distance |
m |
2,290 |
2,480 |
1,980 |
2,222 |
1,789 |
1,694 |
1,359 |
1,973 |
2,198 |
1,581 |
1,974 |
1,965 |
|
Coal Distance |
m |
4,990 |
5,160 |
5,840 |
6,035 |
5,637 |
6,008 |
6,684 |
7,002 |
7,762 |
7,404 |
7,845 |
7,206 |
|
There is a
challenge in the South Gurimbang mine plan area due to the presence of a public
road within the mining concession. If the road is not relocated, certain coal
reserves will be inaccessible for mining. Consequently, the Life of Mine (LOM)
plan will be adjusted as detailed in Table 2 as follow:
Table 2. Revised Life of Mine (LOM) plan for
Gurimbang (2022-2033)
without public Road Relocation Implementation.
Description |
Unit |
2022 |
2023 |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
2031 |
2032 |
2033 |
Total |
Waste |
bcm |
21,358,000 |
21,178,500 |
21,743,000 |
26,199,000 |
18,371,600 |
12,679,400 |
13,800,000 |
14,900,000 |
18,300,000 |
33,600,000 |
33,600,000 |
33,600,000 |
269,329,500 |
Coal Getting |
ton |
4,128,100 |
3,844,000 |
3,689,300 |
4,299,431 |
3,964,187 |
2,740,841 |
2,288,000 |
2,288,000 |
2,900,000 |
6,108,000 |
6,108,000 |
6,065,000 |
48,422,859 |
Mining Strip Ratio |
bcm/ton |
5.17 |
5.51 |
5.89 |
6.09 |
4.63 |
4.63 |
6.03 |
6.51 |
6.31 |
5.50 |
5.50 |
5.54 |
5.56 |
Contract Strip Ratio |
bcm/ton |
5.17 |
5.51 |
5.89 |
6.09 |
4.63 |
4.63 |
6.03 |
6.51 |
6.31 |
5.50 |
5.50 |
5.54 |
5.56 |
Waste Distance |
m |
2,290 |
2,480 |
2,113 |
1,951 |
2,505 |
2,270 |
2,633 |
2,668 |
2,116 |
2,116 |
2,680 |
1,320 |
|
Coal Distance |
m |
4,990 |
5,160 |
8,136 |
7,874 |
7,118 |
7,330 |
7,540 |
7,660 |
7,700 |
7,700 |
7,900 |
7,970 |
|
Comparison of mine plans options (without
diverting public roads vs diverting public roads), shown as follows:
Table 3. LOM
Option at Gurimbang Mine Operations
Parameter |
Unit |
Without Public
Road Diversion |
With Public Road
Diversion |
Diff. |
|
Ř
Waste |
Mbcm |
269 |
296 |
27 |
|
Ř Coal Getting |
Mt |
48.42 |
51.93 |
3.5 |
|
Ř
Stripping
Ratio |
Bcm/t |
5.5 |
5.7 |
From Table 3 above, if "public road diversion" is not carried
out, there are unrecoverable coal reserves of 3.5 million tons from the
Gurimbang Mine Operation. The problem is crucial because it
impedes the optimal extraction of valuable coal deposits, leading to potential
revenue losses. Moreover, mining near or around public infrastructure can pose
safety risks to both mine workers and the public. Resolving this issue is
urgent since the Strategic Team has identified that the road relocation should
be done before 2025. Solving this problem will ensure smooth operations,
increased revenue, and reduced safety risks, therefore the relocation of the
provincial road is vital to ensure that PT.BC can optimize its mining volumes
as per the LOM Gurimbang. An efficient solution not only ensures operational
consistency but also has significant economic implications.
The challenges faced by GMO are not unique. Previous
studies have documented similar issues in mining projects, where public
infrastructure hinders resource extraction and operational efficiency. For
example, research by (Jones,
A. & Brown, 2018) highlights how
infrastructure, particularly roads, can become barriers to mining operations,
resulting in lost economic opportunities. Furthermore, studies by (O’Callaghan
& Graetz, 2017) and (Jeong
et al., 2021) have emphasized
the importance of infrastructure relocation or adaptation to maximize resource
extraction in mining operations. Despite this, there is a scarcity of research
focusing on the financial implications and strategic planning needed to address
such challenges in the context of Indonesia's coal mining sector, particularly
in remote areas like East Kalimantan.
This study aims to analyse the economic aspects and
external factors affecting PT.BC's business environment related to the road
relocation project. This study seeks to fill this gap by providing a
comprehensive analysis of the economic and strategic considerations involved in
relocating a public road within a mining concession area. Specifically, the
study uses the PESTEL framework to analyse the external factors affecting
PT.BC's business environment and capital budgeting techniques to assess the
financial viability of the relocation project. As such, this research
contributes to the existing body of knowledge regarding the intersection of
infrastructure management and resource extraction in mining operations, with a
particular focus on addressing infrastructure-related challenges to ensure
sustainable and profitable operations.
RESEARCH METHODS
Research Design
The initial phase of this research
involves identifying a business problem and performing an investment project
analysis for the Gurimbang mine project. Given this context, it is crucial to
optimize each coal reserve based on primary data to create an effective mining
schedule. This scheduling process will yield the capital and operational
expenditures needed for economic evaluations. The valuation techniques applied
include DCF, incorporating NPV, IRR, and PBP. The Research Methodology is
illustrated in Figure 2.
Figure 2. Research Methodology
Data
Collection Method
This research primarily utilized
primary data from PT. Berau Coal, with the data presented and used being
specifically limited to what was necessary and permitted for this study. The
data collection was divided into two categories: primary data and secondary
data, both of which included quantitative and qualitative information to
support the research.
1.
Primary
Data
The author collected primary data through interviews with
relevant personnel (PIC) within the company. The key person is the Mine
Planning Engineering team which is heavily involved in data, assumptions, and
decision-making for mining development, especially in the South Gurimbang Pit,
and the Infrastructure Planning and Design Section team. In addition, the
primary data related to the technical design of construction for public road
relocation from consultants hired by PT.BC. This primary data includes the
permit and its legal requirements, the general product supply chain in the
current business process, and the company's current condition related to the
Gurimbang mining operation.
2.
Secondary
Data
Secondary data refers to information that already exists
and was collected for purposes other than this study (Kotler et al., 2016). The author
obtained this data from various sources, including books, journal articles,
national regulations and laws, publications, websites, and internal records.
The internal records included data on coal resources and Life of Mine (LOM),
historical investment costs, operational costs and rates, and existing
infrastructure specifications and data for the mining concession area
3.
Data
Analysis Method
A Business Situation Analysis is a comprehensive assessment
of the internal and external factors that affect an organization's ability to
achieve its objectives. It involves evaluating the company's current situation,
identifying opportunities and threats, and developing strategies to capitalize
on strengths and mitigate weaknesses. This analysis typically includes tools
like PESTEL (Political, Economic, Social, Technological, Environmental, Legal)
analysis and competitive advantages analysis.
4. Capital Budgeting Analysis
Capital budgeting involves
evaluating and selecting long-term investments that align with company goals to
maximize profits (Gitman et al., 2015). According to (Gitman et al., 2015), the capital budgeting process consists of five
distinct yet interconnected steps:
1.
Making proposals,
2. Developing proposals,
3. Reviewing and analyzing,
4. Making decisions,
5. Executing the plan, and
6. Conducting follow-up actions.
At PT.BC,
capital budgeting can be used to evaluate the proposed project. This research
is used to evaluate the public road relocation project within the Gurimbang
concession area financially. The recommendations derived from this research
address the problem of accessing coal reserves that can be mined once the
public road crossing the planned mining in South Gurimbang is relocated outside
the mining area. To mine in the southern Gurimbang, the existing 8 KM public
road must first be relocated. In addition to the budget for constructing the
new public road infrastructure, funds are needed to relocate affected
settlements and public facilities for local residents. The evaluation of the
public road relocation project will use the discounted cash flow method to
assess its financial feasibility. This project's scope is limited to
financially evaluating the relocation scenarios of the public road within the
mining operation area for PT.BC and proposing an implementation strategy for
the project.
Evaluating
whether the public road relocation strategy aligns with shareholder
expectations involves applying investment appraisal techniques:
Cost
of Equity
The cost of equity is the rate of return that companies
expect from an equity investment to be deemed worth the associated risk.
Several models are used to calculate the cost of equity, the most common being the Capital Asset Pricing Model (CAPM) and the Dividend Discount Model (DDM).
The
CAPM formula is:
𝐾𝑒
= 𝑅𝑓
+ 𝛽
(𝑅𝑚
− R𝑓) ŕ Formula
(1)
where
:
Ke
: Cost
of equity
Rf
: Risk
free rate
𝛽 : Beta of the security
Rm
: Market
rate of return
(Rm−Rf) : Market Risk Premium
The DDM formula is:
ŕ Formula (2)
where:
Ke
: Cost of equity
D1 : Expected Dividend per Share Next Year
P0 : Current Stock Price
g : Growth Rate of Dividends
In this research, the cost of equity is calculated using
the Capital Asset Pricing Model (CAPM), which is commonly used in long-term
projects. According to the CAPM approach, the cost of equity is equal to the
risk-free rate plus the country risk premium and the risk premium. The risk
premium is determined by multiplying the security's beta by the difference
between the market rate of return and the firm's risk-free rate.
c.
Weighted Average Cost of
Capital (WACC)
Weighted average cost of capital (WACC) is the average cost
of a company's capital, weighted to reflect different sources such as common
stock, bonds, and other debt forms. It represents the average rate a firm
expects to pay for asset financing (Hargrave, 2022). The formula for WACC is
given as follows:
ŕ Formula (3)
where:
E :
Market value of the firm’s equity
D :
Market value of the firm’s debt.
Ke :
Cost of equity.
Kd :
Cost of debt.
T :
Corporate tax rate.
As
PT. BC’s capital structure is entirely equity-financed, the Weighted Average
Cost of Capital (WACC) is equivalent to the cost of equity (Ke). Based on various investment
analyses for infrastructure projects, the hurdle rate typically ranges from 10%
to 11%.
d.
Net Present Value (NPV)
NPV is a key financial metric used to evaluate the
profitability of an investment by calculating the difference between the
present value of cash inflows and outflows over a project's lifespan. It
provides a measure of the value added to the firm by undertaking the project (Brealey et al., 2014).
NPV represents the net present value of cumulative cash
inflows and outflows. It is based on the concept of opportunity cost, which
refers to the required return that makes an investment more attractive than
alternative options (Benninga, 2014). To compute NPV, a
projection of cash flows, including initial capital expenditure and future net
cash flows, is necessary. The present value of these cash flows is determined
by discounting them at a specific rate, which in this study is the WACC (weighted
average cost of capital). For investment decisions, a project is considered
acceptable if the NPV is greater than zero.
The formula for calculating NPV is expressed as follows:
|
ŕ |
Formula
(4) |
|
|
|
where:
NPV= Net
present value
CFt
= Cash flow at a specific time t
CF0
= Initial investment amount
r =
Discount rate or the company’s cost of capital
t =
Specific time period of the cash flow
e.
Internal Rate of Return
(IRR)
IRR is the discount rate that makes the NPV of an
investment zero. It is used to assess the efficiency of an investment and to
compare the profitability of different projects. A project is considered
favorable if its IRR exceeds the required rate of return (Ross et al., 2019).
The internal rate of return (IRR) is the discount rate at
which the net present value (NPV) of the investment equals 0
|
ŕ |
Formula (5) |
Using the formula for NPV, it can be expressed as follows:
|
ŕ |
Formula (6) |
where:
NPV is the Net Present Value, which is
set to zero when calculating the IRR.
CFt denotes the cash inflow during
period t.
IRR refers to the internal rate of
return.
t is indicates the time period.
CF0 represents the
initial investment at time t=0.
A company generates value for its shareholders if its
investments in projects or strategies yield returns that exceed the cost of
capital (Young et al., 2000). In other words,
an investment is deemed acceptable if the IRR surpasses the WACC. IRR is often
considered more straightforward than NPV because it is expressed as a
percentage.
f.
Pay Back Period
The Payback Period is a financial metric that calculates
the time required to recover the initial investment from the cash inflows
generated by a project. It is one of the simplest investment appraisal methods
and is widely used in practice due to its straightforward nature (Brigham et al., 2021).
The payback period refers to the time needed to recoup the
project's initial investment. The acceptable payback period is determined by
the company's policy. A project is considered acceptable if its payback period
is shorter than the company's maximum acceptable payback period. A shorter
payback period is preferable, as it indicates quicker recovery of the initial
investment and lowers the investor's risk.
Formula:
ŕ Equation (7)
To calculate the payback period
for an investment that produces variable cash inflows over time, follow these
steps:
1)
Begin with the total initial investment amount.
2)
Deduct the cash inflows each year until the initial investment is
fully recovered.
3)
Maintain a running total of the cumulative cash inflows to determine
when the initial investment has been recouped.
g.
Discounted Pay Back Period
The Discounted Payback Period is an improvement on the
traditional Payback Period method. It accounts for the time value of money by
discounting future cash inflows before calculating the payback period. This
approach offers a more accurate measure of how long it takes to recoup the
initial investment, considering the diminishing value of future cash flows (Brigham et al., 2021).
Strengths of the Discounted Payback Period:
1)
Time
Value of Money: By discounting future cash flows, the DPP provides a more
realistic assessment of investment recovery times, reflecting the present value
of future cash inflows (Reilly, 2018).
2)
Improved
Risk Assessment: The DPP incorporates the time value of money into the
payback analysis, which can offer better insights into the risk and
profitability of an investment (Alan C Shapiro, 2020).
Capital Expenditure (CAPEX)
Capital expenditure (CAPEX) or initial investment
estimate with total amount of USD 16.285.257, it’s includes the construction
budget for the relocation of a public road with a length of 8 KM and its
supporting infrastructure and investment for the construction of 86 residential
units in resettlement of local communities and the required public facilities.
Cost of Equity
Cost of
Equity represents the return a
company must provide to its shareholders for the risk they undertake by
investing in the company. It is a critical component in evaluating the
financial viability of investment projects, including capital expenditures
(Capex). Understanding the cost of equity helps firms make informed decisions
about funding projects and assessing whether expected returns meet investor
expectations.
The following are some
assumptions used in calculating the cost of equity. In this research, the cost
of equity is calculated using the Capital Asset Pricing Model (CAPM), which is
commonly used in long-term projects, with formula:
Cost
of Equity (𝐾𝑒)
= 𝑅𝑓
+ 𝛽
(𝑅𝑚
− R𝑓)
Table 4.
Calculation of Cost of Equity for Public Road Relocation Project
Calculation |
Remarks |
|
Rf = Risk Free Rate |
4.85% |
Source:
Indonesia Government Bond Yield: |
β = Beta of the security |
0.96 |
Source:
Damodaran's Beta Index (Industry: Metal & Mining) |
(Rm - Rf) = Equity Risk Premium |
7.38% |
according to: |
Ke =
Cost of Equity |
11.93% |
|
Figure 3. Indonesia Government Bond Yield (Mei 2024)
Sources: PHEI (PHEI,
2024)
1. Weighted Average Cost of Capital
(WACC)
The
weighted average cost of capital (WACC) represents the required return for
projects with average risk, which are similar in risk to the company as a
whole. It is used to discount the project’s cash flows, excluding financing
costs such as interest and dividends (A. C Shapiro, 2005).
As mentioned earlier, this project is assumed to be fully financed with the
company’s equity, so the WACC calculation is shown as follows:
Where:
Equity Composition (E) : PT.BC uses its own capital
100% to financing this project.
Debt Composition (D) : 0%
Cost
of Equity (Ke) : 11.93%
Corporate Tax Rate (T) : for
first-generation PKP2B, is set at 45%
Long Term Debt Interest
Rate (assumption) : 10%
Cost of Debt (Kd) : 𝐿o𝑘𝑔 𝑇e𝑟𝑚 𝐷e𝑏𝑡 𝐼𝑘𝑡e𝑟e𝑠𝑡 𝑅𝑎𝑡e 𝑥 (1 − 𝑇) = 5.5%
)
2.
Project
Investment Analysis
Project Investment Analysis
is a
systematic process used to evaluate the potential financial outcomes and
viability of a proposed project. This analysis involves examining various
financial metrics, such as cash flow projections, Net Present Value (NPV),
Internal Rate of Return (IRR), and payback period, to determine the project's
profitability and risk. By assessing these factors, decision-makers can
identify whether the project aligns with their strategic goals and make
informed choices about resource allocation.
3.
Incremental of Revenue Projection
The estimated
income obtained over a ten-year period was calculated by comparing two
scenarios: a scenario without public road relocation (OPSI-1) and a scenario
with the implementation of a public road relocation project (OPSI-2). A
comparison of the results of the two scenarios and the additional EBITDA of
mining production as a result of the project investment is presented in figure
4 as follows:
Figure
4. Incremental Revenue Projection
The public road relocation had a positive initial
impact, evidenced by substantial EBITDA growth in the early years. This indicates
enhanced logistics and operational efficiencies within the mining concession
area.
4.
Cash
Flow Analysis
Table 4. shows the calculation of operating income
generated by the project. The cash flow projections
from 2024 to 2033 illustrate a transition from an initial investment phase to a
profitable and sustainable business operation. The increase in cash flow shows
improvements in logistics and operations, especially after road relocation
within mining concession areas, as shown in the graph at Figure-4 below:
Figure 5.
The Graph of Net Cash Flow (in USD) from 2024 – 2033
(Sources: Base on Author’s Calculations)
The graph illustrates the Net
Cash Flow (EAT) and Cumulative Cash Flow from 2024 to 2033 for a project
investment. It begins with a significant negative cash flow due to the initial
capital expenditure (CAPEX), but the project quickly recovers, demonstrating
strong positive cash flows in the following years, which indicates effective
project implementation and operational efficiency. The cumulative cash flow
swiftly rebounds from the initial deficit in 2024, turning positive by 2027,
signifying the project has recovered its initial costs and is generating net
positive returns. This upward trend continues steadily, with the cumulative cash
flow reaching approximately $54,531,646 by 2033
Figure 6. Cash Flow Analysis
Significant
outflows: The project starts with considerable negative cash flow, totaling
$16,285,257 in 2024, this is typical for projects that require upfront investments.
Beginning of recovery: In 2025, there is a positive cash flow of $5,362,213,
indicating the start of financial recovery.
Capital Budgeting Analysis
The Capital Budgeting Analysis of this investment
project assesses its financial viability by examining various cash flows and
evaluating their effect on the overall return on investment. The analysis
starts with an initial capital expenditure (CAPEX), leading to a substantial
negative cash flow at the project's onset in 2024. Despite this initial
setback, the project shows strong recovery, with positive net cash flows
beginning in 2025, driven by effective operational management and revenue
generation strategies. By 2027, the project achieves a positive cumulative cash
flow, surpassing its break-even point and delivering profitable returns. The
steady increase in cumulative cash flow, reaching an impressive total of
approximately $54,531,646 by 2033, underscores the project's long-term
viability and financial success. This positive trend reflects sound capital
budgeting practices, demonstrating the project's ability to create value and
provide substantial returns throughout its lifecycle, affirming its appeal to
investors and stakeholders.
To analyze cash flows, including cash outflows and
inflows, to determine the financial viability of the project and its return on
investment over a ten-year period, it is necessary to analyze them by
considering nominal cash flows and their present value (PV), discounted at the
Weighted Average Cost of Capital (WACC). The discount rate or WACC, is set at
11.93%, reflecting the project's required rate of return to justify the risks
involved.
The
Capital Budgeting Analysis for PT. BC reveals a promising investment
opportunity, with an initial cash outflow of US$ (16,285,256.54) matching the
actual expenditure at time zero. Future cash inflows are discounted to their
present values to reflect the time value of money, resulting in an accumulated
present value of $25,459,086.06 by 2033. This figure highlights the project's
potential to generate value beyond the initial and ongoing costs. The project
quickly transitions from a significant initial outlay to strong positive cash
flows and cumulative gains, surpassing its weighted average cost of capital
(WACC) and providing positive returns. This performance positions the project
as an attractive proposition for stakeholders, ensuring sustained financial
health and value creation throughout its lifespan.
Year |
2024 |
2025 |
2026 |
2027 |
2028 |
2029 |
2030 |
2031 |
2032 |
2033 |
Cash Outflow |
(16,285,256.54) |
|||||||||
Cash Inflow |
|
5,362,212.56 |
9,020,059.35 |
8,287,039.73 |
7,694,067.18 |
9,373,436.47 |
9,265,084.90 |
6,760,340.37 |
6,760,340.37 |
8,111,372.27 |
Total Cashflow |
(16,285,256.54) |
5,362,212.56 |
9,020,059.35 |
8,287,039.73 |
7,694,067.18 |
9,373,436.47 |
9,265,084.90 |
6,760,340.37 |
6,760,340.37 |
8,111,372.27 |
Accumulated Cash Flow |
(16,285,256.54) |
(10,923,043.97) |
(1,719,984.62) |
6,567,055.11 |
14,261,122.29 |
23,634,558.76 |
32,899,643.66 |
39,659,983.33 |
46,420,323.99 |
54,531,696.26 |
Cash Flow (In Million) |
(16.29) |
(10.92) |
(1.72) |
6.57 |
14.26 |
23.63 |
32.90 |
39.66 |
46.42 |
54.53 |
WACC |
11.93% |
|||||||||
PV of Cash Flow |
(16,285,256.54) |
4,790,478.63 |
7,345,171.96 |
5,908,564.04 |
4,901,211.44 |
5,334,247.99 |
4,710,383.59 |
3,070,252.72 |
2,743,137.25 |
2,940,411.99 |
Accumulated PV of Cash Flow |
(16,285,256.54) |
(11,494,778.01) |
(4,148,606.05) |
1,759,958.55 |
6,660,379.99 |
11,994,627.98 |
16,705,011.57 |
19,775,535.72 |
22,518,672.46 |
25,459,086.06 |
As shown in Table-7, the Capital Budgeting Analysis
presents a financial assessment of project investments from 2024 to 2033,
starting with a significant initial cash outflow of $16,285,256.54 in 2024 due
to capital expenditures. Nonetheless, the project is rapidly transitioning to
positive cash inflow from 2025 onwards, highlighting the effectiveness of
project implementation and operational efficiency. In 2027, the accumulated
cash flow becomes positive, indicating the project's breakeven point and
subsequent profitability. Accumulated cash flow reaches $54,531,696.26 in 2033,
indicating strong financial sustainability. With a WACC of 11.93%, the current
cash flow value shows a positive trend, confirming the project's ability to
exceed capital costs and generate substantial returns, making it a financially
attractive investment opportunity.
This
research uses five criteria to assess the feasibility of a project: Payback
Period (PBP), Discounted Payback Period (DPBP), Net Present Value (NPV),
Profitability Index, and Internal Rate of Return (IRR), with the results of the
calculation analysis as shown in Table-8 :
Table 6.
Financial Feasibility
Analysis of a Public Road Relocation Project
Payback Period |
2.21 |
years |
Discounted Payback Period |
2.70 |
years |
Net Present Value |
25,459,086.06 |
USD |
Profitability Index |
2.56 |
|
IRR |
44.54% |
|
(Sources:
Base on Author’s Calculations)
In
this calculation, 2024 is considered year 0, with 2025 as the first year,
continuing through to 2033 as the ninth year. The results show a payback period
of 2.21 years and a discounted payback period of 2.70 years. The project has a
positive NPV of USD 25,459,086.06, a profitability index of 2.56, and an IRR of
44.54%, which exceeds the WACC of 11.93%.
CONCLUSION
The
financial feasibility analysis of the public road relocation project within the
mining concession area at Pit Gurimbang demonstrates that the project is highly
viable and profitable. The payback period of 2.21 years and a discounted
payback period of 2.70 years indicate a swift recovery of the initial
investment, reflecting efficient cash flow management. Additionally, the
project yields a positive Net Present Value (NPV) of $25,459,086.06 USD,
confirming substantial profitability. With a Profitability Index (PI) of 2.56,
the project is expected to generate significant returns, and the Internal Rate
of Return (IRR) of 44.54% far exceeds typical capital costs, underscoring its
attractiveness to investors. These findings affirm that the relocation of the
public road will not only unlock considerable coal reserves, increasing
production, but also enhance PT. BC's operational efficiency and competitive
edge in the market. Therefore, the project presents a financially sound
investment with significant long-term benefits for the company.
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Lukas Patandung, Taufik Faturohman (2024) |
First publication right: Asian Journal of Engineering, Social and Health (AJESH) |
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