Feasibility Study of Project Mining

(PT Newmont Nusa Tenggara)

By : Abid Zulfaqor (11141330000015)

Lecturer : Supriyadi, P.hD

Mining Engineering Departement

Faculty of Natural Resouches and Environment
Islamic State University of Syarif Hidayatullah
1

Introduction

The Batu Hijau porphyry copper deposit was discovered in 1990 after ten years of
exploration. Following the approval of the feasibility study and environmental impact
analysis (ANDAL), a US$1.8 billion construction project commenced in early 1997 and
finished in late 1999, followed by commissioning/ start up.
Commercial production started on 1 March 2000. Based on the feasibility study, Batu
Hijau's ore reserves were 1.1 billion tons containing 0.525 percent copper and 0.37 grams per
ton of gold. At the current production rate, Batu Hijau's mine life is expected to continue until
2023. PTNNT is currently exploring other parts of its Contract of Work area such as the
Elang exploration prospect.
As a contractor to the Government of Indonesia, PTNNT contributes substantially to
the nation's economy through employment, domestic purchases, royalties and taxes.
Currently, PTNNT is responsible for the direct employment of over 7,000 people. Of these,
more than 60 percent are from the province of West Nusa Tenggara.
Each year PTNNT pay direct taxes and royalties to the government of Indonesia.
Most of the royalties (80%) returned by the central government to provincial and district
levels. In addition, PTNNT also help communities around the mine through the program
responsibilities social responsibility

Feasibility study of mining project at PT Newmont Nusa Tenggara.Tbk

Feasibility Study
To analyze a project whether it is feasible to be done or not there are three methods.
The methods are:
1. Discounted Cash Flow Rate of Return Analysis
2. Net Present Value Analysis
3. Payback Period Analysis

Discounted Cash Flow Rate of Return (DCFROR) Analysis

The Discounted Cash Flow Rate of Return (DCFROR) on a project is the "annualized

effective compounded return rate" or rate of return that makes the net present value of all
cash flows (both positive and negative) from a particular investment equal to zero. It can also
be defined as the discount rate at which the present value or present worth (PW) of all future
cash flow is equal to the initial investment or in other words the rate at which an investment
breaks even. DFCROR is also called ROE (Rate of Return on Equity) which is one of
profitability ratio parameter. DCFROR value can be obtained by are as follows:
PW Equity = PW Income (after tax)

(1)

PW Income - PW Equity = NPV = 0

(2)

After that we can use Trial and Error Methods and Interpolation or Extrapolation
Methods. A project is declared as feasible to be done when DCFROR value is greater than
DFCROR minimum value (i*), and it is declared as not feasible to be done when DCFROR
value is smaller than DFCROR minimum value (i*). (Stermole, Franklin J. And Stermole,
John M. 2000, page 96-100)

NET PRESENT VALUE (NPV) Analysis

Net Present Value (NPV) when i value is minimum is obtained by:
NPV = PW Income - Equity

(3)

Project is declared as feasible when NPV is greater than zero or when NPV has positive
value.

Payback Period
3

Payback period is refers to the period of time required to recoup the funds expended in an
investment, or to reach the break-even point. The time value of money is not taken into
account. Payback period is obtained when:
Net Cash Flow Investment = Net Cash Flow Income

(4)

Project is declared as feasible to be done when the value of payback period is shorter than
the projects life. But the payback period method has a serious limitation because it ignores
the value of cash flow after period of payback period. (Stermole, Franklin. J dan Stermole,
John. M. 2000. Hal.418-419)

CONCLUSION

In the process and the stage of feasibility study of PT Newmont Nusa Tenggara have could be
done through several stages. PT Newmont Nusa Tenggara have done feasibility study by
some method of the Discounted Cash Flow Rate of Return ( DCFROR ) analysis , Net
Present Value ( NPV ) analysis, and payback period . according to analysis the feasibility
study PT Newmont Nusa Tenggara feasible to be mining , therefore mining activities PT
Newmont Nusa Tenggara can be operated until now

REFFERENCE
1. Stermole, Franklin. J dan Stermole, John. M. 2000. Economic Evaluation
Investment Decision Methods. Ninth Edition. Golden Colorado. Golden Drive.
2. Yoan Rolanda. 2013. Pengaruh Bea Keluar Terhadap Cash Flow Perusahaan
Pertambangan Mineral Berdasarkan Peraturan Menteri Keuangan
06/PMK.011/2014(Studi Kasus PT Newmont Nusa Tenggara. University of Trisakti.
Jakarta)