POST MORTEM ANALYSIS TO ECONOMICALLY JUSTIFY AN EXPANSION OF FERRO NICKEL SMELTER IN NORTHERN MALUKU

Abstract

Government of Indonesia strongly encourages nickel mining industries to build smelter since 2014. They issued regulations in order to realize it such as: Law No 9/2009, government regulation no 1 2014, Ministry of Energy and Mineral Resources (EMR) regulation no 1/2014. Government’s intention is to increase value of natural resources for community and the nation as well. Private sectors are reluctant to build smelters. There are some reasons for them to do so such as intensive investment required, regulatory changing, and instability of investment conditions in Indonesia. They are seriously aware for economic return risk of smelter investment. World nickel demand is continue increasing. Compound Annual Growth Rate (CAGR) during the past ten years is ± 5%. Harita nickel is one of local company which initiate to build smelter. Harita invest a total of 428.7 Million USD to build smelter in North Mollusca. Harita has nickel reserve amounting 54.1 Million ton with 1.74% average grade. Harita’s concession permit (IUP) is valid until 2030. This research will evaluate whether the project has value added to shareholders or not using Discounted Cash Flow Analysis. It will evaluate financial parameters and calculate cash flow of the project during 16 years assuming 13,500 USD per ton nickel prices and 12.01% cost of capital. Most of the data is sourcing from corporate Feasibility Study with some adjustment to actual data. Economic evaluation claimed the project will generate Net Present Value - NPV12.01% : 175.2 Million USD; Internal Rate of Return - IRR: 19.11%. And Profitability Index - PI: 0.34. All those parameters strongly indicate that this project will generate economic value added to shareholders.
Key words: Ferro Nickel Smelter, Economic Evaluation