Economic viability and risk management of auger mining in Indonesia using real option valuation under volatile market conditions

Abdullah Alghani and Dzikri Firmansyah Hakam

Resources Policy, 2025, vol. 108, issue C

Abstract: Coal is one of the commodities that contribute the most to Indonesia's GDP, as well as to other coal-exporting countries such as Australia, China, India, and others. Currently, many coal companies in Indonesia face challenges in optimizing their coal reserves to increase profitability. One method that has proven effective from both technical and economic perspectives is auger mining. However, with global coal prices declining in 2023 after experiencing a significant increase following the pandemic in 2022 (Iea, 2023), the economic feasibility of auger mining for companies, particularly in the long term, has come into question. This research is the first study aimed at assessing the economic feasibility of auger mining using DCF simulation, Monte Carlo Simulation (MCS), and Real Option Valuation (ROV) Binomial Lattice, based on a real-case problem under uncertain coal market conditions, and evaluating the risks of its implementation.

Keywords: Auger mining; Discounted cash flow; Real option valuation; Monte Carlo simulation; Binomial lattice (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jrpoli:v:108:y:2025:i:c:s0301420725002326

DOI: 10.1016/j.resourpol.2025.105690

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