Nickel Price Projection Using Multivariate Regression Method and Investment Feasibility Analysis of Nickel Mining in Indonesia with Sensitivity Analysis and Monte Carlo

: Nickel is one of the metals commonly used in various industries. Indonesia is one of the countries that has the largest nickel reserves in the world. Nickel prices will be formed through an equilibrium mechanism between production supply and nickel demand. This study will analyse the relationship between nickel price formation, supply, and demand. Nickel prices will also affect the feasibility of nickel mining investment in Indonesia. The data used in this study consists of market data derived from historical reports of the last 5 – 12 years (2010 – 2022) and mining plan assumptions derived from benchmarks with similar industries. The methods used in this analysis are multivariate regression, discounted cash flow, sensitivity analysis, and Monte Carlo simulation. The results of the analysis that have been carried out show the relationship between nickel supply and demand with prices, with estimated nickel price projection ranging from $16,750 / Ton - to $18,927 / Ton. The factors that most influence the feasibility of mining investment are nickel price, sales realization, water content, contractor costs, and fuel costs. The risk of nickel mining investment in Indonesia based on Monte Carlo simulations is estimated at around 11.36%. This shows that nickel mining investment in Indonesia is still very attractive.


INTRODUCTION
Nickel is one of the metals commonly used in various industries.Some useful properties of nickel include having a high melting point (1453 o C) (Haynes, 2016), being resistant to corrosion, and being able to be combined as alloy metals.The use of nickel in the market is very important as a raw material for the manufacture of stainless steel and electric vehicle batteries.Indonesia is one of the countries that has the largest nickel reserves in the world (Kadarusmam, 2013).The need for nickel is currently increasing significantly, mainly due to the development of electric cars where almost 80% of the composition of electric car batteries is made of nickel.The increase in demand does not necessarily cause nickel prices to rise, since the downstream program is carried out in Indonesia, causing nickel production to be abundant.Nickel prices will be formed through an equilibrium mechanism between production supply and increased nickel demand.Thus, in this study, an analysis will be carried out on the relationship between nickel price formation and nickel supply and demand.The feasibility of a nickel mine investment will be influenced by nickel commodity prices.The feasibility study will be assessed by projecting the current value of the cash flow that will be obtained by the project in the future.The future cash flow projections are estimated by making financial models.Volatile variables that affect the feasibility of the mine will be tested by sensitivity analysis and Monte Carlo simulation to measure the level of risk in nickel mining investment in Indonesia.This research will use one of the case studies of nickel mining in North Maluku to assess the feasibility and attractiveness of investing in the nickel mining sector in Indonesia.

DATA
The data collection used in this study came from secondary data and simulation processes at one of the mining sites in the North Maluku region.The secondary data used is historical market data over the last 5 to 12 years.While the mining plan data is simulated by the author based on historical data and mining rules which will not be detailed explained in this study.

Mining Plan
The mining plan was made by the author's technical team and will not be detailed in this study.A resume of the mining technical plan used for the simulation of this research is addressed in the table below.

METHOD 3.1 Discounted Cash Flow Analysis
Mining feasibility analysis of an investment is calculated using the discounted cash flow (DCF) approach (VALMIN, 2015), the premise of the discounted cash flow method is the current value of estimated cash flow or assets that will be obtained in the future (Damodaran, 2006).DCF is used to evaluate the current value of an investment.
Based on the theory of the time value of money, the money we invest today has a greater value than the money we will receive tomorrow.Therefore, DCF analysis is very important for an investor who uses his money at the moment and hopes to gain acceptance in the future.The calculation of discounted cash flow is done with the following equation:

Sensitivity Analysis
Sensitivity analysis was conducted to test the variables that most influence the feasibility of the mining project (Rudenno, 2012).This test is carried out by changing volatile variables in the range between -20% to +20%.The variables tested in the sensitivity analysis consisted of inflation, nickel price, cobalt price, HGSO sales realization, LGSO sales realization, limonite sales realization, fuel prices, contractor costs, debt interest, and water content in the ore.The variable that gives the most deviation is the factor that most affects the feasibility of the mine project.

Monte Carlo Simulation
Monte Carlo simulations are carried out to measure the uncertainty of the project value caused by variable volatility.Monte Carlo simulation is performed by changing variables with random combinations assuming the distribution of changed variable values is normally distributed.Monte Carlo simulations in this study were carried out as many as 2000 simulations with variables consisting of nickel prices, sales realization, contractor costs, fuel costs, long-term loan interest, and inflation.

ANALYSIS 4.1 Price Projection
The global nickel price to be used for the price benchmark (Harga Mineral Acuan/HMA) is highly volatile.Therefore, projections are needed to determine the global nickel price used in financial modelling.Global nickel price projections are carried out with a multivariable regression analysis approach to nickel supply and demand which greatly affects prices.The multivariable regression equation for nickel price projections is as follows:  Based on the regression analysis, nickel price projections between 2023 and 2045 will tend to range between $16,750 / Ton and $18,927 / Ton (Appendix 1).If demand and production trends follow the trends predicted in this study.

Feasibility Analysis
The capital structure in this study uses a proportion of 79.87%capital in the form of equity, and 20.13%capital in the form of longterm loans.The cost of equity is determined at 13.69% based on capital asset pricing model analysis (Damodaran, 2023), and the cost of debt after tax of 7.55%.So, the weighting average cost of capital (WACC) is 12.45%.The results of the feasibility analysis (Appendix 2) show that nickel mining investment in North Maluku in a mine with reserves of 120 million wmt saprolite, 30 million wmt limonite, and 14 years of life of mine, would obtain an NPV value of $863 million.The mining payback period is estimated to be obtained within 3 years, and the profitability index is 9.23.

Sensitivity Analysis
The results of sensitivity analysis testing on the feasibility model of nickel mining in the North Maluku region showed that the price, realization of saprolite sales, moisture content in ore, contractor trade, and fuel costs affected the feasibility value by 10% -38% of the model sieve value.This needs to be a special concern for investors in assuming prices, sales realization, and mining costs in detail before investing in the nickel mining sector.

Monte Carlo Simulation
Monte Carlo analysis is conducted to test the feasibility value of volatile variables contained in financial models.The simulation was carried out 2000 times with random combinations that have been normally distributed in the standard deviation range of each parameter.

. Descriptive Statistics of Monte Carlo Simulation
Based on Monte Carlo simulations, the average feasibility value is $861.78 million.The average feasibility value of the results of the simulation is almost the same as the financial model that has been made, this shows that the assumptions made in the financial model are quite representative assumptions with values similar to Monte Carlo simulations.The feasibility value distribution in the simulation has shown a normal distribution, with a low skewness value.The simulated standard deviation of $713 million shows a high variation in the feasibility value due to high parameter volatility.

DISCUSSION
Based on the analysis that has been done, the multivariate regression method, the price of nickel resulting from projected demand and production ranges from $16,750 / Ton to $18,927 / Ton.The projected price range will result in the feasibility of mining investment in Indonesia with an investment feasibility value of $863 million in mines with reserves of 120 million wmt saprolite and 30 million wmt limonite.The most influential factors that affect the investment feasibility value of nickel mining in Indonesia are price, sales realization, water content, contractor costs, and fuel costs.The risk of failure of nickel mining investment in Indonesia based on Monte Carlo simulations is estimated at only 11.36%.

CONCLUSION
Based on the analysis that has been done, supply and demand have a strong relationship in the formation of nickel prices, so nickel price projections can be determined by multivariate analysis of nickel supply and demand.

Figure 5 .
Figure 5. NPV Distribution of Monte Carlo Simulation

Volume 07 Issue 03 March 2024 Available at: www.ijcsrr.org Page No. 1728-1737 2.1 Market Data Market
data consists of historical data on nickel price movements, supply, demand, Indonesian composite stock price (JCI) movements, company financial statements, and PT Vale Indonesia Tbk.(IDX: INCO) stock price movements as a comparison,

Table 2 . Standard Deviation in Monte Carlo Simulation
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