Benefit-Cost Analysis: Financial and Economic Appraisal Using Spreadsheets

By Harry F. Campbell; Richard P. C. Brown | Go to book overview

Appendix 1:
Case Study Assignment

International Mining Corporation (IMC) Copper Mining Project1


Project Description

The Government of Indonesia is considering a proposed joint venture with a foreign investor, International Mining Corporation (IMC), to develop a new copper mine in the mountainous and remote Eastern Province (EP) where recent geological surveys have revealed significant copper deposits. Under the proposal, Eastern Province Mining Limited (EPML), in which the Government of Indonesia (GOI) will hold 30% of the shares, will mine and mill the copper ore on site. The concentrate will then be transported (in slurry form) by pipeline to a dedicated port facility at the mouth of the Eastern Province River, from where it will be shipped to Japan for refining and sale on the world market. Although the main product is copper, the concentrate will also contain some quantities of gold and silver that will also be extracted from the concentrate at the refining stage and sold on the world market.

Eastern Province is a low-income region with a population of 5 million and a per capita income of around US$300 per annum, considered the least developed part of the country. The local population living in the area rely mainly on subsistence agriculture and fishing for their livelihoods. At present there is very little economic or social infrastructure in the area, which means that apart from on-site investment in the mine, mill and tailings dam, EPML will need to make substantial off-site investments in infrastructure and logistics, such as transport equipment, the construction of roads, bridges, wharfs, an airstrip, storage facilities, housing, power generation and supply, as well as the establishment of a school, hospital, shops, recreational facilities and other amenities for the locally engaged and expatriate employees and families. The GOI is eager for the project to proceed as it is expected to provide a significant injection of investment in the region, as well as opportunities for training and employment of local workers and some inter-state, migrant workers from other underdeveloped areas of the EP and elsewhere in Indonesia.

It is also expected that the project will generate some backward linkages into the local economy. EPML will be required to sub-contract certain services to locally based contractors and to buy some of its supplies locally, such as food. Under the proposal the local landowners are to be compensated for the use of their land for mining-related activities, and priority is to be given to the local population for employment and training by EPML. Part of the compensation payments are to be paid into the Eastern Province Development Trust Fund that will be used to finance development projects in the EP region once the fund is established. EPML will also pay royalties to GOI, based on the value of its mineral sales net of transportation, treatment and refining costs.

1 This assignment case study is hypothetical and is not based on the activities of an actual company. Any similarity with
regard to the activities or name of an actual company is unintended. As a guide to the instructor it should be noted
that it is of a higher degree of difficulty than the ICP Case Study.

-332-

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