Nickel Asia Corporation (NIKL) Earnings Call Transcript & Summary

Good afternoon, everyone, and welcome to Nickel Asia Corporation's briefing for our financial and operational results for the first half of 2026. My name is Miren Cueto, Nickel Asia's Senior Manager for Investor Relations. Joining me today are our Group President and CEO, Mr. Dennis Zamora, who is joining us online; our Chief Commercial Officer for Nickel Asia's Mining business, Mr. Koichi Ishihara; our VP for Finance and Deputy CFO, Mr. Andre Dy; and President and CEO of our Geothermal business, Mr. Joseph Nocos. [Operator Instructions] This session will be recorded and the presentation materials will be available on our website after the briefing. There will be a Q&A portion after the formal presentation, and we will first address questions submitted via the registration form. [Operator Instructions] Now for our financial highlights. This slide presents our consolidated financial highlights for the first half of 2026 compared to the corresponding period over the last 4 years. As you will see, this has been a standout performance period for Nickel Asia across our revenues, EBITDA and attributable net income. Our first half results for this year were the strongest in the last 5 years, reflecting the company's continued operational and financial momentum. The leftmost set of bar charts indicates our top line performance for the period. Revenues, which are comprised of the sale of ore, power and other services amounted to PHP 17.02 billion in the first half of this year, representing a 44% increase from the PHP 11.78 billion in the first half of 2025. The set of bar charts in the center showcases our consolidated EBITDA for the period, which totaled PHP 8.68 billion, up 67% from PHP 5.20 billion in the first half of last year. Please note that the EBITDA figures that are shown here have been adjusted for previous presentations to include non-operating income and expenses as well as the equity loss in associates. For the rightmost set of bar charts, it shows our attributable net income, excluding minority interest. For the first half of 2026, attributable net income amounted to PHP 4.06 billion, an increase of 93% from the PHP 2.10 billion reported in the first half of 2025. The rise in earnings were driven by the increase in average ore sales prices, sales volumes from operating mines and the depreciation of the Philippine peso against the U.S. dollar, which favorably affected peso-denominated earnings. Turning to our margins in the table below. Gross profit margin for the first half stood at 65%, up from 53% from the first half of 2025. Revenue growth significantly outpaced the increase in cost of sales. So while our top line grew 44%, our cost of sales only increased by 6%, resulting in the improved margins. EBITDA margin improved as well by 7 percentage points to 51% from 44%. Net income margin stood at 33% compared to 26% in the first half of last year. So the net income margin held up despite softer contributions from other income and finance income, which declined by 63% and 23%. So to summarize, this is a strong first half across the board, showcasing higher revenues, wider margins and significantly higher earnings versus the same period last year. Now for our nickel mining performance. This slide details our mining volumes, prices and revenues for the first 6 months of the year, starting with sales volume on the left, represented in millions of wet metric tons. The green portion represents saprolite ore exports, while the orange portion represents limonite HPAL sales. Total mining sales volume increased by 10% year-on-year to 8.64 million wet metric tons from 7.85 million wet metric tons. Ore exports were up 21% year-on-year to 4.76 million wet metric tons from 3.93 million. Limonite HPAL deliveries stayed flat with a 1% decrease year-on-year to 3.88 million wet metric tons from 3.93 million in the first half of last year. Moving on to the movement in average ore prices seen in the middle chart. For ore exports, the average prices registered at $42.86 per wet metric ton, an increase of 12%. For limonite HPAL prices, there was a notable increase of 33% to $12.57 per wet metric ton as compared to last year's amount of $9.43 per wet metric ton. Weighted average ore prices grew by 23% year-on-year to $29.25 per wet metric ton from $23.87 per wet metric ton last year. The table below gives us additional context on the nickel prices. The average nickel LME price per pound for the first half of this year was $8.18, a recovery from $6.96 in the first half of last year and an increase of about 18%. The effective nickel pay factor for ore exports stood at 26.80% for the first 6 months of the year, slightly below last year's figure of 27.36%. HPAL deliveries on the other hand, had an average nickel payability of 9.78% versus 9.18% in the first half of last year. So for mining revenues, total ore revenues came in at PHP 15.40 billion, which is up 45% from last year. Ore export revenues grew 47% year-on-year to PHP 12.45 billion and limonite HPAL revenues grew 40% year-on-year to PHP 2.95 billion. So to summarize, higher volumes and stronger realized prices across both ore exports and HPAL deliveries drove a broad-based improvement in our mining revenues. Moving on to our revenue variance analysis. This slide will show the key drivers of our top line performance for the first half versus the first half of last year. Total gross revenues grew from PHP 11.78 billion to PHP 17.02 billion. The primary contributors were, firstly, more shipments from our operating mines, which represented a year-on-year increase of PHP 1.78 billion in revenue. Next, there were improved LME and nickel ore export prices or in general, higher nickel realized prices, which contributed about PHP 1.91 billion more from the first half of last year. Third, there was also favorable movement in the foreign exchange rates, averaging PHP 60.85 to USD 1 this year versus PHP 56.47 to $1 last year. This roughly added PHP 1.07 billion to our revenues. Another contributor to improved top line was higher solar power generation revenue of approximately PHP 447 million, driven by the additional capacity from our San Isidro solar power. So, these positives were partially offset by a PHP 20 million reduction from hedging impact and a PHP 4 million reduction related to lower limestone deliveries for the period. This next slide summarizes our cost and expense variance analysis for the first half. Year-on-year, total cost and expenses increased from PHP 8.249 billion to PHP 9.805 billion. So the reasons for these key movements were, firstly, an increase of PHP 145 million in depreciation due to the replacement of capital expenditures. Next, there was also an increase of PHP 685 million year-on-year in mining costs, reflecting higher mining production volumes and higher fuel costs. So for further context, average fuel prices for the first half of 2026 were at PHP 86.43 per liter. So, this is up 73% year-on-year from PHP 49.93 per liter. Other notable movements in our expenses were from an increase of PHP 590 million in excise tax and royalties on higher revenues and the recognition of royalties under the new fiscal regime. 3 of our mines are affected by the new fiscal regime, which requires payments for royalties outside mineral reservations. These mines, in particular, are Rio Tuba or RTN, Dinapigue or DMC and our Manicani mine. So after taxes, the royalty impact from the new fiscal regime was approximately PHP 63 million for the first half of the year. Apart from this, an increase of PHP 203 million versus last year came from costs from our renewable energy business due to additional capacity from the energization of Phase 1 of our San Isidro solar project. And lastly, there was a decrease of PHP 66 million in non-mining costs due to lower material handling for our Taganito HPAL. Overall, the increase in costs were consistent with our higher production and shipment volumes as well as the ramp-up of our renewable energy capacity and was more than offset by the growth in our revenues.. Let me walk you now through the key movements in our balance sheet as of June 30, 2026, compared to year-end 2025. For assets, total assets stood at PHP 74.1 billion as of end June, up 6% from PHP 70.2 billion at the year-end. Cash and cash equivalents declined 14% to PHP 15.1 billion. Trade and other receivables increased 72% to PHP 4.1 billion. The increase in current assets were primarily due to higher trade receivables arising from increased sales, higher inventories resulting from ongoing mining activities and increases in creditable withholding taxes, advances, deposits and other prepayments. PPE grew 7% to PHP 35.5 billion and other assets increased 14% to PHP 19.5 billion. Other movements in the asset section of the balance sheet were mainly due to 2 things. The first is the continuing capital expenditures for our RE projects, particularly Phase 1 and 2 of San Isidro and Phase 1 of the Cawag Solar Project. Second, Nickel Asia advanced an amount of USD 10 million, which is equivalent to about PHP 613.5 million in connection with its acquisition of a 20% membership interest in East Copper Production. For those who don't know yet, East Copper is a Kazakhstan-based entity that owns 100% of GRK MLD, which holds a subsoil use rights for the Karchiga copper mine that we are closing soon. So on liabilities, total liabilities increased 7% to PHP [ 24.0 ] billion from PHP 22.3 billion at year-end 2025. Short-term debt declined significantly by 58% to PHP 2.1 billion. The short-term debt decreased because of the full and partial repayment of loans of our renewable energy business, which totaled about PHP 2.9 billion. Long-term debts were essentially stable, down 2% to PHP 9.2 billion, while other liabilities increased 61% to PHP 12.7 billion. Other significant movements in the liability section were due to higher excise taxes and royalties, higher contracts, liabilities or advanced collections from customers as a result of higher revenues from our sales, as well as higher income tax payable. On equity, total equity grew 5% to PHP 50.1 billion. Equity attributable to the parent company increased 6% to PHP 41.9 billion, while non-controlling interest at PHP 8.2 billion is up 1%. Turning to our key financial ratios. As of June 30, our debt ratio stood unchanged at 0.32x. Debt equity was rather stable at 0.48x compared to almost similar from the year-end at 0.47x. Net debt to equity increased marginally to 0.1x from 0.05x, which was driven by the decline in cash balances as we funded other capital expenditures. But overall, the balance sheet remains healthy with a modest debt profile, showing a strong equity base to support our ongoing growth initiatives. So, moving on now to our renewable energy updates and financial highlights for RE business. We'd like to begin this section with an important update. Our renewable energy platform, formerly known as Emerging Power Inc. or EPI, has been rebranded to NAC Energy. This evolution from developer to established power platform marks a key milestone in NAC's 2030 strategic road map to build a diversified natural resources powerhouse. Moving forward, NAC Energy's operations intends to go beyond solar to ensure that the company can deliver both clean generation and flexible, resilient baseload or mid-merit capacity needed to stabilize local grid infrastructure. NAC Energy's core mission remains absolute to provide stable, resilient and cheaper power to all Filipino consumers. So, allow me to continue to update you all with our flagship operational asset in Subic Bay Freeport Zone. So, this has an installed capacity of 172 megawatt peak. As of the end of June, 170 megawatt peak of JSI's capacity was contracted under power supply agreement. Our PSC to WESM sales mix for the second quarter stood at 96:4. And the direction for this asset continues to be fully contracted, insulating our revenues from WESM price volatility. So, moving on now to the San Isidro, Leyte project, which is being developed under Greenlight Renewable Holdings, our joint venture with Shell. The project is divided into 2 phases, each with 120 megawatt peak of capacity. Both phases are already 100% contracted. Phase 1 was energized in the fourth quarter of last year, with the COD targeted for the third quarter of this year. Phase 2 is targeted for energization in the third quarter as well, with COD in the second quarter of '27. Here are the consolidated financial highlights for NAC Energy for the first half 2026. Generation grew 68% year-on-year to hour from 213,186 megawatt hours from 127,030 megawatt hours driven by the energization of San Isidro. Sales mix shifted further towards contracted volumes, with PSA now accounting for 98% of sales versus 2% on WESM compared to 88% and 12% in the same period last year. This followed an additional 55 megawatt peak of PSA contracted in January of this year. EBITDA grew 83% year-on-year to PHP 628 million from PHP 343 million, reflecting both higher revenues and higher costs. EBITDA margin expanded 4 percentage points to 65% from 61%. The weighted realized tariffs improved 3% year-on-year to PHP 4.56 per kilowatt hour from PHP 4.44 per kilowatt hour, driven by the higher tariff rate from the new contracted PSA, which was 4.50 in 2026 compared to WESM exposure of PHP 2.77 per kilowatt hour in the comparable period last year. Overall, NAC Energy is gaining meaningful scale, and we expect this trajectory to continue as more of our pipeline projects come online. So, let's now move on to updates in our development pipeline. Our next project under Greenlight Renewable is our San Juan, Botolan, in Zambales, consisting of 2 phases. Phase 1 at 45 megawatt peak is fully contracted and targeted for energization in the fourth quarter this year, with commercial operations in the second quarter of next year. Phase 2 at 14 megawatt peak is targeted to be 100% contracted as well. Last July, we began energization of the first 14 megawatts of this 120 megawatt project. Under our wholly owned renewable energy subsidiary, the Subic, Cawag project located in Zambales remains a key development asset. It's divided into 2 phases. Phase 1 at 70 megawatt peak is currently 64% contracted, with active ongoing negotiations for the remaining 36%. Energization is targeted for the second quarter of 2027, with COD in the third quarter of 2027. Phase 2 of Subic, Cawag at 75 megawatt peak is targeted to be 100% contracted. Energization is expected in the fourth quarter of next year, with COD in the first quarter of 2028. The final development is the Nazareno facility in Bataan, a 50 megawatt plant. This project is currently in the pre-development stage, with offtake contracting ongoing. Energization is targeted for the third quarter of 2028 with COD in the fourth quarter 2028. This slide summarizes the expected progression of NAC Energy's installed generation capacity over the next years. Gross capacity is expected to reach 458 megawatts by the end of this year and 617 megawatts by the end of 2027, incorporating JSI, SISPC and our other pipeline projects as they progress through construction. As we have communicated before, our primary focus going forward is on maximizing the value of each megawatt that we bring online, prioritizing fully contracted assets, integrating battery energy storage systems across the portfolio and exploring hybrid solutions for Island grid operations to capture mid-merit supply opportunities. So, that concludes our formal presentation for this earnings briefing.

We will now open the floor for questions. Feel free to use the chat box or raise your hand. But we will first go through the questions submitted to us via the registration form. So, we've listed these questions here. Most of the questions sent in have to do with Indonesia's nickel ore quotas or mining policies. I think we will address those questions first as a whole and then move on to the follow-up questions sent in individually by our analysts.

Yes. So with regards to the situation in Indonesia, the quotas have remained in majority tight for the year. But recently, there has been some selected relaxation of quotas for some particularly large mines that were affected by tight quota. But still, these quotas remain limited. So, our view is the policy in Indonesia with the RKAB will continue to be implemented in that manner, which is tighter than more relaxed because this is still the strategy of the Indonesian government to regulate the supply properly given the global oversupply in nickel. And the effect of which we could show in the appendix, Miren. So the effect of this policy that we've set is seen in the global nickel balance. So in the first half, as per CRU, we could see that the production and the consumption, there is a slight oversupply. So, what Indonesia had done as a policy is already impacting the oversupply in the market. Also, the phenomenon on high sulfuric acid prices. As you know, sulfuric acid prices have already quadrupled from where they were. Now, it's close to $1,000. So because of this, processing nickel metal, processing nickel has been constrained, and this is also aiding in the relief of oversupply. So, our view is the oversupply is going to narrow and there will be a support for nickel ore prices.

Go through the follow-up questions here. So from [ Christine ] of BPI Securities. She also asks if there is any latest guidance for dividends?

Well, we've always said that 30% payout would be the regular. And then if you look at the strong years that we've had, we have a good history of paying special dividends. We do not guide on special dividends. But if history were to be the teacher, then it would point to likelihood of special dividends. But I think the change in NAC's strategy is we made an announcement that we were going offshore. So, what's changed from 5 years ago is we're making offshore investments. We're evaluating offshore opportunities in copper and nickel. So, that will also be in consideration when allocating our capital. Of course, we reward the shareholders, then we will also invest in our growth and also in our power subsidiary. So, these things in consideration, especially with the good results here, the likelihood of the special dividends is still there. So yes, we're looking forward to later this year, as we continue -- as third quarter will even be better because that's where typically most of the volumes come in. So thankfully, with the high payability of nickel ore, we will be able to -- we're forecasting to have a good year, and we'll be able to fulfill these 3 things: reward shareholders and then fund our offshore growth and also fund our power subsidiary plants.

So, Eric Chan from Buena Vista Fund Management also asked a question. He said, given the changing attitude of the Indonesian government and restricting and then relaxing the production quota, how is that impacting Nickel's exports to Indonesia?

Yes. Thank you, Eric. For NAC, I think what sets us apart from the other Philippine miners is the quality of our nickel ore and our branding. So in a time where nickel ore is relaxed and there would -- in theory, there would be more supply, I think the prioritization of selection of nickel ore for the buyers in Indonesia, they will prioritize Nickel Asia's ore over the others. So, I think that's what we have. So it did not affect us. We do not see any impact to our sales during times of relaxation and more so when the policy is tight. So, I think Nickel Asia enjoys the brand -- the brand enjoys prioritization in terms of the quality, the nickel grade that they can expect from us. And yes -- so I think there's no problem here, Eric.

I think we've answered [ George's ] question and [ Klein's ] first question. The Klein's follow-up is, have nickel ore prices held at the levels so far in 3Q? And are you making any changes to your 20 million metric ton production guidance?

Klein, for the second quarter, we saw a peak. There was a time that nickel ore prices peaked really high. It has come off now in the third quarter. We would like to describe it as it had normalized. So although it has come off, I think it has come off to levels where it is still quite on the high side of last year. So, I would put it as some normalization, but we think that it will continue to hold. Given the situation on the ground, it appears like it will stay at these levels for now. And then in terms of our guidance for 20 million tons, so right now, we have done 10% more than previous year. I think the 20 million tons is still achievable. We're not seeing any difficulty so much in the weather. So as long as the weather permits, then I think the 20 million is definitely achievable.

I think we answered the first question, but I can take question #2, which was what was the net peso impact of higher diesel prices in 2Q? The net impact on our end was about PHP 634 million. And then your next question is what was the percentage of ore sold to China versus Indonesia and what factors currently affect pricing in both countries? So it's about 60-40, 60% to China and 40% to Indonesia. With respect to the factors affecting pricing, it's essentially more or less similar for both of those regions. So, I think we've answered as well the questions of [ Miguel ] and [ Philip ]. So for the next page, please. So, can you talk about your capital planning given the windfall from high nickel prices? And secondly, can you discuss how the new mining royalties -- windfall taxes will work? Are these already reflected in the current financials? Do you want to talk about the first part and then I will take the...

Yes. So, I think I mentioned this already. On capital planning, of course, we have a policy on dividends. But more than that, we are investing also more than our power business. We're also looking to ramp up also on our M&A investments. So, we're about to close our transaction on offshore copper. As you know, copper is a very strong metal right now. It's at all-time highs, especially with the recent stockpiling. So, we're very excited with this venture. We continue to assess projects in offshore that are into gold or into nickel as well. So hopefully, we'll be able to ramp up on that. Now, how does that tie in with capital allocation? Yes, it will take some capital in order to be invested in these businesses. But we think that our nickel business, which is very cash generative, will be able to not only supply our means to invest offshore, but we'll still remain able -- very well able to reward shareholders through our dividend policy. And then our renewable energy arm, EPI has finally ramped up. So it has reached a certain scale -- sorry, NAC Energy has reached a certain scale where it's already profitable also at the conglomerate level. So in terms of capital allocation, there is less reliance from NAC to do so. So, I think from a capital allocation standpoint, we were able to do everything now.