Nickel Industries Limited (NIC) Earnings Call Transcript & Summary

All right. Ladies and gentlemen and the shareholders of Nickel Mines Limited, good morning and welcome to this Annual General Meeting of Nickel Mines Limited. My name is Robert Neale, and I will be chairing today's meeting. It is just after 11 a.m. A quorum is present, and I declare the meeting open. Today's meeting has been conveyed (sic) [ convened] in accordance with the Corporations Act. And the running of this Annual General Meeting has been impacted by the COVID-19 social distancing rules, and we are holding a virtual meeting via Zoom. Shareholders may ask questions during the meeting via Zoom, and questions can be either regarding the normal business -- formal business, sorry, of the meeting and subsequent to the formal business of the meeting. I will ask, unless asking a question, that you have all of your settings on mute. I'd like to introduce your Board of Directors who are with us during the meeting today. Joining us today are my fellow directors and Deputy Chairman, Norm Seckold; Managing Director, Justin Werner; James Crombie, Mark Lochtenberg, Dasa Sutantio and Yuanyuan Xu. We are awaiting Mr. Huang, who's caught in traffic. Also, I'd like to introduce CFO, Chris Shepherd; the Company Secretary, Richard Edwards; and Investor Relations Manager, Cameron Peacock. Also at the company's office in Sydney from the company's auditor, KPMG, are Steve Board and Jessie Rutherford. I now propose to deal with the formal business of the meeting, and following that, Justin Werner will give a short presentation. There will be a pause for members to ask questions about the business of the meeting and later about the company's activities. Today's resolution will be decided on a poll based on proxies that were submitted before the meeting. I now ask Cameron Peacock to bring up a slide summarizing the proxies received. Has anyone got that up yet? Cameron, have you got that up yet? I can't see it.

Yes. [indiscernible]

Thank you. Sorry. It's my screen then. I declare the poll open, and I will now vote all directed proxies in accordance with the directions provided by shareholders. As advised in the Notice of Meeting, I'll also vote on all available undirected proxies in favor of the resolution proposed in this Notice of Meeting. The formal results of the poll will be notified to the ASX after the meeting and will be posted on the company's website. First item of business as set out in the Notice of Meeting is to receive and consider the annual report and the statutory financial statements for the year ended 31 December 2021. Are there any questions in relation to the financial statements of the report? Thank you. I'll take that as an acceptance. Resolution 1 as set out in the Notice of Meeting is to consider as a nonbinding ordinary resolution the adoption of the remuneration report as set out in the company's annual report. Are there any questions or comments in relation to the resolution? The proxy votes received on this resolution are currently displayed on the screen, and I declare the poll for resolution 1 closed and the resolution passed. Resolution 2 as set out in the Notice of Meeting is an ordinary resolution to consider and, if thought fit, to reelect James Crombie as a director. Jim is required by the corporation's law and the company's constitution to retire and offer himself for reelection. Are there any questions or comments in relation to this resolution? The proxy votes received on this resolution are currently displayed on the screen, and I declare the poll for resolution 2 closed and the resolution passed. Resolution 3 as set out in the Notice of Meeting is an ordinary resolution to consider and, if thought fit, to reelect Norm Seckold as a director. Norm is required by the corporation's law and the company's constitution to retire and offer himself for reelection. Are there any questions or comments in relation to this resolution? The proxy votes received on this resolution are currently displayed on the screen, and I declare the poll for Resolution 3 closed and the resolution passed. Resolution 4, being the change in the company's name, is set out in the Notice of Meeting as a special resolution that pursuant to Section 157 of the Corporations Act 2001 and for all other purposes, approval be given for the company to change its name from Nickel Mines Limited to Nickel Industries Limited. Are there any questions or comments? The proxy votes received on this resolution are currently displayed on the screen, and I declare the poll for resolution 4 closed and the resolution passed. Resolution 5 as set out in the Notice of Meeting is a special resolution that pursuant to Section 136, subsection 2 of the Corporations Act 2001 and for all other purposes, approval be given for the company's constitution to be amended on the terms and considerations in the explanatory statement. Are there any questions or comments in relation to this resolution? The proxy votes received on this resolution are currently displayed on the screen, and I declare the poll for resolution 5 closed. As resolution 5 is a special resolution, it must be passed by at least 75% of the votes cast. This threshold has not been reached and the resolution has not passed. Ladies and gentlemen, that concludes the formal business of the meeting, and I declare the meeting closed. As I said at the start of the meeting, Justin Werner will give a short presentation. [Operator Instructions] Justin, can you proceed, please?

Yes, thank you, Rob. And thank you, everyone, for your attendance today. Nickel Industries, as we've just approved the name change, produces some of the lowest capital intensive and profitable nickel units in the global nickel market in partnership with Tsingshan, the world's largest, lowest cost stainless steel producer. If we could just go to the next slide, please, Cam. We operate out of 2 centers, and these 2 centers are the new sort of epicenters for global nickel production and we have a footprint in both of those. I'm very pleased to say that if you look on the right there, you can see IWIP on the island of Halmahera. We've just recently commissioned all 4 lines and well ahead of schedule, and that's in the process of ramping up. Just an overview of both of the industrial parks that we operate out from IMIP, you can see on the left there. Commenced construction in 2013. Currently, 44 operating RKEF lines. We have 4 of those lines. And of the 8 that are under construction, we have another 4, which is the Oracle transaction. It's the world's largest fully vertically integrated stainless steel park, capacity for 3 million tonnes of stainless per annum; 45,000 employees, of which 40,000 are local. And our operating lines there are HNI and RNI and as I mentioned, ONI, which is under construction. And I'll talk a little later about the performance of those RKEF plans. There is also 2 high-pressure acid leach plants that are commissioning currently within IMIP, and the Hengjaya Mine is an ore supplier of limonite ore to those [ hedged ] power plants. On the right there, you can see IWIP where our Angel Nickel operations have just recently commissioned and are ramping up. Basically, a carbon copy of IMIP other than at this point in time, there is no stainless steel capacity. In terms of our operations, HNI and RNI, they're both 2 RKEF lines each, so 4 lines in total. I'll talk about the production and performance a little bit later on, but we have an 80% interest in both of those. They've been operating now for well over 2 years, and the operation or performance has been excellent. ANI, which is at IWIP, 4 RKEF lines, much larger capacity, 36,000 tonnes per annum of nameplate, also with some captive power. And all 4 lines are now commissioned and ramping up and again, we have an 80% interest. And then finally, Oracle, which is under construction back at IMIP, very advanced. Currently, we have 30%, and we have the opportunity to move to a 70% interest in the Oracle as with all of the deals comes with a CapEx guarantee, a nameplate guarantee and a time frame guarantee. This is just a very simplified business model, and you can see there, the top left is our Hengjaya Mine. That was our foundation asset, currently produces about 3 million tonnes of saprolite ore per annum. Last year, delivered USD 22 million in EBITDA. It delivers ore, and it's 1 of 80 other nickel ore suppliers. And I think it's important to make that point into the industrial park. Our RKEF lines then operate within IMIP and IWIP. And if you look, for last year, just our 4 lines, HNI and RNI, they delivered us USD 225 million in EBITDA. So you can really see where the cash is generated. It's in those RKEF operations, which is an industrial style operation. And that profile, we're in the midst of growing that significantly with Angel Nickel coming online, with Oracle under construction. And so our 2023 profile looks something like USD 800 million of EBITDA. So we're in the midst of significant growth, which is currently being delivered. So we had an excellent year for 2021. You can see there the EBITDA from RKEF operations, $225 million. We've continued that very strong cash flow generation into the first quarter of this year. Pleasingly, you can see also EBITDA from mine operations has grown from $2 million in 2020 to $22 million in 2021. And we also grew the dividend from AUD 0.03 in 2020 to AUD 0.04 last year. So very strong year. As I mentioned, we've continued that very strong cash generation into the March quarter, which was a record quarter on a number of fronts. You can see all of the records there next to the EBITDA. Probably what's particularly pleasing there is the EBITDA per tonne. You can see that sitting at $7,386 for the March quarter. That's grown steadily since last year, and that's been against cost pressures and inflation pressures. And it just speaks to the fact that we sit right at the very bottom end of the cost curve and the robustness of the business. Operational consistency is really, I mean, again, why the company is now Nickel Industries. You can see there that consistent month in, month out performance from HNI and RNI. The black broken line is nameplate capacity. You can see we've consistently been at around 35% above nameplate capacity. And pleasingly, you can see there February and March, you can see the contribution from ANI, which we'll continue to grow. If I just draw your attention to the bottom left chart on this slide, and I mentioned that EBITDA per tonne margin. You can see in March of last year, we were at $4,943. Step forward to March of this year and that's grown to $7,386. And as I said, that's been achieved against significant cost pressures from coking coal, thermal coal and increase in oil pricing. Part of the reason that we're able to deliver that is because of the advantage that we have from operating out of the industrial parks, and that's the procurement, the ability to hold significant stockpiles of coal and ore and so to smooth out any volatility in commodity prices. But basically, it just demonstrates that in any part of the commodity cycle, we have a business that will always generate very strong cash flows. I'd also draw your attention to the bottom right-hand chart. You can see there the EBITDA to cash flow conversion sitting around 99%. That's not the profile of a mining company. The reason we're able to deliver that is we pay no tax on all of our operations currently and our new ones have a 10-year holiday, and we have very little sustaining CapEx. So it's a couple of million dollars every couple of years to reline the kiln and the furnace, and that's how we're able to deliver that sort of 99% conversion number. Next wave of growth. As I mentioned, Angel Nickel, currently commissioning. Again, with all of our previous deals came with a CapEx guarantee. Commissioning commenced in January, well ahead of the scheduled date. And then we have Oracle Nickel. Again, CapEx guarantee, nameplate guarantee, contractually due to come online February of next year. And we currently hold a 30% interest in the Oracle Nickel project. What all of this new production will do for our production profile is you can see where we currently sit, 32,000. Basically, it puts us up amongst the top 10 global nickel producers. You can see there, once ONI comes online, that will take us to in excess of 100,000 tonnes of nickel. That's above BHP, Sumitomo, Eramet. These guys have been in the nickel industry for 40-plus years. We've been able to achieve this in partnership with Tsingshan in a little over 3 years. And so there's significant growth that's already locked in and being delivered. If you look at the chart there on the top left, the green is the nameplate capacity. The blue is what we were able to achieve above capacity. So if we look at last year, 30,000 tonnes plus 10,410 tonnes on top of that. So last year, we produced 40,410 tonnes, and we delivered EBITDA of USD 225 million. Move over to the next bar. With ANI now commissioning, that's what it will do to our production profile, so take us to well in excess of 87,000 tonnes. And then once ONI comes online, on a consolidated basis, we're looking at nickel production annually of over 130,000 tonnes of nickel. So more than a threefold increase in production, which is going to be delivered in under 12 months, and that will obviously have a significant impact on our cash flow generation. If you look at the top right there, you can see the margins there, 5,000, 6,000, 7,000. This chart is just really there to highlight the growth that's coming online and what that will do for our EBITDA profile. And so if we use a 6,000 tonne margin, which is well below the 7,400 that we delivered last quarter, but let's use that number, that's [ something ] USD 800 million of EBITDA on an annualized basis. This is an interesting slide. It's sourced out of Capital IQ. What you have on the bottom right there is EBITDA CAGR. And then on the left side, you have EV/EBITDA. Basically, what it shows is there's no one else that's sitting out there that has the kind of EBITDA CAGR that Nickel Mines has. But we're also, in terms of valuation, we were quite low in terms of an EV/EBITDA multiple. I'd also make the point that, that growth is risk-free in terms of it comes with a CapEx guarantee. Angel has already delivered. Oracle Nickel is progressing very, very well. And so you can see the significant opportunity we see in terms of if you're looking to buy or own Nickel Mines stock, we think it's excellent value, and this chart clearly demonstrates that. To summarize, we have a compelling growth profile. And if you look back over the history of the company and as I said, in a little over 3 years, we've grown to over 100,000 tonnes of nickel metal production and the deals that we've been able to do with Tsingshan continue to get larger and continue to be extremely attractive. The RKEF acquisitions basically have a 2.7x EBITDA payback. Our growth doesn't rely on inflated commodity prices, and I think that's a very key point, going back to the earlier slides. We sit right at the very bottom end of the cost curve. We have a very stable industrial style cost base, and that allows us to consistently month in, month out deliver very strong margins. As I mentioned, being in partnership with Tsingshan, who have been the developer of these 2 industrial parks, comes with CapEx and commissioning guarantees, which is just something that you rarely see in other companies. And they obviously have a proven track record when you look at what's already been built at both industrial parks. They've built over 75 RKEF lines within Indonesia. And then finally, Nickel Mines recently has now been enabled to produce nickel matte, which would then see us being able to diversify into producing not only Class II nickel but also Class I nickel. That, again, makes us unique in that we would be the only listed nickel producer that has exposure to both the Class I and Class II nickel market. I think that's the final slide. So with that, I'll -- thank you, everyone, for your time and hand back for any questions or closing comments.

Any questions for Justin? Are there any other questions from anyone on any matters today? In the absence of that, I will formally declare the meeting closed, and I thank everybody for their attendance.