Nickel Industries Limited (NIC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Nickel Industries Limited June Quarter Results Webcast. [Operator Instructions] I would now like to hand the conference over to Mr. Justin Werner, Managing Director. Please go ahead.

Thank you very much, and welcome to the Nickel Industries June quarter results call. Moderator, if I could please ask you to move to Slide 3. To kick it off, another record quarter. What was particularly pleasing is record EBITDA from operations in excess of USD 100 million as we see the continued ramp-up of Angel Nickel with all 4 RKEF lines now in operation. We had record nickel metal production in the quarter of 15,567 tonnes, an increase of almost 40% on the March quarter. Record RKEF revenue of USD 315 million, which translated into record RKEF EBITDA of USD 84.9 million. Once again, the Hengjaya Mine continues to go from strength to strength production of 1.3 million wet metric tonnes as we recommenced sales of limonite with more than 0.5 million tonnes of limonite sold during the quarter. That translated into a record Hengjaya Mine EBITDA of USD 18.4 million. As I said, that continues to go from strength to strength. As I opened, this resulted in record underlying cash generation of in excess of USD 100 million, and that's our first quarter where we've achieved that result with in excess of $100 million. We also completed a further 20% interest in the Oracle Nickel project, plus made an early construction payment of USD 81.2 million. That was to facilitate an expected accelerated October 2022 commissioning of the Oracle Nickel project, which is 4 more RKEF lines under construction at IMIP and that's progressing very, very well. All 4 of our Angel Nickel RKEF lines are now successfully commissioned. With the recent announcement of the power plant now coming online, we expect to see that production ramp up significantly and start to hit somewhere in the order of sort of 130% of nameplate capacity, which is a historical achievement for all of our existing RKEF lines. And then finally, on a corporate note, there was a change of company name to Nickel Industries Limited. If we could just move to the next slide, please. Just in terms of the summary table, you can see the number of records that we've achieved during the quarter. I've highlighted most of those numbers on the previous slide, but just to rehash 40% increase in nickel metal production. We had record realized NPI price 19,943, a significant increase in revenue up to USD 315 million. There was slight contraction in EBITDA per tonne margin, and that sort of has been driven by a bit of a lag in costs coming through, particularly in thermal coal. Pleasingly, what we're seeing is nickel ore and metallurgical coal. We're starting to see a downtrend in those costs. Whereas thermal coal does remain suddenly high. But if you look, that margin is still significant, still very large and still much larger than the margin that we achieved at the same June quarter last year. So margins are still very, very strong. I mentioned the Hengjaya Mine, very pleasing result, and again, more than USD 100 million underlying cash generation from operations. Moderator, if we could go to the next slide, please. From the operating performance summary here, you can see Angel Nickel really kicking in there in June -- in the June quarter. Significant increase in March, we produced [ 1,077 ] tonnes. June, that was 6,389. And then as I said, for the next quarter, we expect to see the ramp-up to nameplate and in excess up to around sort of 130%. And based on history, we expect that ramp up to be fairly seamless and to be achieved over the course of this quarter. If we could just move to the next slide, please. I mentioned the EBITDA per tonne margin. There was some contraction this quarter, and look, you're not going to set records every quarter. We've come off of a very large EBITDA per tonne margin, which was a record. As I mentioned, in terms of the result compared to this time last year, you can see that still some $635 per tonne above the margins at the same point this year. And I should add that, that margin and costs were somewhat impacted by a power shortage within IMIP for HNI and RNI, and also the ANI running at sort of 60% to 80% of capacity. With those power problems now solved, we would expect to see a -- that did contribute to an increase in the OpEx costs. Both of those power issues have now been resolved. As I said, pleasingly, nickel ore costs and net costs are decreasing. And at thermal coal, whilst it remains quite high, as I said, I think for those reasons in terms of the power, we expect cost to hit their peak. If we could just move to the next slide, please. The Hengjaya Mine, I won't go into too much detail there other than what I stated earlier, the USD 18.4 million EBITDA. Significant record that's a doubling of the $8.9 million in the March quarter and was boosted particularly by a significant increase in the price of the nickel ore that was received. In the March quarter, we averaged $40. In the June quarter, we averaged $52. And also the sale of limonite, and you can see the average price received there close to USD 15 a wet metric tonne, and we expect to see continued strong production from the mine moving forward. In terms of production, the saprolite production is well in excess of the targeted sort of 3 million wet metric tonnes per annum. If we could just move to the next slide, please. EBITDA to cash flow conversion, again, remains unchanged. You can see that, 99% that's not the profile of a mining company. Hence, the change in name to Nickel Industries to reflect the industrial nature of the business. If we could just move to the next slide, please. On the corporate front, as I mentioned, change of company name occurred, and we're now Nickel Industries, which I think better reflects the nature of the business and the nickel pig iron production and other production opportunities that we have. Angel Nickel was granted a commercial sales license and that allowed us to commence commercial sales. And by the end of the June quarter, we sold in excess of 6,000 tonnes for revenue of USD 132.9 million. All 4 Angel RKEF lines commissioned during the quarter and produced 6,389 tonnes of nickel for the June quarter. Once we're running at 130% of nameplate, we expect that number to be sort of -- in around sort of 11,000 to 12,000 tonnes on a quarterly basis. Pleasingly, the power plant is now commissioned well ahead of schedule, and we expect, as I said, that to contribute to ANI operating in excess of sort of 30% of the nameplate capacity. Ownership in Oracle Nickel was increased to 30%. That was completed by way of a placement of 108.1 million shares to Shanghai Decent at $1.37 per share and that satisfied USD 106 million consideration of the Angel Nickel purchase price. There was also, as I mentioned, in early construction payment during the quarter, and that was to expedite construction of the project. And as I mentioned, we expect first lines now coming on in October 2022. In terms of the nickel matte, everything is in place to produce nickel matte. The decision to switch will be determined by prevailing pricing relativities between the NPI and the nickel matte market, and we're looking at that very closely as to when would be an appropriate time to switch on 2 lines for production of nickel matte. Finally, during the quarter, we also executed a binding definitive agreement for the staged acquisition of 100% of the Siduarsi contract of work. It's a nickel -- large tonnage limonite nickel cobalt project in West Papua province. It's contracted work potentially to host a large world-class limonite resource, and it has a lot of similarities to the Ramu resource, which is in the -- on the other side of the island, but in PNG, and that is the world's lowest-cost HPAL producer. And so the drilling that we're currently undertaking there is progressing very well. If we could just move to the next slide, please. You can see here we're well sort of 2/3 of the way through a significant or tripling of our production profile. If you look at the top charts there, the green is the nameplate. If you start on the far left there, you can see 30,000 is the nameplate capacity. 10,400 is what we achieved -- 10,410 in the blue is what we achieved over and above nameplate for last year, so 40,000 -- in excess of 40,000 tonnes. With ANI now coming online, you can see what that does to our nickel production. And again, that 66,000 is just nameplate. ANI, we expect to ramp up in excess of nameplate as I mentioned during this quarter. And then with ANI now coming on in October, you can see what that will do. That will put us in excess of 100,000 tonnes on a nameplate basis, and given the historical 30% increase, it's a more than tripling of our current nickel production profile. I would also add that these new lines have a 20% larger nameplate capacity than our existing HNI and RNI operations and with the power that's expected to deliver a 20% saving on our power costs, which is our second largest cost component. If we could just move to the next slide, please. So in summary, another very strong quarter. As I said, pleasingly in excess of USD 100 million in cash generation. We are progressing very well through our tripling of production. ANI, as I said, all 4 lines commissioned, power plant now commissioned. Expect this quarter to see a significant ramp up there. To reiterate, we expect that the power plant will deliver significant cost savings on the cost of power, which is where we're seeing most of our cost increases across our RKEF lines. All of this growth is pretty much locked in, comes as historically with a CapEx guarantee. It's not growth that relies on inflated commodity prices. And if you look back at the production history, very strong, stable margins. These are low-cost, long-life operations. And so with the ability, as I mentioned, to produce nickel matte, we have flexibility to be a diversified producer of not just Class 1, but also Class 2 nickel. I'll finish it there and hand over to Q&A.

[Operator Instructions] We have a first question from the line of Tim Hoff with Canaccord.

Well done on the result today. Just had a couple of quick questions. First one around limonite sales. How do we think about that going forward? Is that more or less a continuing basis? Will we expect to see these sorts of level shift?

Correct. We, at this point in time, looking at around 100,000 tonnes of limonite per month. So we'd be looking at targeting around sort of 300,000 tonnes of limonite per quarter. We continue to make good progress on a haul road between the Hengjaya Mine and IMIP. Once that is complete, then we -- then we're targeting a material ramp-up in both saprolite and limonite production, somewhere in the order of sort of 5 million tonnes of saprolite and 3 million tonnes of limonite, but for the near term, the current limonite targets are around 300,000 tonnes of limonite a quarter.

Okay. Excellent. And in terms of the pricing, that's a mechanism that's linked to the LMEs, I understand.

Correct. Correct.

Is there...

I'm sorry, not -- sorry, Tim. Saprolite is linked to the LME. Limonite as yet is by negotiation, but we believe that, that will fairly shortly be linked to LME as well.

Okay. And do you get cobalt credits in that limonite?

There is a small credit for cobalt, yes.

Okay. And then perhaps, finally just around the limonite. What do you see happening in the park at the moment around HPAL capacity? We're seeing some pretty aggressive growth coming there. What's coming through in the pipeline in terms of HPAL?

Yes. So HNC, which we are supplying to currently, has fully ramped up, hit nameplate capacity and is performing very, very well. We've had the opportunity to look at some of the metrics. And as I said, look, it's phenomenal that it was built in 18 months during global pandemic and supply constraints, and it's performing very well at the moment. So that's online ramped up capacity of about 60,000 tonnes of nickel metal and about 8,000 tonnes of cobalt. QMB is not far behind that. It's in the process of commissioning at the moment. And so we expect by sort of end of this year that, that would be somewhere near ramped up and probably at nameplate that's similar size to HNC. And then there are plans for additional HPAL plants to be built sort of nearby to IMIP. And look, that's sort of something that as part of the MOU that we signed and future HPAL collaboration that we continue to engage in talks with Tsingshan in regards to the potential future of HPAL collaboration, and obviously, the acquisition of the Siduarsi contract of work, given it's a predominantly limonite deposit. That's part of securing resources for potential future HPAL growth.

We have a next question from the line of Adam Baker with Macquarie.

We've just seen a bit of a slowdown in China over the past quarter. Just wondering what you guys are seeing from a demand perspective to NPI products. And is there still -- is China still wanting the additional NPI products that you bring into the market?

Yes. Look, there is certainly -- last quarter, I think was one of the lowest GDP growth rates recorded for a long time in China. Obviously, as you know, they continue to chase a zero COVID strategy. In terms of the market, there is a bit of sluggish demand for stainless steel, but given that we're part of sort of Tsingshan integrated stainless steel process, which we see no issues in terms of over demand -- sorry, over supply. And in fact, interestingly, if you look at what's happening within IMIP and IWIP, a significant number of lines have been converted to the production of nickel matte. It's currently around sort of 12 to 15 lines that have or will be converted. So that will significantly reduce NPI output from both IMIP and IWIP. I think it's important to remember that Tsingshan is still far from self-sufficient in terms of supply of NPI for its existing operations in China. So while growth in China at this point in time, as I said, as they're chasing a zero COVID strategy is a bit muted. I think if you look back at the history, we would expect to see some stimulus coming in and pick up again as things hopefully return to more normal activities there.

Okay. Great. And maybe on the cost side. It's good that we've seen PCI coal prices kind of coming back down. But when -- do you guys have any information as to when the thermal coal prices are going to subside?

Yes. Look, like everyone, we sort of can't predict what thermal coal pricing will do, but we are closely following the Indonesian coal index. That's where all of our thermal coal is sourced from. As I said, pleasingly, we are seeing a decrease in nickel ore, which is our largest cost component and metallurgical coal. I mean one of the other -- coming back to China, one of the other interesting elements of the thermal coal prices is whether China may open up again imports of Australian thermal coal. So there's still a bit of uncertainty and the market dynamics of thermal coal, I think, it's sort of hard to predict where those -- where the numbers are headed. But look, I think it's probably safe to say that I don't think thermal coal is going to stay at these sort of levels for an extended period of time.

Maybe just a quick follow-up on Tim's question. Is that -- are you constrained by the 300,000 tonnes of limonite that you can take out per year? Or is there potential that you can increase that number given you've got almost 3 million in stockpiles there.

Yes. So that 300,000 per quarter, we do obviously prioritize saprolite given the higher margins. And so you're correct, there is about 3 million tonnes of limonite sitting there. Once that haul road comes online, then we'll be able to significantly increase our -- both our limonite and our saprolite production. So I mean at this point in time, we continue to prioritize saprolite, and -- but once that -- as I said, once that haul road comes on, then we'll be able to significantly ramp up that limonite production. And look, we have -- we are exploring potentially other ways to move to limonite, and there are other alternatives such as, for example, a slurry pipeline, which is used in a number of HPAL operations globally. That's something that we may also look at and explore as a way to increase cost effectively our limonite production.

We have next question from the line of Patrick Collier with Crédit Suisse.

Just firstly, on nickel matte. Do you mind reminding us of just any kind of timing and cost considerations when it does come to switching over? And then secondly, just what you're seeing in the market in terms of the economics of NPI versus matte at the moment? And how far off matte could potentially be?

Yes. In terms of timing, the CapEx modifications are all complete. So it would really just be a matter of once the decision is made, there is an interim period of about 2 weeks where we produce -- we continue to produce nickel, but in an off-spec but salable product. So it's about sort of 2 weeks until we would start to produce an on-spec low-grade nickel matte from the RKEF lines. In terms of costs, we expect that the cost would be very similar to the production of NPI. That low-grade nickel matte then goes through a converter, and that's a special -- specialized converter that Tsingshan themselves have built and that converts it to a high-grade nickel matte. There is an additional cost to that conversion, but it's certainly sort of in the market. And so -- and obviously, once we make the decision to move into nickel matte, those costs will become a bit clearer. But that's basically a similar cost base except for a conversion cost added on top of that. And then if you look at the different markets, LME has sort of held up reasonably well. We are seeing a softening in NPI prices predominantly just through sluggish demand for the 300 series stainless steel. So at this point in time, nickel matte would appear to potentially have better economics given the disconnect between the LME nickel price and the NPI price or the bifurcation. And so look, that's something that, again, we'll sit down. We'll have a look at the demand outlook. And the payabilities for nickel matte in terms of the percentage of LME and it is linked to LME or can also be linked to [indiscernible], it's quite robust. It's sort of getting up in some instance, up to sort of high 80% sort of numbers. So something that said we're looking at very closely.

Okay. And then secondly, I think in the comments, we've got the dollar per tonne nickel ore cost increase on lower production, but then the nickel ore prices themselves were roughly flat. I guess I'm just a little bit confused as to why those nickel ore costs aren't variable with production? And why that production denominator would change? Given presumably the bulk of the nickel ore cost is the nickel content itself, are you able to clarify that?

Yes. Sorry, Patrick, I didn't quite understand the question.

I think just in the quarterly, there's a comment about the lower production due to the power issues driving higher dollar per tonne nickel ore costs. I guess just if production is lower, I would assume that nickel ore costs would also be lower in that dollar per tonne. Wouldn't change too much, but it seems like there's maybe a fixed component to the nickel ore costs and just trying to reconcile how that would work?

Yes, there is a fixed component. So that nickel ore cost is set on a monthly basis, which is referenced off the LME price for the preceding month. And so yes, that ore cost is very much fixed for the month, but fixed to a reference to the LME price.

Okay. But in terms of nickel ore volumes, like if production is lower and presumably, the nickel ore that's consumed is also lower. So I'm just -- that's where I'm confused to why the nickel ore unit costs would go up due to the power outage or power issues. Maybe we can take it offline, if I'm not making sense.

No, no, no. Now look, there's obviously -- there's an overhead cost as well, which is factored in. But yes, there was some cost impact from that power shortage.

Okay. Got it. And then just lastly, the Hengjaya realized ore price -- ore sales price being $52 a tonne. Again, vets the commentary of $42 to $44 a tonne as an input cost into the RKEF. I'm just trying to understand the difference in terms of what you're selling out of Hengjaya what you're paying to bring in to RKEF, and why those would be slightly different?

Ladies and gentlemen, stay connected. We lost line of Mr. Werner. Kindly stay connected while we reconnect his line.

Patrick, can you repeat question? I actually missed that.

So a question just on the Hengjaya realized price being $52 a tonne and just comparing that to the $42 to $44 per tonne of nickel ore that's mentioned in terms of the RKEF operations. And really just trying to understand why those prices would be, I guess, 15% or 20% different?

Yes. I think it's -- Patrick, it's fair to say it's a timing difference and it's what we've seen all the time in terms of the management of the stockpiles at the IMIP by the team on the ground in the IMIP. So it is a timing difference in relation to those stockpiles.

Okay. So I kind of take the Hengjaya price as a bit of a leading indicator on what might come through the RKEF then?

It always depends on the amount of stockpiles that are -- there many -- the months of stockpiles that are sitting there at each time, and we don't divulge that information.

We have next question from the line of David Coates with Bell Potter Securities.

Congratulations on the results. Justin and Chris, just quickly following on from that question. Is there also -- on the all sales between Hengjaya and the cost of the RKEF lines, is there also a grade differential there that sort of contributes to that as well?

David, there is a great difference between what we're selling and the grade of ore that's being consumed by the RKEF lines.

Okay. Cool. Look, just a couple of other quick ones. You referenced power constraints at the IMIP being a driver of lower production where it's dropped down below 10,000 tonnes. Can you just give us a little bit more kind of color obviously or background on how power those constraints have emerged? Obviously, those -- the asset power station has been there for a long time. It doesn't seem to have been an issue before. Is it more lines being added for a power station being added? Or are they local disruptions? Or what sort of led to that sort of load shedding, if you like.

To that situation, yes. If you look at Angel Nickel, that illustrates it very well. The RKEF lines are able to be built and come online much earlier than the power plants. And so it's just -- and these things are always built as a package. So whether it's -- typically, they build them in lots of sort of 4 RKEF lines with 380 megawatts power. When they decide to -- or make the decision to build or fund, it's just a difference in timing between when RKEF lines can be commissioned and when the power plant can be commissioned. And typically, there's a differential there of sort of up to about 6 months, and so that's really all we just -- we experienced there at IMIP. Just that lag, whilst new RKEF lines were coming online, but we were waiting for the associated power plants to follow them into production and that's now being resolved. So moving forward, we don't see that being an issue.

Right. Okay. And just out of interest, how many RKEF lines are there out of the IMIP?

There is now 44 in operation with another 8 under construction. 4 of those 8 lines are Oracle, and with those 8 lines, when they do come into production, that will bring the total to 52 and that will pretty much see IMIP build-out for RKEF capacity. As I mentioned, there's 2 HPAL plants. One's fully ramped up, one is not too far from being ramped up. Potentially plans for more HPAL plants. Of those 52 RKEF lines, 10 of them currently are in the process of producing nickel matte. If we make the decision to produce nickel matte from 2 of our lines, that would take the total lines of the 52 that are producing nickel matte to about 12 within IMIP. There are also a handful of lines at IWIP that are also producing nickel matte at the moment.

Excellent. Extraordinary. And just on both those points -- a couple of points just here. Firstly, you mentioned the 2 lines that are getting converted. Previously, I understood that once they are converted, that was -- nickel matte is what they would produce, but it sounds like there's sort of a capacity that sort of switch between NPI and nickel matte. What sort of flexibility do you guys have, I suppose, once that conversion has been done?

There is flexibility to switch between the 2 products, although we would run them in a campaign-style way. So once we make the decision to switch, it would be for a meaningful volume over a meaningful period of time. So it's sort of not something that we'd be sort of switching between month-to-month, but we do have the ability for whatever reason we decide that we wanted to switch back to NPI. Again, it's really the only thing that to be aware of when we do change between nickel pig iron and nickel matte, as I said, is just that interim period of about 1 to 2 weeks where we produce an off-spec product, which is still salable. But that is sort of -- as you switch between the 2 products, that's just something to be aware of and that we factor into when we sort of look at the decision of switching to nickel matte or perhaps at some point in the future, when we have made that switch, potentially switching back if the market conditions and economics indicate that we'd be better going back to producing nickel pig iron for a period of time, but there is direct flexibility to move between the 2 products. And again, it's a reflection of the innovation of Tsingshan. They are the first company that has been able to successfully implement this kind of flexibility to produce a Class 1 or Class 2 product out of rotary kilns and have the ability to switch between the two.

Yes. And just touching on the HPAL plans, which you mentioned under construction there. And look, I imagine it [indiscernible] been on the market dynamics. You mentioned the payability is being higher and that obviously change around. But are you getting -- do you have a sort of a high-level kind of sense of -- intuitive sense in terms of perhaps like you when you're considering your growth options what sort of returns on capital you might get in an HPAL project versus the RKEF projects that you built as a new portfolio already?

Yes. I mean, as you know and you can look at the historical performance and the acquisition price that we paid for our RKEF sort of EBITDA payback of sort of 2.7 to 3.2x. So very good return on capital. In terms of the power, I mean we have had the luxury of looking at some of the metrics and what we've seen, they appear to be performing very, very well. But it is something that, that discussion is sort of -- we are engaged, it's ongoing. And so I would hope that sort of perhaps towards the end of this year or early next year, we might have a bit more color or be able to sort of speak a bit more about what any -- potential HPAL aspirations may potentially look like. But certainly, based on the successful commissioning of the HNC plant and its sort of current performance, it's looking very, very compelling. And I think if you look at plants like Ramu, which we're reporting sub-$2 per pound OpEx costs, certainly, when it works, it's very lucrative. And obviously -- a very attractive element of HPAL is obviously the significant cobalt credits. And not just cobalt, there's other byproducts, the chromium, which can also be extracted and even potentially others sort of trace elements, manganese. People looking at that -- potentially taking up the scandium. So yes, when it works, it looks to be compelling.

We have next question from the line of [ Chun Wai Mui ] with Arkin Capital.

So quick question on the cost. So I remember last quarter in the call, and I think the coal cost was accounted for in first in first out. So that's why we didn't see that material of a coal effect in Q1, but obviously, it's showing through in Q2. So I'm just curious whether the FIFO effect is all done with in Q3? Or should we expect a further, I guess, increase in or decrease in EBITDA per tonne in the next quarter?

I think on the -- I'll start with the costs. As I mentioned, Nickel ore met coal costs are coming down. Thermal coal, we are still seeing elevated costs there. How much longer that will continue, as I said, that's -- we're not here to make predictions on thermal coal pricing. But I would also add that a factor in our cost for this quarter has been the power constraint at IMIP, and obviously, the fact that we've only been able to run Angel Nickel at sort of 60% to 80%. And we expect that now with the power plant online, we will be able to sort of ramp that up significantly to sort of 30% over nameplate, and realize a 20% decrease on our power costs. And so that's sort of on the cost side. On the EBITDA per tonne margin, NPI prices have softened recently, and as I said, that's probably a reflection of the low GDP growth numbers out of China. They're still grappling with a zero COVID policy and lockdowns, which is having impacts on their economy domestically. So -- but I think if you look, we -- I'd sort of make the point that we sit right at the very better bottom end of the cost curve. So if there is to be any margin pressure, we -- at the bottom end of the cost curve, we'll sort of should always enjoy a margin that's healthy.

Sorry, so I don't think my question was answered. So I wasn't asking you to predict kind of coal price direction, right? But what happened between Q1 and Q2 was effectively accounting first in first out and so therefore, we saw a material increase in coal costs, right? So my question is, from an accounting perspective, is the first in first out in fact done with now? Or is there more FIFO effect to be flowing through in Q3?

Yes. Look, I think there's probably still perhaps another month or 2 of lag there. And so that's -- but we've seen part of that sort of come in the June numbers which sort of has been captured in partly in this quarter, yes.

We have next question from the line of William Morgan with Triple Eight Capital.

Justin, 2 questions. One on -- specific ones just on energy and then another one on strategy [indiscernible]. You are buying electricity, not buying coal. You got a complete [indiscernible] for the electricity prices. That's part of the question. And secondly...

Excuse me, sir. This is the operator. I'm sorry to interrupt, would request if you can use the handset while asking the question. Your audio is not coming very clear. Please use the handset and repeat your question again.

Apologies. Strategy question and energy question. On the energy question, you buy electricity, you don't buy thermal coal. Have you got -- part of the question, do you have full rise and full run electricity prices completely correlated to thermal price? Secondly, you've gone upstream with power plants. Can you go through the upstream and get coal supply and have a fixed cost for your power longer term?

So to answer the energy question, there is an energy pricing formula, which is linked to the thermal coal price. So there is visibility there for us in terms of where -- how electricity prices are being charged and that price is consistent across the whole of the industrial parks. For the second question around strategy, look, it's not something that we've considered. We -- I don't know that there would be any significant cost benefits to us trying to acquire any thermal coal mines, particularly given -- well, at this point in time, if you look at thermal coal price, the valuations that any coal miner would be asking would be significant. And look, coal mining is not something -- the name Nickel Industries, we're purely focused on nickel and that's the focus for the company.

Then next, just a broader strategy question. The supply of nickel from Indonesia now is obviously getting to a point where you start -- this is significant. You clearly are trying to chase the value add on doing HPAL capturing higher value product, but you've got unconstrained competition doing the same thing that you're doing. What's the thinking amongst your co-owners of these assets with respect to oversupplying nickel?

Yes. So I think if you look at Indonesian supply and Tsingshan in particular, given they're the largest player. IMIP, as I mentioned, will be built out once these last 8 lines come online. Of those 52 lines, 12 of those have already been -- or 10 of those have already been converted to the production of nickel matte and that could increase. Over at IWIP, you've currently got about 34 operating lines. That will probably grow to about 52 lines or a similar size as IMIP. I think it's important to again note that the reason Tsingshan is building all of this NPI capacity is its attempting to becoming more self-sufficient in NPI for its stainless steel operations back in China. Even with all this capacity that's coming online in Indonesia, they're still sort of well short of that requirement. So we don't see an oversupply issue. What we probably see is just replacement NPI. As more Indonesian capacity comes on, you'll probably see a reduction in Chinese NPI capacity as higher-cost producers sort of go offline and perhaps, move into other businesses. And look, the ability to convert NPI lines to produce nickel matte, that's also another strategy that Tsingshan has adopted in terms of if there is any concerns or if there's apparent oversupply. The ability to then divert NPI production into the production of nickel matte, which obviously will take some NPI out of the market and potentially also feed into a higher-margin side of the market, where there may actually be supply constraints. And sorry, just to add sort of final comment to that. I think what you will see now in Indonesia is a real pivot and certainly, the government is encouraging and doing everything it can to foster a pivot into more HPAL development. And one of the reasons that's sort of driving that -- the government's desire to see more of the HPAL development is, obviously, in the process of mining, saprolite ore to feed these RKEF lines, a large amount of limonite is sort of discarded and sterilized. And so that's something that the government is very keen to see that these limonite resources aren't sort of simply sort of stripped off the top, and as I said, sterilized. They are also developed and significant value can be gained from limonite. And if you look at sort of limonite resources versus saprolite resources, there's significant amount more of limonite than saprolite, and that's just typical of sort of the ratio that you see in these ore bodies, you typically have much thicker limonite -- much thicker limonite profile and resource tonnes when compared to the underlying high-grade saprolite ore body.

Okay. Just in terms of one more on supply and demand. Just the sell side generally now forecasting peak carbon steel production of just over 1 billion tonnes and waning from here. I appreciate stainless completely different metrics and drivers, and you've spoken of that in terms of general GDP and consumption. Just is there anything else -- and we obviously got the battery demand coming through power products, et cetera. Just is there any other guidance on metrics that you watch that we should be wary of?

No. Look, I think -- and again, it comes back to certainly and looking at Tsingshan strategy, there certainly is a pivot into the sort of battery metals space. And I think -- as I said, I think that will play out in the fact that for the NPI capacity, that's been planned. It's been built out. At this point in time, there's no further plans for any more NPI or RKEF to produce NPI to be built other than what's planned for IMIP and IWIP. And so the strategy moving forward, I think, will very much look at sort of HPAL intermediate product for the battery market. Tsingshan is sort of listing a battery side of its business on the Hong Kong Exchange. It's in the process of doing that. It's obviously announced a deal with Eramet on a lithium project in South America. So I think -- and if you look at what's happening within Indonesia with companies like BASF committing to battery plants, companies like Ford signing MOUs with Vale and Huayue Nickel Cobalt. That's very much, I think, where the next wave of significant growth in nickel and cobalt will come in Indonesia, and it will be in that Class 1 battery suitable or EV material-related supply.

If I may, one more question just on ESG. You're getting much flex or take-up on resistance to invest institutionally from fossil fuel or on the other side, what you're doing in terms of mitigating that?

Yes, we obviously released our maiden sustainability report during the quarter, which I think was well received. We've obviously benchmarked ourselves on a carbon intensity basis against all of the global nickel producers. And we sort of pleasingly sit around that sort of [ 50 ] percentile. We've announced and we announced during the quarter a further 220-megawatt peak solar project, which will bring the total now to 420-megawatt peak. Both of those projects are advancing very well. We potentially are looking at expanding that from 400-megawatt to a much larger number. As well as that, we've also been doing quite a bit of work looking at LNG and cleaner sort of renewable forms of energy as well as we've engaged Hatch to sort of look at a decarbonization study and opportunities that may exist. So it's something that we're committed to. I said there's now producing an annual sustainability report. And on an annual basis, we'll be providing those numbers. And moving forward, we'll probably start at looking at potentially sort of setting some targets. It's a bit premature for that, given the company is still very much in the growth phase, but I think there's -- as I said, I think the response to the sustainability report and providing some transparency on sort of the many initiatives that we're undertaking, not just on an environmental but on a social perspective as well was well received.

We have next question from the line of David Brennan with Petra Capital.

Just a quick question on the USD 285 million required to complete the funding of Oracle. Can you give us any insights there on your thoughts how that's going to be funded?

Dave, happy to -- Chris, do you want to take this one?

Yes, no problem. Thanks for the question, David. Look, as you know, we had $525 million to fund, and we've always said that we look to do that through a mix of equity, debt and cash flows. We've done our equity raise earlier in the year, as you know, and to -- including the placement in Shanghai Decent. We've made another $81 million of -- $81.2 million of early construction payments to hopefully results in the early commissioning of Oracle at the start of Q4, and then the strategy hasn't changed with the remaining $285 million. We'll continue to look to use operating cash flows and debt for the remainder. So it's -- as you know, our next payment is due in December -- 31 December. So we've got a good runway to that payment obligation, David.

That's great, yes. And just in terms of how the market is for -- the appetite for the debt that you'd be looking for? Is that a good appetite? How negotiations going?

Yes, I think it's fair to say that the market has changed since the start of the year, and it would be remiss of me to say otherwise. We are obviously in a different operating environment to where we were in Q1. Everyone can see that globally. And obviously, our bonds are not trading at the par value that were at the start of the year. So it is a more difficult environment, but it's something that's not overly concerning at this stage, to be honest. We've got good engagement. A lot of inbound inquiries on potential financing alternatives. Some attractive, some less so, and we'll just continue to work through those.

There are no further questions at this time. I'll hand back to Mr. Werner for closing remarks. Over to you, sir.

Thank you. Thanks, everyone, for your attendance. And look, as I said, pleasingly, a first quarter where we've delivered over USD 100 million in cash generation from operations with well advanced in terms of tripling our production, and so we expect at the end of this year to hit that run rate of an annualized 130,000 tonnes of nickel metal production on an annual basis. And so it's really business as usual as we're sort of come emerged or Tsingshan has emerged through the LME squeeze. I know that, that sort of created some concerns there, but again, let me reinforce there is very much absolutely no impact on our operations as you've seen from the 2 quarters that this quarter and the previous quarter. And it's really more just -- again, more upside, more increase in production. And so look, we look forward to the upcoming quarter, providing more updates. And thank you, everyone, again, for your attendance and questions today.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.