Nickel Industries Limited (NIC) Earnings Call Transcript & Summary

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

Thank you. And thank you, everyone, for your attendance this evening. If I could just ask the slide turner to turn to Page 2 of the presentation, please. Nickel Industries, again, pleased to report another record quarter with 32,558 tonnes of nickel metal produced. That was an 18.8% increase from the March quarter. And we look forward to a further production increase coming in over the September quarter through our ONI operations, and I'll talk about that a little bit later on. In terms of NIC attributable production, that's 25,000 tonnes of that 32,500 tonnes. That puts us on an annualized rate in excess of 100,000 tonnes of nickel metal production on an annualized basis and firmly places us in amongst the top 10 nickel producer. As I've said, we expect further production growth over the September quarter. We've just recently announced at the end of June that the power plant had been successfully commissioned, and I'll go into that in a little bit more detail later on in the presentation in terms of what that means for the Oracle Nickel production profile as well as our EBITDA profile. RKEF revenue for the quarter was USD 434 million. That was slightly lower than the March quarter, about 11% lower, mostly driven by softening in NPI and LME prices. But we believe we've seen the bottom. And I think, pleasingly, margins for the majority of our business were very robust. And so we look forward to a stronger September quarter, and I'll go into the reasons for why we're expecting that a little bit later. RKEF EBITDA for the quarter was USD 43.9 million. Whilst we had a decrease in realized pricing, we also saw a corresponding decrease in OpEx between sort of 8% to 15%, depending on which RKEF operation it was, driven primarily by declining nickel ore and power prices. We expect to see those prices continue to decrease across the September quarter. And so that is why we're optimistic of seeing a stronger September quarter. The production weighted EBITDA was about $1,533. That was down from the March quarter, which was a record quarter. But I would just make a comment there that ANI or Angel Nickel, which is 38% of our production, had a very robust margin of $2,754 per tonne of nickel. Oracle Nickel, which is a replica of the ANI plant, and only benefited from the commissioning of the power plant which came on at the end of June, it had an EBITDA per tonne margin of $744 per tonne for the June quarter. So we expect to start to see Oracle Nickel capture that additional sort of $2,000 a tonne differential across the September quarter as well as an increase in the tonnes. So that's -- as I've said earlier, that's why we remain optimistic about a strong September quarter. It was also a record quarter at the Hengjaya Mine. We produced 2.7 million wet metric tonnes of ore. That was about 10% higher than the 2.5 million that we produced in the March quarter. And we're also looking to ramp that up over the September quarter, and I'll go into that a little bit later on. The mine EBITDA was about USD 12 million, slightly down on the USD 13 million that we recognized in the March quarter, predominantly driven by lower ore prices. But that, as I said, that will flow through to our RKEF cost base. And so we expect to -- whilst we will see lower realized ore prices for our ore for Hengjaya Mine, we will get the benefit of lower OpEx in our RKEF operations because ore is the largest cost item in terms of the cost breakdown for the RKEF operations. Underlying cash generation from operations totaled USD 48.6 million. Pleased to also announce the interim dividend of AUD 0.02 per share. That's in line with our previous dividend announcements. And I think it reflects the robust nature of the operations in terms of -- we've had a challenging quarter in terms of pricing, but we've still been able to deliver a strong quarter. And if you look at March, March was a record in the [ first half ]. It does point to the robustness of the operations and the fact that we are very well positioned that in a very -- in a stronger pricing environment, given the size of our operations and the cost base, we're well positioned to capitalize in terms of capturing significant additional revenue and EBITDA. On the ESG front, very pleased to report 5.5 million man hours without an LTI at our RKEF operations since the beginning of the reporting year, January of this year. More than 7.3 million man hours since the last recorded LTI at the Hengjaya Mine, which was in November of 2021. Also I'm very pleased to report, during the quarter, the Hengjaya Mine received our 2 gold trophies at the Nusantara CSR Awards, and also Most Promising Transition Award at the ESG World Summit in Bangkok this year. Hengjaya Mine and our operations have received numerous accolades, certifications, awards. And I think it's a strong validation of the serious commitment that we've placed in terms of ESG. And as we sort of look to work towards being the most sustainable and responsible integrated and diversified nickel operations in Indonesia. If we could just move to Page 4, please, of the presentation. Just to rehash the quarterly results, I mentioned record 32,558 tonnes of nickel produced, almost a 20% increase on the March quarter. Apologies if we could just move to the next slide, please, Page 4. I mentioned that NIC's attributable production, and this is 25,000. So that on an annualized basis, for the first time, we've now cracked the 100,000 tonne per annum nickel metal production, which is a tremendous milestone. And as I said, places us well amongst the top 10 nickel producers. RKEF sales, as I mentioned, slightly down, driven by lower prices. But the Hengjaya Mine, record production, and we expect to see that continue. If we could just go to Page 5 of the presentation, please. What you can see here clearly is that since -- sorry, June '22 of last year, we've experienced a 110% increase in production. So 15,556 tonnes in June of 2022 and 32,558 tonnes June in 2023. So it's been a very, very rapid ramp-up. When you look at the breakdown of what comprises that increase in tonnes, ANI for the June quarter produced 12,422 tonnes. So that was 38% of the June quarter production. And ONI produced 10,141 tonnes, so 31% of that production. So together, those 2 operations accounted for 69% of total production. And it's important to note that -- I spoke about the commissioning of the ONI power plant earlier in the presentation, that will have a significant impact on not just the tonnes that we produce -- that will be produced by ONI over September quarter, but also the EBITDA and EBITDA tonnes margins that we can expect across the September quarter. So I mentioned ANI EBITDA per tonne margin of $2,754, that was 75% of the total June EBITDA. So ANI delivered USD 33.2 million of EBITDA. ONI delivered USD 7.5 million. Once that power plant is ramped up, and as I said, it came online at the end of June, we expect to see similar production numbers, so probably a 20% production upside from 10,000 tonnes to 12,000 tonnes, but also a margin upside from $744 to around $2,700, assuming everything stays the same. And so we look forward to the September quarter in terms of the additional EBITDA upside from the ONI operation. Pleasingly, we have seen a reduction across the quarter in our OpEx costs. And whilst we've experienced softening in prices, and that led to about a 17% decrease in realized pricing. We did also see across the quarter a mix between 8% to 14% reduction across our RKEF operations. And we expect to see those OpEx costs continuing to decline across the September quarter. We believe that the nickel pricing for both NPI and Class 1 nickel, we think we've seen the cyclical lows, they've bounced back from sort of the record lows and now seem to be trading in a fairly stable band. So I think the key takeaway from this slide is we're yet to see the key production increases and EBITDA increases from our Oracle Nickel operations. And together, Oracle and ANI, as I said, comprise greater than 90% of our EBITDA base. If we could just move to Page 6, please. The Hengjaya Mine again -- once again, happy to report record EBITDA of 2.7 million tonnes of ore produced. That's a significant increase on the 2.5 million tonnes produced in March. Very robust margins. Again, if you come down, look at limonite, we actually experienced an increase from the $18.29 that we were receiving in March to $20.01 in June, and actually saw a decrease in the cost of production from $3.67 to $3.11. If we could just move to the next page, Page 7, please. The Hengjaya Mine to IMIP haul road. The opening of that haul road is imminent. That's a tremendous milestone for the Hengjaya Mine. Once that is opened, the ramp-up from 3.5 million tonnes, which is what we did last year, to around 10 million tonnes, which will be comprised of 6.5 million tonnes of limonite and 3.5 million tonnes of saprolite, that ramp-up will begin with the opening of this haul road. Not only that, the opening of the haul road will mean that the HM mine is already one of the largest suppliers to the industrial [industrial park ] or to IMIP. We expect that supply to continue to grow and to a point where the HM mine will be the largest, second and third largest supplier. And I think it just underscores the strategic value of the HM mine, which also contains 3.7 million tonnes of contained nickel metal. That makes it -- that places us amongst the top 10 global nickel resources. If we could just move to Page 8, please. Also a very busy quarter on the corporate front. We announced a conditional share placement and collaboration agreement with United Tractors, which is a subsidiary company of Jardine Mathison, and I'll talk about both of those companies in a moment. The placement was for AUD 943 million, at an issue price of AUD 1.10 per share, which represented a 27.2% premium to the last traded price on the day prior to the announcement, which was AUD 0.87. That premium has actually since increased if you compare it to today's close. UT is Indonesia's largest listed conglomerate. Their financial year '22 revenue was USD 8.3 billion. They have around 33,000 employees and very strong balance sheet, USD 2.3 billion in cash. Their ultimate beneficial owner is Jardine Mathison, a global diversified Fortune 500 company. Very, very strong and long presence in Asia across a raft of diversified industries, automotive, mining, mine services, property, retail, financing. Over 425,000 employees. And financial year '22 revenue of USD 87.7 billion. We're delighted with this potential collaboration and investment. We view UT and their ultimate beneficial owner, Jardine Mathison, as one of the best blue-chip investors and partners that we could possibly attract within Indonesia. There is a conditional collaboration agreement for UT to acquire a 20% equity interest in the ENC HPAL project for USD 500 million. That is actually -- we have since negotiated the full price on a 100% basis, down from USD 2.5 billion to USD 2.3 billion, with an increase in the expected capacity, and I'll talk about that a little bit later on. That investment is still conditional upon a final investment decision being taken by the NIC Board. And I will talk about that in a moment as well. The next point that -- we received further approval for the placement to Shanghai Decent, which was at $1.02. That will allow us to acquire a 10% interest in the HNC HPAL. That is an operating HPAL, has the world record for the fastest build and ramp up, which was achieved during COVID. It's one of the lowest global OpEx and carbon-intensive HPAL operations. What this will do is, whilst it's a minority interest of 10%, it will give us access to an immediate marketable parcel of about 6,000 tonnes of mixed hydroxide precipitate, which NIC can start to market. It further diversifies us into the Class 1 EV and battery market space. If I can just ask you to move to Page 9, please. Just coming back to the conditional collaboration agreement and the ENC HPAL project. The NIC Board is working its way through the feasibility study, and we expect to make FID during the September quarter. As I said, pleasingly, production has increased from the initially announced volume of 60,000 tonnes of nickel to 72,000 tonnes per annum. That's a 20% increase. And in fact, with that increase, the CapEx has actually reduced from USD 2.5 billion to USD 2.3 billion. And again, it comes with a CapEx guarantee. I think, again, it's a very, very important note. We see tremendous value in that. We've seen recently ASX-listed company has had to write down the value of an investment in a Western Australian nickel sulfide project to the tune of almost AUD 1 billion. And again, that's probably been predominantly driven by the CapEx blowout. We don't have that -- we also have a timeframe guarantee. So within 24 months, assuming a positive FID is taken in the September quarter, we expect to see construction start in Q4 of this year. What the placement to UT does, it means that NIC is fully funded for that investment into ENC. The shareholding will be 55% NIC, 20% United Tractors and 25% Tsingshan. And so we, obviously, will go to shareholders for approval. But given the premium, given the significant amount of cash it delivers, which we can invest into taking the ENC project forward and the fact that the ENC project will be the first HPAL in Indonesia to produce more than just MHP, it will go further to produce nickel cathode and nickel sulfate, which will basically give it access to the 3 major class products. We again see that as extremely valuable. And I think just sort of underscores the competitive advantage and first-mover advantage that NIC has been able to capitalize on as we've undergone this very rapid growth. If we could just move to Page 10, please. With the conditional collaboration agreement with UT, that potentially gives us access to what we call Stage 2 of ENC, which would be a ramp-up to 144,000 tonnes of nickel. Doubling, but again, subject to a positive FID. And Stage 1 is really what we're focused on at the moment. And then Stage 2, assuming that we have the funding and economically it makes sense, is something that we will consider in the future, but it importantly does open up that potential opportunity. And again, coming back to what I said earlier, we, in a little over sort of almost 5 years, have been able to rapidly grow the company to in excess in terms of NIC's attributable nickel metal production, in excess of 100,000 tonnes of nickel production in a very short time space. The other key highlights there, I mentioned the Oracle Nickel power plant commenced commissioning at the end of June. What that gives us is a further 20% upside on the Oracle Nickel production. So expecting that to go from 10,000 tonnes this quarter to in excess of 12,000 tonnes for the September quarter. But I think more importantly, there's a significant upside potential in terms of the EBITDA per tonne margin. So I mentioned $744 was the EBITDA per tonne margin for Oracle in June. Angel, exact replica was $2,744. So potentially an additional $2,000 per tonne of margin capture that we can hope to capture in the September quarter. We're also looking to capture additional ramp-up of the Hengjaya Mine, and we look forward to updating the market in terms of the opening of that haul road, but that is imminent. So we look forward to a very -- another busy productive September quarter. I've mentioned the ramp-up of ONI and proving more importantly, the increase in -- or the EBITDA per tonne margin upside that will come in. Trucking of first ore down the haul road and also a ramp-up in the mining tonnes. Acquisition of the 10% in HNC, which we'll be looking to conclude this quarter. An FID decision on ENC. And then on the periphery, our Siduarsi project, we look forward to announcing a maiden JORC resource for that project. And as we look to build our resource or nickel tonne inventory, we're already in amongst the top 10 nickel resources, but we will look to continue to build that to a point where it's our ultimate aim that NIC will sit on the largest known global resources of nickel tonnes. With that, that ends the presentation, and happy to hand over to Q&A.

[Operator Instructions] Your first question comes from [ Isabelle Payne ] from [ Arris ].

Just a couple of questions from me. I think the first one is, I just wanted to understand a little better the movement in the weighted average contract price. So I think it has gone from around $16,000 per nickel tonne in the last quarter to now $13,000 per nickel tonne for NPI. Could you just help us understand a little bit more around kind of the drivers for this decrease, which is around 20%? And the second one is, I guess, the same thing for HNI, where I think the production is matte instead of NPI, the reason for a decrease from 20,000 tonnes to 15,000 tonnes.

Yes. Across both of those products, we've seen a softening in both the NPI and the LME nickel price. And so that reduction in the first instance of NPIs is just purely market driven. That said, we've bounced off the lows that we saw recently. And so as I said, we're sort of optimistic that, moving forward, we should be able to realize a higher price. But I think more importantly, we are still seeing a decrease in our OpEx costs. We expect to continue to see decreased ore prices into July and power prices into August. So -- but back to your question, both of those prices have just been driven by softness in the market. In terms of nickel matte, it's a subtle difference. You may have seen we're now selling or reporting realized pricing for low-grade nickel matte. What that doesn't include is our high-grade nickel matte price also includes a factor for the conversion price, which is the conversion from low-grade to high-grade nickel matte. Given that there were some increases in that conversion price, we elected this quarter to rather than paying a tolling fee to upgrade it and sell it as high-grade nickel matte, we elected to sell it as low-grade nickel matte basically to the converter gate. So that is why there's a big difference in the matte price. Although what we have done is we have gone back and modified our March results to be reflective of if we were selling a low-grade matte product just so that some comparison can be undertaken.

And just on the OpEx side, so I understand that once the power plant ramps up for ONI, I guess the margin should track more similarly for ONI with ANI. Can I ask you -- for RNI, will that get the benefit of the power plant from ONI as well?

No, no. So we expect ANI to decrease from about $0.08 this quarter to around $0.052, which is what ANI reported for this quarter. So that's where we see that significant margin upside for ONI is in the decrease of the power. Not only that, we do expect to continue to see a decrease in ore costs. Both HNI and RNI given they're much older RKEF lines, more capacity, but also they don't benefit from the integrated power. Unfortunately, they're not a beneficiary of those superior power costs.

[Operator Instructions] Your next question comes from [ Neil Bubba ] from [indiscernible].

Guys, can you hear me?