Nickel Industries Limited (NIC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Nickel Industries Limited March 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 today at the March quarterly activity results presentation for the Nickel Industries. If I could just ask the slide moderator to move to Slide 3, please, and we will kick off there with safety and sustainability. The company-wide 12-month rolling lost time injury frequency rate at the end of March was 0.23 per million man hours. Comparing this to the World Steel Association 5-year average, which is 0.65 per million hours, we are well below that industry average. As well as the TRIFR or total recordable injury frequency rate, NIC recorded 1.14. Again, significantly lower than 3.66, which is the benchmark, again, as stated by the World Steel Association. The Hengjaya Mine during the quarter was also awarded the highest sustainability score for the entire nickel sector in Indonesia, and the fourth highest score for all mining companies as audited by the Indonesian Forestry and Environmental Department. I think this cements it as the leader in sustainable and responsible mining in Indonesia, and we continue to strive to be the first to achieve gold standard and to continue to improve. Finally, HNC released its carbon intensity, and this came in at 6.79 tonnes of carbon per tonne of nickel. This is Scope 1 and 2. Positioning it as one of the lowest carbon emitting nickel processes globally. This was -- as audited by Skarn, an independent body. Compared to 6 Australian peers, it came in, in second position and well below the average of the Australian peers, which is companies such as Nickel West, Murrin Murrin, Nova, et cetera. The average of the Australian peers was 11 tonnes of carbon. These numbers from an independent third party, I think, clearly demonstrate that some of the bleeding around dirty nickel is clearly unfounded. Shows Indonesia to be leading the way with some of the cleanest but most importantly, profitable nickel units. And we are striving for ENC to actually be lower than HNC, and we'll achieve that through a number of initiatives, which are already underway such as solar and the use of electric vehicle trucks. We could just go to the next slide, please. No doubt it was a challenging start to 2024. Probably not the start that we had hoped for and that came about due to the delay in issuing of the RKAB licenses. This is an annual requirement. It is based on ore that was mined the previous year as well as adherence to environmental standards, and it determines the quota that's issued for the upcoming year. The issue of these licenses was further exacerbated by the Indonesian elections, which was successfully held in February. What this resulted in was no real ore sales until March. And it also for the 2-month period where there was no ore coming in from the Hengjaya Mine, it necessitated the drawdown of higher priced, lower grade nickel ore from within the IMIP stockpiles, which that led to lower NPI grades and lower nickel tonnes for the quarter. Pleasingly, Hengjaya Mine was amongst the first 40 out of the 700 applicants to receive its RKAB that allowed the mine to go swing back into full delivery of cobble. And we actually saw a very strong March result, which I'll touch on a little bit later on. The new RKAB, which are also for a period of 3 years. So we won't need to go through this process again for another 3 years. EBITDA from operations was USD 70.3 million, and I'll touch on the impact from those delays. There was 31,840 tonnes of nickel produced from our RKEF operations. And as I mentioned, that was mostly a result of lower NPI grades. Hengjaya Mine EBITDA of USD 15.1 million again, lower than our December quarter, which was a record. But that really is only 1 month of $15 million. If you look at -- had we had a full 3 months taking that number and multiplying it out, it actually would have delivered USD 45 million, which probably would have been a new record for the mine. But I've said, we've had a very strong March and that strong March has continued into April. During the quarter, we also increased to a 27.5% equity interest in the ENC HPAL Project. We also completed contract for trial sales of nickel cathode to a leading Western space and aeronautical company, and we'll touch on the significance of that a little bit later on. And we also successfully syndicated the USD 400 million BNI loan facility. Can we move to the next slide, please? As I mentioned, RKEF production was negatively impacted by the requirement to use lower grade ore for the first 2 months, and you can see the decline there. Pleasingly, as I mentioned, March is back to normal operating conditions. And we've seen a 15% increase in NPI grades to 13.3% average NPI grade versus the grades that we were producing in January, and that's translated into a 12% increase in nickel metal tonnes produced in March versus January. So as I said, things are back where they should be. And actually, in most instances, mining and RKEF operations performing above expectations. If we could just go to the next slide, please. Pleasingly, cash costs continue to decline. If you look at the March quarter of '23 versus the March quarter of '24, they're down more than 30%. And I think what this chart clearly demonstrates is the ability for our cost to scale down in a declining nickel price environment versus some of our global peers who generally maintain a higher fixed cost base. And that often results in loss-making when we get into a period of depressed nickel prices, which we're seeing play out in the current market. The decision was also taken during January to do some routine maintenance to the [ LNI ] power plant, which did take that down for 10 days. We took that decision, obviously, given that there was already an impact from lower grade ore being used. That did modestly increase the cost for that month. But again, they continue to trend down and were lower for the quarter. Could just go to the next slide, please. We did see, again, a declining NPI price for the quarter. But we are seeing a steady recovery, which is playing out over April. And we think that bodes well moving forward, and I will touch on that a little bit later on. We've also seen a significant improvement in the LME price in April versus the March quarter. So we think we've seen the turn. I think it's also important to note that given the delay in pricing that we have, that's why we've sort of picked up the lower NPI costs in March rather than the December quarter. If we just move to the next slide, please. Hengjaya Mine production. Actual ore production was down mostly due to unseasonably high rainfall and that has now abated. But pleasingly, we set a new record in March for all sales of over 840,000 wet metric tonnes. And I mentioned the quarterly EBITDA of $15.1 million. Nearly all of that came in the March quarter. And so that's 1 full month. And we continue to see strong sales in April. We also continue to ramp up our truck fleet as we look to increase ore sales. And we're now working towards, as part of our decarbonization road map, increasing the use of electric vehicle trucks along with installation of battery change-out and charging stations. If we could just go to the next slide, please. ENC continues to progress well. The on-site earthworks and footings are progressing well. The temporary staff accommodation and project administration offices are now in place. And key long-lead items are progressively being purchased and fabricated in China ahead of delivery to the IMIP over the coming months. If we could just go to the next slide, please. On the corporate front, I mentioned the increase to 27.5% equity interest in the ENC HPAL Project. I'm sure as everyone is familiar, we have a stage payment plan over sort of the next 1.5 years as we move towards securing our 55% interest and as ENC nears completion and commissioning. Trial sales of nickel cathode. This is significant. We commenced delivery of a 200-tonne trial of nickel cathode. We were leading Western space and aeronautical company who will have significant future cathode requirements in the future. Whilst we do produce nickel cathode, at this point in time, it was sourced from Tsingshan's recently commissioned nickel cathode plant within the IMIP. And that cathode plant utilizes the same process at the cathode plant that will be built as part of ENC will utilize. What this -- the reason for doing this is that this will allow prequalification and registration of this cathode with the company. So that hopefully, when ENC does come online, it's our intention -- intention of both parties to pursue larger, longer-term volume supply contracts. And again, I think this just indicates the level of interest that we've seen from global EV battery and companies that require significant amounts of nickel. We were awarded the highest sustainability score in the Indonesian mining sector, and that was the -- sorry, nickel sector, fourth highest in the mining sector. Of the 3,694, less than 5% or only 196 achieved a Green rating. And those 3,694, that is not just mining companies. That's actually outside of mining. That's all of the other industries that undergo this government audit. And then finally, successful syndication of USD 400 million BNI loan facility. It's the first time an Indonesian bank has come into finance an [ H stock ] . The interest rate is significantly lower than our bonds, and that syndication was very successful. 8 banks participated and they're a mix of Asian, European and global banking institutions. So we continue to diversify our debt raising capacity and capability. So in summary, despite a supply shock in the first 2 months of this year, I think we've once again demonstrated the company's robustness to continue to deliver positive EBITDA under numerous scenarios. I think it also underscores the value of our integrated operations, but also the scale and redundancy that being a tenant of IMIP offers, particularly in regards to the ability to draw down on stockpiled or whilst we saw supply issues. Pleasingly, as I said in March, we're back to full production for both our RKEFs and Hengjaya Mine. It should be noted that in March, we delivered USD 41 million of EBITDA from operations, which was sort of 60% of the quarterly EBITDA. But again, extrapolating that number out over 3 months, that gives you an EBITDA in excess of USD 120 million for a quarter. And as I said, April is -- April, things are going very well. We're seeing some very strong numbers. And we're seeing rising NPI prices, which are currently above the March quarter and also declining RKEF costs. LME nickel has also seen a significant increase. Today's spot prices, it's 15% above the March LME average. That bodes well for our Hengjaya Mine, obviously, with oil pricing being linked to the LME price and certainly, hopefully, the margins that we could expect from the mine in the June quarter. And also for our transition via ENC into the Class 1 LME space by products that we will be producing in the future, such as MHP, sulfate and cathode. Pleasingly, production of MHP from the HNC HPAL was up 16% to 21,204 tonnes on a 100% basis for the quarter. And that's an implied annual production rate of 85,000 tonnes of nickel, and we would expect similar performance from ENC. And then finally, the trial cathode, again, just demonstrates the interest and desire of customers to get in front of the queue by looking to qualify for ENC cathode now. And what we can offer is that some of the world's lowest carbon and fully traceable nickel back to the Hengjaya Mine, which has become a showpiece for sustainable and responsible mining. And as I said, the base of our operations, given the strengthening NPI and LME prices and the cost reduction that we've seen quarter-on-quarter, we look forward to delivering a very strong June quarter. With that, I'll hand over to Q&A.

[Operator Instructions] First question today comes from Dim Ariyasinghe from UBS.

Maybe just quickly on ENC, pretty interesting development on the cathode. Can you just maybe give us a bit of insight as to how you intend to structure sales book? Noting it's different to your existing business but will there be offtakes? Will you be selling most of it on spot? Have you given much thought to that yet? Yes. Yes, that's probably the first.

Yes, Dim, we have engaged a Tier 1 investment bank to assist us with the process of attracting a Tier 1 global EV and battery maker. So they are assisting us in running that process for both offtake and investment at the ENC asset level, and the kickoff or full launch of that is imminent. And so over the course of this year, we'll be working with a number of interested parties as well as the investment bank in structuring what a potential longer-term offtake and also coupled with the possible investment will look like into the ENC project.

Yes. Okay. Cool. Yes, yes, makes sense. And then maybe secondly, just on the mine and then the remainder of the year, can you give any guidance as to what like you're going to be looking to try and get some of what you lost in January and February back or any insights into the volume growth, I guess, for the remainder of the year?

Yes. So we are adding additional trucks to make up that lost volume. And we will also be making an application in the second half of this year to revise our RKAB quota up to 22 million tonnes a year. That will obviously be part of the approval to go to the 11 million tonnes of required limonite that will come from [ HN to CD ] and see when it commences commissioning towards the end of next year.

Yes. Yes. Okay. Cool. Understood. And maybe just last one, just quickly on the buyback. Maybe I've missed this, but with -- are you still waiting on the FIRB approval for the United Tractors stake?

We are. They have asked for a 2-week extension, but we do believe that, hopefully, it is imminent. So we said, hopefully, 2 weeks and -- but it is progressing.

[Operator Instructions] Your next question comes from Rahul Anand from Morgan Stanley.

I've got 2 questions. First one is on Hengjaya. I just wanted to perhaps test what the stress points are to be able to obtain the 22 million tonne per annum run rate license? Where do you see the critical path is? I mean -- and how are you thinking about the timing for this one? And then just as a follow-on from that, where do you currently see the bottlenecks at the mine site to be able to get to that run rate as well?

Yes. Thanks, Rahul. So as part of the application to increase to 22 million tonnes per annum, we are and have been working for some time on it. We have to submit an updated feasibility study, updated environmental study and updated life of mine. All of which are close to being finalized. How we will achieve that significant ramp-up is that 11 million tonnes of that 22 million tonnes will be via a rededicated slurry plant, which will be built within an existing Hengjaya Mine pit area. This will give us a significant number of benefits. It will reduce our carbon intensity because it needs significantly less trucks on the road between the mine and the industrial park. Increased safety as a result of significant number of reduced trucks on the road. And it will also give us operating cost advantages as it is cheaper to slurry rather than haul. And so that slurry plant design has been completed. And so the feasibility environmental and life of mine are all in the process of being submitted, which will be towards the second half of this year. And we remain confident, given the work that's been done and the track record of the mine itself that we would be hopeful to achieve that approval before the end of this year.

Got it. Perfect. And just a second one from me. With ENC, I just wanted to test, I mean, yes, in terms of Stage 1, you obviously have that 15-year agreement with the government with relation to the tax holiday. If you do go ahead with Stage 2, do you see the same beneficial agreement applying or was it purely isolated to Stage 1? Or do you get a shortened tax holiday period? How should we think about that?

Yes. Look, I guess to be clear, Stage 2 isn't something that we're exploring at the moment. It's something that might be available to us, but our focus is very much on completing Stage 1. At this point in time, the government hasn't indicated that it will be winding back anytime soon the tax concessions. So at this point, they would still be available if we were to go ahead with the Stage 2.

And for the whole 15 years or would that be shorter given the 15-year period for the ENC, I guess, complex started with Stage 1?

No, it would be for the same period. And actually, the length of the holiday is actually based on total CapEx. So assuming a Stage 2 would be a replicate of Stage 1, perhaps cheaper. Even if it was cheaper, I think it would get the same. The same from years plus 2 years, 11%.

We are showing no further questions at this time. So I'd like to hand the call back for closing remarks.

Well, thank you, everyone, again, for your attendance. As I said, we're looking forward to a strong June quarter. Certainly, we're seeing strengthening NPI, LME nickel pricing. Seeing new records from Hengjaya Mine in terms of ore delivery and sales. And we look forward to updating the market throughout the quarter on a number of the other initiatives that we continue to make good progress on. So thank you, everyone, again, for your time.

Thank you. That concludes our call for today. Thank you for participating. You may now disconnect your lines.