Nickel Industries Limited (NIC) Earnings Call Transcript & Summary

Welcome to the Nickel Industries Limited June Quarter Activities webcast. [Operator Instructions] There will be a presentation followed by a question-and-answer session.[Operator Instructions] I would now like to hand the conference over to Mr. Justin Werner, Managing Director. Please go ahead.

Thank you, and welcome, everyone, to the Nickel Industries June quarter activities presentation. If I could ask the moderator just to move to the next slide, please. Safety and sustainability, no LTIs were recorded during the quarter against 2.18 million man hours that were worked company-wide. 12 months rolling total recordable injury rate as of the end of June was 1.89%, and this is significantly below the World Steel benchmark. We're proud to release our 2023 sustainability report during the quarter. This marks our third sustainability report and really showcases the company's achievements and the role that we are playing in being a responsible and sustainable mining leader in Indonesia. We're also very proud to announce the establishment of a University scholarship program for 10 local indigenous students per year to attend a University in Sulawesi across fields of metallurgical engineering, environmental engineering and mining engineering. And we're very pleased to have a role and provide support for future Indonesian leaders. The Hengjaya Mine participated in the World Environmental Day campaign in various activities, such as tree planting, beach cleanups and showcasing its proposed biodiversity conservation area. And we also received the top CSR award at the Indonesian Social and the Indonesian Social Responsibility Award. So again, more accolades during the quarter and reflective of Nickel Industries role as -- recognized role as leading ESG and responsible miner in Indonesia. If we could just move to the next slide, please. We've had a challenging first half due to factors outside of our control. But pleasingly, our operations have remained robust. USD 79.5 million EBITDA from operations and nickel metal production was slightly higher than the March quarter. Our RKEF EBITDA was slightly down on the March quarter and it came in at USD 41.8 million. Unfortunately, that was a result of unseasonably high rainfall, which I'll touch on a little bit later on. That meant that we had to continue to draw down on lower grade ore stockpiles. We also did see a bit of a bump in nickel ore pricing, which led to slightly higher costs, and that was a result of the higher LME price that we saw during the quarter when LME briefly sort of spiked back up over USD 17,000 a ton. Pleasingly, Hengjaya Mine made a very good recovery from the slow start to the March quarter with EBITDA coming in at USD 24.6 million, which is 63% higher than the March quarter, which was impacted by the delayed issuance of RKAB licenses. So in the March quarter, we only really saw production starting at the end of February. I've touched on the higher than average rainfall, but it was 1,373 meters over a meter for the quarter. And that was 48% and 91% higher than the prior corresponding periods in 2022 and 2023. So you can see a significant amount of rainfall, which has had an impact on our operations. But as I said, still the numbers are very robust. We're pleased to announce the increase in equity in our ENC HPAL Project and progress is going very well there. And along with that, we announced the expected expedited commissioning of ENC of our cathode and sulfate plants, which will bring forward cash flows from that project. We announced the establishment of the USD 250 million bank facility and repayment of the maturing USD 245 million April 2024 notes. And finally, I'm pleased to announce the appointment of an Independent Non-Executive Director, Emma Hall , who brings a wealth of global battery metals experience with players such as Tianqi Lithium. And we warmly welcome her to the Nickel Industries Board. If we could just go to the next slide, please. You can see here NPI pricing, up slightly from the March quarter. NPI has recovered from its lows, and we believe we're seeing it stabilize. And you can see it's sort of reflective in the numbers or the average contract price for the June quarter. If we could just -- sorry, the RKEF production remains stable across our operations despite the impact from RKAB licenses and the impact of the unseasonably high rainfall. And you can see that reflected in those charts there. If we could just go to the next slide, please. Sorry, I've got ahead of myself here. I've touched on the NPI pricing. But as I mentioned, we've seen it stabilize from the recent lows. And our view is looking forward that we expect the NPI price to remain stable with more upside than downside. If we could just go to the next slide, please. ENC construction progress. You can see from the aerial photo there, that all of the earthworks and footings are now complete. You can see in the foreground there that we've completed construction of all of the office and staff quarters. Long lead items, critical items continue to be fabricated in China and progressively delivered to site. With the earthworks and footings now complete, we're ready to start pouring concrete and putting in the slabs. As I mentioned earlier, we increased -- we acquired an additional 30.25% equity taking our interest to 44%. And that has allowed us to hopefully bring forward the production or commissioning of nickel cathode and sulfate plants ahead of the contracted October 2025 date. We believe timing-wise that bodes well given that we experienced increased margins from the March to June quarter at our 10% interest in the HNC HPAL. And so we've seen a strong increase in margins, and we believe being able to bring forward the ENC production bodes well into, hopefully, a high margin environment. If we could just move to the next slide, please. The Hengjaya Mine, as I mentioned, stronger performance despite the challenging rainfall. Quarterly EBITDA of USD 24.6 million. We are at a near record for July. And August is historically the start of the dry season and actually historically the driest month. So we're looking forward to now entering the dry season and really focused on continuing to ramp up the Hengjaya Mine production and also EBITDA. If we could just move to the next slide, please. On the corporate front, I've touched on the increase in equity in ENC to 44%, and that was secured through 2 payments totaling USD 69.8 million. The USD 250 million term loan facility was executed and that was jointly provided by 2 tier-1 banks PT Bank Negara Indonesia. So this is the second facility that we've done with them and DBS. And then finally, the appointment of an Independent Non-Executive Director, Emma Hall as I mentioned. Over 10 years' experience in the global battery metals industry and wide-ranging commercial technical engagements with global manufacturers and OEMs across North America, Europe and Asia. So in summary, despite facing some challenges again this quarter, again, to reiterate, our operations performed robustly. Again, the backdrop of continued production cuts elsewhere. And that was obviously reflective of the announced closure by BHP of its Nickel West operation. So whilst other producers continue to be loss making or others are closing, we're still recording, as I said, very robust and solid EBITDA. We believe that these production cuts and closures will continue. We think that we may see higher cost NPI producers potentially coming out of the market and additional global producers. And so the current number of at risk or closed nickel producers currently sits at about 450,000 tonnes per annum. If you look at actual new Class I projects in Indonesia, there's currently only 3 projects that are actually funded and under construction and one of those is ENC. And that only amounts to about 300,000 tonnes. So it's obviously 150,000 tonnes less than the global closures. And look, we think in Indonesia, potential further growth is probably limited. I think that was reflective of the scrapping of the planned BASF Eramet HPAL plant. So I think it's a sign that any additional Indonesian HPAL capacity may be challenging to fund. So I think we're extremely well placed being fully funded for ENC. Construction is progressing very well. Now we're expecting expedited cathode and sulfate production. And as I touched on growing margins, which are being evidenced through increased EBITDA from our 10% holding in HNC. So as we move into the second half of the year, with the commencement of the dry season, we're now very focused on delivering a strong second half to the year. With that, I'll now hand over to Q&A.

[Operator Instructions] Your first question comes from Kate McCutcheon with Citi.

Although RKEF is a good print from ANI and ONI, the production looks a bit softer at the first gens and they operated at a modest loss. What levers do you pull to get those first gen RKEFs back on track? And how do you think about output versus market conditions from those? And then just are those NPI volumes take or pay or, I guess, is there any risk if we don't see pricing improve from those 2 assets?

So there is no take or pay on those RKEFs. The levers that we can pull, which is what we are currently looking at, at the moment is basically looking to provide 100% of the ore supply of the high-grade saprolite ore supply from the Hengjaya Mine. That will allow us to feed a higher grade ore with a better silicon to magnesia ratio and lower iron units. So that's a lever that we're currently looking at, at the moment, and we're sort of focused on being able to deliver that production directly from our Hengjaya Mine into those first-gen RKEF operations, which will negate the impact of low grade ore that's currently being fed through those operations. But I think -- and just to touch on those first-generation RKEF lines. There is still a lot of them in Indonesia and outside of Indonesia. As you pointed out there're very small losses, but we believe that we may see some NPI production coming out of the market from other competitors that don't have the same cost base as us. And so we remain sort of -- I think our view on NPIs that prices have stabilized and that margins are still robust in our ANI and ONI operations. And we are focused now on how we can improve margins at HNI and RNI.

And then just on the mine, it looks like we've got guidance of 12 million tonnes for the seaway. Your permit is now for 22 million tons, I think. What does that ramp-up profile look like? And what's the split of Saprolite versus Limonite?

So that -- we are currently under application for moving to 22 million. Our -- in terms of achieving that ramp-up, that will probably occur in sync with ENC coming online. So our target is that the additional 11 million tonnes of limonite, which will come solely from our mine to the ENC HPAL. We're targeting that ramp-up to tie in with the commissioning of ENC. So it will be in the second half of next year that we'll be looking to move to that rate.

And then if I can just sneak in a quick one for Chris. What is that total drawn debt number and the USD 358 million cash, is any of that still in a term deposit? Or what will you report at your cash flow line?

Yes, we are constantly moving amounts in and out of term deposits, so I'm continually rolling them just to get better rates. The USD 350 facility and the USD 50 million from the first Indonesian bank lines, that has all been fully drawn. So the revolver is now drawn as well. And then the USD 250 million new facilities that we entered into at the end in last quarter, we drew that down in early July. So that has been drawn down. The entire USD 650 million from those 2 bank facilities have been drawn.

Your next question comes from Tim Hoff with Canaccord.

The other question I had was -- it's a bit of a housekeeping one here, which is your March tonnes at the Hengjaya Mine different reported this quarter versus last. I suppose you could point us in the direction of which one is the right number?

Let me come back to you on that one, Tim. And yes, so it's the all tonnes mined. Let me come back to you on that one.

Sorry, Tim. We pick that up. Thanks for the question. It is the current one. The June quarter is the correct number.

Your next question comes from Cameron Taylor with Bank of America.

My question is around the offtake for the ENC HPAL plant. You mentioned that in some previous quarters that you were in discussions with are looking for Western OEMs to have an offtake. Any update on there? And I was just curious whether Tsingshan would be on board with selling a HPAL nickel to Western OEMs?