Nickel Industries Limited (NIC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Nickel Industries Limited March Quarter Activity 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 attending the Nickel Industries March Quarter 2025 Quarterly Activities Update. If I could just ask the moderator to move to the next slide, please. Kick off with safety and sustainability. 12-month LTIFR remains very low at 0.05. No lost time injuries were recorded against 4.8 million work hours for the quarter. The TRIFR also remains very low. At the end of March, that was 1.48. We continue to be recognized as an ESG leader. We were awarded our third consecutive green proper rating, and we are striving to be the first company to achieve gold in Indonesia. And we also were pleased to receive an award for outstanding corporate social responsibility in Asia. If we could just go to the next slide, please. It was a strong quarter despite, again, continuing soft market conditions, USD 97.3 million adjusted EBITDA from operations. RKEF production was slightly lower, and that was just due to a small halt in operations for a couple of days at... Pardon me, we lost connection with our speakers. Please hold while we speak. Justin, you may begin. Apologies, everyone. dropped out there. So I'll start again. USD 97.3 million of adjusted EBITDA from operations from the quarter. RKEF production was slightly lower, and that was just due to a small halt in operations for a couple of days [Audio Gap]

Pardon me, it appears we have lost connection with our speaker. Please hold while we reconnect.

Apologies, everyone. Somehow dropped out there. So I'll start again. USD 97.3 million of adjusted EBITDA from operations in the quarter. RKEF product slightly lower, as I mentioned, due to some localized flooding from heavy rainfall. RKEF EBITDA of USD 44.3 million, 5% higher than the December quarter, and EBITDA per tonne, we saw an increase from $1,309 a tonne to $1,376. Very good performance from our interest in the HNC HPAL, again, continues to consistently perform strongly in terms of nickel tonnes produced over 2,000 tonnes for the quarter, again, 40% above nameplate capacity, and the highest amount of EBITDA delivered yet from HNC of USD 22 million. And this bodes well for the commissioning of ENC in the second half of this year. We reached agreement with Shanghai Decent to defer our 2 remaining ENC acquisition payments of $126.5 million on 1 July and 1 October of this year. They have been deferred by 6 months. I'll talk about that a little bit later on. But that is reflective of the very strong relationship that we have with Shanghai Decent in no way is a reflection of our confidence in the project or the market. It really is just preserving the balance sheet, particularly given the current environment in terms of global tariffs. And we have just recently seen, obviously, a weakening sentiment in both equity and debt markets. Mine operations production was slightly lower, and that was due to the changing of some pits. But ore sales were slightly increased. EBITDA was lower, and that was driven predominantly by a significant reduction in the premium price that's being paid for all over and above the standard HBM price. If we could just go to the next slide, please. RKEF operations, as I mentioned, production slightly lower by about 4%. Cash costs pleasingly was 6.4% lower, so reduction from $10,576 to $9,896. And so that was predominantly driven by lower nickel ore costs, and that did result in improved performance versus the December quarter. We did see a reduction in the NPI contract price, averaged $11,884 in the fourth quarter of 2024. That reduced to $11,317 for the March quarter. But I would note that we did see a strong improvement in NPI pricing across the quarter. So that rose from $11,055 a tonne in January to $11,220 in February and then finally, $11,981 a tonne in March, which is actually above the Q4 average of $11,884. So we did see a strengthening of NPI pricing across the quarter, which is encouraging. And as I mentioned, pleasingly, we saw a 6% reduction in our costs. If we just go to the next slide, please. HNC, as I said, consistently producing above nameplate capacity. Costs again were decreased, similar to our RKEF operations, driven predominantly by lower nickel ore costs across the quarter. A new quarterly attributable EBITDA record of USD 22 million. And as I said, this bodes well for ENC. If we could just move to the next slide, please. ENC is progressing extremely well. The top photo that you can see there is the HPAL plant, thickness, count and current decantation, storage tanks and reactors are all nearing completion. 2 of the 3 autoclaves are now connected and they're in their pre- and post-treatment stages. And then the bottom photo there, that is the cathode and nickel sulfate plant. And you can see there that's very well advanced, and we are still targeting commissioning of the cathode plant in July, which is well ahead of the October schedule. And we're still on track to deliver MHP and/or commission MHP and nickel sulfate in October. If we can just move to the next slide, please. Mine operations, there was a decrease in ore mined, driven by a number of factors. There was high rainfall across the quarter, and I referred to some flooding earlier. There was also a pit or a movement from a lower grade pit to a higher-grade pit, which decreased some of that mining and also saw a decrease in grade from 1.56 to 1.45. That is now being resolved. The new pit has been opened up. We are looking to increase the grades. Sales were higher in this quarter, and there was a slight increase in the limonite contract price. And so our adjusted EBITDA was $31 million, lower than the $36.5 million in the December quarter, as I said, predominantly driven by the decrease in the premium pricing that we saw was being paid across the majority of 2024 which now appears to have subsided quite a lot. And that will simply mean that we will just see margin flowing back into our RKEF operations and our HPAL operations, which we have seen this quarter. If we could just go to the next slide, please. Corporate highlights, declaration of a $0.015 per share final dividend and a dividend reinvestment plan. That took the full year '24 dividend to $0.04. Angel Nickel received USD 36.4 million of VAT refunds from 2022. And there is a remaining balance of USD 110 million that is expected to be received over the next 12 months. I've touched again on the Green PROPER award and again, one of only 2 mining companies to receive that. So it is a tremendous achievement. And then finally, subsequent to the end of the quarter, we reached agreement with Shanghai Decent to defer the remaining ENC payments by 6 months. As we said, that removes any possible stress on the balance sheet and is, again, really a reflection of the strong relationship that we have with Shanghai Decent and the alignment of interest that they have given their significant holding in Nickel Industries. That wraps up the March quarter for 2025. With that, we'll hand over to questions.

[Operator Instructions] The first question today comes from Richard Knights with Barrenjoey.

Just a quick one on Hengjaya volumes. Obviously, you've got the quota expansion to 19 million tonnes coming at the back end of the year. Have you stockpiled enough limonite to be able to fulfill that quota by the end of the year? That's the first question. And second question, just on VAT rebates, if there's any update on the sort of timing of payments of those. I suppose I'm just thinking about in the current environment, you're still pretty much cash flow breakeven. And just thinking about what sort of delta in the current price environment could sort of lift your cash balance ahead of having to make those payments for ENC in 6 months' time or 9 months' time.

Yes. Yes, thanks, Richard. I'm happy to take the first question. I'll hand over to Chris for the VAT. At the moment, we have over 20 million tonnes of limonite currently stockpiled. So there is more than enough limonite stockpile to meet that ramp-up from 9 million to 19 million tonnes. So the HPAL will consume around 11 million to 12 million tonnes of ore a year. So we effectively have sort of 2 years of limonite stockpile there. So we're very comfortable with limonite stockpile levels. I'll let Chris talk to the VAT question.

Thanks, Justin, and thanks for the question, Richard. All we have said now is the remaining $110 million that we are expecting within the next 12 months. I believe that's conservative. But given the delays we've had to date, I want to be conservative and say that do I expect it to happen come in 2025? I'm hopeful, but I can't guarantee that, Richard.

The next question comes from Tim Hoff with Canaccord.

I just was hoping you could unpick the EBITDA that's being generated by TC, that $13 million within the HPAL unit.

Sorry, Justin, I can take that. When you say unpicked, Tim, like what do you mean?

How that -- the extra $13 million that's been attributed to TC or Tsing Creation, how is that being generated?

So Tsing Creation is our entity. We own 100% of Tsing Creation, and we have -- Tsing Creation owns 10% of HNC. We have sales -- HNC makes sales to Tsing Creation. And so we have -- any profit that we have there sitting in Tsing Creation from on selling the product is 100% EBITDA because we include that as we consolidate that. However, our share of the HNC sales or the HNC profit, we obviously cannot consolidate. And so we gross that up, take our share of it and call that our attributable EBITDA, and we add that to the EBITDA from Tsing Creation to give you the attributable EBITDA number of $22 million. However, from an -- because we cannot actually consolidate the HNC earnings, we have to equity account that, we back out the items below the EBITDA line to show an equity accounted profit, and that's the number that you'd see in our accounts -- in the actual half yearly and year-end accounts.

So in the NPAT line, we're going to see that equity accounted profit come through.

Yes. And look, we deliberately show it like that. So we gross up HNC because we don't want people to be looking and thinking that the margins coming out of HNC are a lot lower than what we believe the EBITDA margins is when they actually apply that -- when you guys apply that to your B&C model forecast. We obviously don't want you understating the margins there for that business.

The next question comes from David Coates with Bell Potter Securities.

Operator, is David still on the line?

David is connected currently. Perhaps, you're muted, David.

Perhaps we go to the next question, and we can come back to David.

The next question comes from Dim Ariyasinghe with UBS.

Maybe if you could just walk us through again, please, what is required to get that mining permit expanded. Are there any goalposts that we can look to? What does that glide path look like potentially?

Yes. Thanks, Tim. Look, effectively, there's 3 key steps. The first step is development submission and approval of a feasibility study, which pleasingly, we had approved during the quarter. So that's a major milestone. The second step is then the -- what's called an [ ENDA ] or an environmental impact statement, which supports the feasibility study and outlines the environmental management and rehabilitation plan. That has been submitted and is currently in progress. There's a number of workshops, meetings, revisions, which we're working through at the moment, and that is also progressing well. Once that environmental study is approved, the effect -- basically, it's then all consolidated into a single document submitted for approval of the increase in the RKAB, and that's the final step. So we remain very confident of receiving that approval before October when we expect to start delivery of limonite ore to ENC.

And maybe just on ENC, I guess it's great and prudent that you were given an extension with Tsingshan on these payments. Is there any capacity -- and I guess it's not something you want to do, but is there any capacity to change things further, like maybe take on less ownership? Or yes, I guess, yes. It may be prudent maybe to revisit the economics of this, just given the broader challenges in the commodity at the moment. But are those conversations -- yes, are you able to have those conversations at all? Or is this just a strict deferral?

Look, we are able to have those conversations with Tsingshan. But at this point in time, really the discussion has just been around a deferment for a period of 6 months.

The next question comes from Adam Baker with Macquarie.

To defer those payments for ENC. Just wondering, secondly, on the debt repayments that you've got due in the second half of this year. I think you're starting to pay off the senior unsecured notes. Can you just walk us through that, please?

Yes, I'll take that, Adam. Thanks for the question. Yes, we do have the senior unsecured notes. They will start amortizing in October this year. And we also have amortization. We've already made some amortization payments on some of our bank loans, and they are continuing through this year. And look, that's a key factor around why we've pushed we went to Shanghai Decent and discussed this and pushed back those ENC deferrals. As I said, I think on the last call we had at the -- it was either last quarterly or year-end, we are continuing to assess the capital markets, the debt capital markets, I must be clear on that. We're continuing to assess the debt capital markets for refinancing of that debt. We don't think now is the right time, mainly for various reasons, but operational reasons, we have some very large catalysts coming up, we believe, in the second half of this year being the ENC commissioning being the expected increase of the Hengjaya Mine RKAB and also the expected Sampala coming into production early next year. Obviously, with those 3 things and the effect that they will have on our EBITDA, I would much prefer to be looking to refinance that -- our debt stack once those catalysts have happened or much closer to happening, so we can actually get credit for those. So with that, the amortization will be getting paid on the debt, reducing our debt balance. And to do that, given the current market environment and margins we've experienced, we went to our partner and requested a delay in those payments.

And the amortization coming up in October, the quantum for that is around $40 million to $50 million from memory.

No, no, no. The -- let me just bring it up for you. Sorry, the amortization on the senior unsecured is $44 million, and that's in October '25. But there's also amortization and various quarterly amortizations on the bank loans as well. So -- and they're every quarter, I think we've already published those. So I'm happy to send those back through to you rather than reading out month-by-month amortization, Adam.

The next question comes from David Coates with Bell Potter.

Can you hear me this time?

We can.

Look, apologies if I missed any of this, I was dialing back in. But just one, do you have any color on the potential block of shares that might be coming out. We saw that block trade during the month, which was interestingly handled. That's now out of ESCO, I believe. Can you give us any update on that?

Yes. Thanks, David. As you correctly point out, it is out of ESCO. I had lunch with the principal about 2 weeks ago. And I think important to note that, that block of shares was actually held across 2 entities. One was the publicly listed entity, which is Harum Energy. They are a coal producer listed on the IDX, but they are transitioning into nickel, and they have a mine at Halmahera and an HPAL that is under construction. They needed to sell the balance of their shares for liquidity management and for some of the funding of some of their nickel operations. And that was driven by, unfortunately, for them, coal margins have significantly decreased sort of gone from tens of dollars down to sort of $4 to $5 a tonne. The remaining stake actually sits with the family or family office, and they have no intention of selling. In fact, the comment was made to me was that they understand the catalysts that are upcoming and the growth that is effectively locked in. And the comment was that he wouldn't be considering selling anything under $1. So we don't expect to see those shares being offered anytime soon.

Excellent. Thanks Justin. And if we just -- one more on a couple of inbounds that I have had in relation to potential royalty changes sort of royalties on ore production versus potential royalties on NPI production. Can you give us an update on that?

Yes. Chris, do you want to take that one on royalties?

Yes, sure, sure. I'll go to the second bit you said on the NPI production. I want to be very clear we don't pay royalties on NPI production. That royalty is only for integrated operations, which have in the same company, there's a couple of them, but in the same company, they have an ore, a mine and an RKF operation. So there's no actual external sales of the ore, so the government doesn't capture any royalty on that. So instead for those entities, they capture a royalty on the end product being the NPI or whatever other product they produce. So NPI royalties are not relevant to Nickel Industries. On the ore, we've gone through. And whilst we're still finalizing, we've seen that they've been enacted, they've become legislation. There is some ambiguity, but we are taking the position that we will be paying a 14% royalty on the saprolite and limonite. It may be less, which is what the discussions we're having. But I think at this stage, it's best to assume a 14% royalty on our ore sales. For the 2024 on our sales, if that -- if this new legislation had have been in place for the whole of 2024, we estimate -- and that's on the 9 million tonnes, we estimate in addition, we would have paid an additional $8 million royalty. For our estimate on 2025, assuming we get the expanded RKAB license, so the increased sales license, we expect that, that increase in royalty will increase our royalties by $12 million. So not huge numbers in the context of our operations and our cash flows. But we've just -- I'm giving you those numbers just so that you can see based on our 2024 sales, it would have only been $8 million, and our estimate for this year is an additional $12 million as a result of this legislation change.

Excellent. Chris, thanks for pointing that out. That's helpful. Cheers.

There are no further phone questions at this time. I'll now hand the call back to Mr. Werner for closing remarks.

Thank you, everyone, again, for the questions. Again, look, we're really rapidly approaching now. In fact, we're sort of 3 months away from commissioning of the nickel cathode plant and then not far away from that in October, the MHP and nickel sulfate. So that's one of the big milestones this year along with obviously, the Hengjaya mine ramp-up from 9 million to 19 million tonnes, and we hope to be able to provide update on that environmental study in the coming weeks. And then finally, I haven't touched on it, but our Sampala project, good progress continues to be made there. We continue to aggressively drill that project out, and it's looking like it will host a significant ore body in close proximity to IMIP. And obviously, given the low CapEx and good margins from mining operations, we look forward to providing further updates on the Sampala project as well. So thank you, everyone, again for your time.

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