Nickel Industries Limited (NIC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Nickel Industries Limited September Quarter Activities Webcast. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. Thank you. I'd now like to welcome Justin Werner, Managing Director, to begin the conference. Justin, over to you.

Thank you, and thank you, everyone, for joining the Nickel Industries September quarterly results call. Moderator, if you could please move to the next slide, start with Safety and Sustainability. We're very proud to announce that we've achieved a 12-month LTIFR of 0, tremendous achievement. We've worked 18.5 million safe man hours over the past 12 months with no LTIs recorded. So that's a tremendous achievement. The TRIFR rate also is very low. It sits at about 0.92. On the sustainability front, we received the Gold Award for biodiversity management at the Indonesia Sustainable Responsible Awards, ISRA. And we also received a further 2 platinum, 2 gold and 3 silver awards at that event. So another great achievement and also received national recognition from the -- from an event held at Hasanuddin University. If we could just go to the next slide, please. USD 87 million in adjusted EBITDA from operations. So we've been quite consistent over the course of this year in terms of delivering around that USD 90 million EBITDA mark. Pleasingly, RKEF EBITDA was up 20% compared to the June quarter. And HPAL EBITDA was also up 21%, and I will talk to those in more detail a bit later on in the presentation. We were able to achieve record mining ore sales despite very limited sales in September. We set 2 new records of 1.4 million tonnes in July and then a further 1.5 million tonnes in August. Unfortunately, due to reaching the end of our RKAB quota, we had to reduce mining and we were only able to produce 200,000 tonnes of ore or sell 200,000 tonnes of ore in September. And I'll update on the increase in the RKAB a little later in the call, but it is still making good progress, and we are still very confident of that approval being issued imminently. So EBITDA from the mine was $32.8 million. So overall, a strong consistent quarter across all fronts. If we could just go to the next slide, please. RKEF, I mentioned a 20% increase in EBITDA versus the previous quarter. Costs were 5% lower, which was very pleasing. We benefited from higher production and that decrease in costs, predominantly driven by decreased electricity costs. And that's also been a factor of the maintenance work that was undertaken at both the ANI and ONI power plants. So we are seeing better efficiencies, and that's flowing through into decreased electricity costs. The NPI contract pricing was slightly down, although pricing has remained pretty consistent across the course of this year. And the other thing that I would add here is we possibly could have achieved -- we had a margin improvement of -- from $1,107 in the June quarter to $1,324 in the September quarter. We possibly could have achieved a better margin than that. Again, had we not had the impact of the reduced sales from the Hengjaya mine in September, I think we probably could have seen further cost reductions and probably slightly better EBITDA per tonne margins through more Hengjaya mine ore being sold into the RKEF operations. But despite that, pleasing results to see costs coming down and margins increasing at the RKEF operations across the quarter. If we could just go to the next slide, please. HPAL operations, I mentioned, again, attributable EBITDA up 21% from the June quarter, partly driven by a bit of a catch-up in sales. So material that had been stockpiled for commissioning of the cathode plant that was progressively sold during the quarter. Pleasingly, margins remain quite strong and stable. Average EBITDA margin for September was $5,681 per tonne. And HNC continues to operate well above nameplate capacity, so 44% for this quarter. And costs remain very low at -- we saw costs decrease 3%. And that $7,610, that's before any cobalt credits. So that number comes down again once you add cobalt credits. And interestingly, cobalt is -- given where the cobalt price is sitting at the moment that's also contributing to a strong EBITDA per tonne margin from our HPAL operations. If we could just go to the next slide, please. ENC, you can see from the photos there on the right, progressing very well. The integrated cathode and sulfate refinery are basically complete and ready for commissioning. And then the HPAL smelter, the bottom photo there, you can see that it's also very well progressed. Apologies. Could you just -- we haven't moved to the next slide yet. It's progressing very well, still targeting a commissioning early in 2026. And we're now starting to connect up key components of the smelter, including electricity, the acid plant, which is close to be ready for commissioning as well. And so as I said, ENC is traveling well. If we just go to the next slide, please. Mine operations, I mentioned record ore sales in July and August and unfortunately, decreased sales in September. But despite that, still a record quarter in terms of sales. We were able to deliver $32.8 million in EBITDA. $36.3 million of that came in July and August, and we actually did experience a small $3.7 million loss in September given the reduced tonnes that were sold. Had we not had to cut back sales, I think we could have quite easily surpassed USD 50 million in EBITDA from the Hengjaya Mine for the first time in its history. So we look forward to -- once that increased RKAB is issued, we have almost 2 million tonnes of ore stockpiled ready to immediately go on to barges or actually, the barges are already loaded. We're sitting in barges. We have stockpiles ready to load up trucks, and we'll be back into full production again. If we could just go to the next slide, please. Sampala project continue to make strong progress there as well. Majority of the activities across the quarter were focused on infill drilling, completion of mine feasibility studies and construction of the first 8 kilometers of the required 22 kilometers of haul road. That first 8 kilometers is progressing well. We're over 60% complete for the haul road, and there's a 60-meter span bridge that is also currently under construction. These construction activities have resulted in the creation of approximately 800 new jobs for the local community. So as I said, progressing very well. And we're working towards achieving approval of a feasibility study for our ETL IUP in the coming weeks. If we could just go to the next slide, please. On the corporate front, we raised USD 800 million from a new bond issuance at a 9% coupon. That was used to fully repay USD 400 million of senior secured -- unsecured notes that had 11.25% coupon, and it was also used to repay $150 million of bank facilities with $25 million allocated to the secured tranches. We did go out initially to raise $500 million. The book was very well bid. And so as a result, we upsized the bond. What this has allowed us to achieve is an extended tenor on our debt. It's allowed us to significantly optimize our amortization profile, and it's given us a lower cost of funding. And if you look at the charts there on the right, you can see that this new bond removes about $88 million in annual note amortization and about $31 million in annual bank loan amortization. So it really has optimized the debt stack. So look, in summary, for the quarter, another busy and productive quarter, another strong quarter. And I think, again, it's highlighted just the diversified operations and what that means for our cash flows. I think we could have had a significantly higher EBITDA this quarter had we not had to slow down sales at the Hengjaya Mine in September. I think USD 100 million, certainly plus would have been achievable. Just on the RKAB, as I mentioned, everything has been completed. We've received all recommendations. The full AMDAL document is basically sitting on a desk awaiting a signature. Unfortunately, I'm not very good, and I don't know anyone that is at predicting government efficiency. But look, we are still confident that signing of that AMDAL will be imminent. What has taken the time is that this is the first AMDAL in Indonesia that incorporates a slurry pipeline to return HPAL tailings to mined out pits to recontour them and then to allow that to be revegetated. And obviously, a lot of detailed work has been undertaken. And given that this is the first time with hazardous materials and water management and things like that, the Indonesian government has been progressing correctly, ensuring that they're 100% comfortable with what's being proposed. But as I said, we're confident of receiving that approval imminently. And then finally, we're very happy with the results of the bond issuance, as I said, very well bid. And we also managed to diversify our bondholders. So we saw very good demand out of North America and Europe, which is pleasing given that historically, most of our bond participants have been Asian. So we've now diversified that book significantly, and we're building a track record in the bond market. With that, I'll hand over to Q&A.

[Operator Instructions] And your first question comes from the line of Richard Knights of Barrenjoey.

Just if you could perhaps talk to us a bit more about what the status of the mining operations is at Hengjaya. Are you mining any material at the moment? And what does the cash burn look like there over the next 3 months if you do not receive the license for 19 million tonnes?

Yes. So we were still selling over the course of September and most of October, but selling at a reduced rate of about 6,000 tonnes a day. At the same time, we were still mining and stockpiling. We have now stopped selling, and we are at the point where we will probably stop stockpiling in the next week or so. In terms of -- so that means that our contractors will be placed on standby. There is a small standby rate. And in terms of what that means, we're probably looking at something similar to what the cost was in September, so probably about $5 million a month is that standby rate.

Yes. Okay. That makes sense. And maybe while I've got you just one more, just on perhaps the broader state of the industry in Indonesia. We saw during the quarter, there was a cancellation of a number of mining licenses, I think some of which were related to nickel laterite production. I mean are you seeing any pressure on, I guess, mining of nickel laterite in the country and also margin pressure of your peers that's going to potentially result in reduced production?

Yes. I think certainly on the mining side. And look, I think it's being reflected probably in the timing that it's taken for our environmental approval to be approved as well. And it's being reflected in actions in terms of, as you just raised, cancellation of IUPs. So the government really is having a big crackdown on mining practices and particularly environmental practices. What that means, though, is as IUPs are either those that are not performing or not meeting their obligations are at risk of coming out of the market. It will continue to provide ore tightness, which is really driving up a premium for ore prices. And so that bodes well, obviously, for our mine operations, but also the fact that we are integrated. It bodes well for Sampala coming online next year and allowing us to become self-sufficient. So what we are seeing, and we're seeing it in RKEF operations, but as well as that we're seeing it in HPAL operations. HPAL operations that aren't integrated with limonite -- with mines with limonite feed are operating at a significantly higher cost than HPALs that are fully integrated. So I think given the integrated nature of our operations and the fact that we're targeting ENC to be the lowest cost and lowest carbon intensive -- one of the lowest cost and lowest carbon intensive HPALs globally, I think we're well positioned versus our peers that aren't integrated.

Your next question comes from the line of Adam Baker of Macquarie.

Just maybe staying on Hengjaya, an increase from 9 million to 19 million tonnes. If you do get granted over the next couple of months, just wondering how many years that RKAB will be valid for the 19 million tonne run rate?

Sorry, Adam, it's Chris Shepherd here. It looks like I can see that Justin has dropped off the call. He'll be dialing back in. But we're expecting that to then be for the remainder of the 3 years. So we've currently got a 3-year license now, and we would expect that to continue. So another 2 years.

Okay. So yes, so CY '26, CY'27?

Yes.

And what -- yes, okay. And while I've got you, just one on the bond issuance. Just looking to that waterfall chart that's in the back of the quarterly where you can see the notes issuance of about $800 million. Just wondering what's the timing of the repayments of the $400 million senior unsecured notes and the $150 million of bank facilities. I guess that happens post quarter end. Is that right?

Yes. Post quarter end, that has happened. We have reduced that. So the $400 million is now gone. And we -- as the presentation said, we've reduced $150 million of the outstanding bank loans. However, we've obviously still got more that we're looking at. But I'm really sitting watching the timing of the RKAB and the commissioning of ENC before we make any further repayments. And I can see Justin's back online now.

Sorry, guys, the phone line just dropped out.

And your next question comes from the line of David Coates of Bell Potter Securities.

Well done on the result in sort of hobbled kind of quarter, I guess, towards the end there. Just again, no surprise, just questions on the RKAB and the mine. A couple of questions have already been answered. Just wondering, what contingency plans you guys have in front of you, depending on how it all pans out, what options you're considering?

Yes. Thanks, David. Look, as I said, we remain very confident of receiving a revised RKAB. Very worst case, if we, for whatever reason, weren't to get it this year, there is sort of basically an automatic reset for 9 million starting next year. So worst case, we're looking at October, November, December, not ideal, but as I said, I don't think that will happen. But that's the downside. But we obviously still have our RKEF operations and HPAL operations that are unaffected by this.

Okay. So was that -- when does that roll over? Is it calendar year or is it....

Calendar year.

Calendar year?

Yes. And so the Indonesian government has introduced and look, that's part of the challenge is they've now sort of changed the RKAB again, unfortunately. But in an effort to streamline it, the new process from submission, when you make your final submission, there will now be -- if there's no feedback within a period of about 13 days, I think it is, then there's just deemed acceptance. It's automatically approved to sort of remove some of the delays that have been experienced in the past. So there is steps being made to try and streamline it. And as I said, the -- I guess what's taken time here is really the environmental study and the fact that we're doing something that someone hasn't done before. We think it will deliver a much better result. But given it is the first time and tailings is a very sensitive issue, it's just something that's taken some time.

Well, that sounds like a positive cause actually once it comes into effect.

Yes, yes. No, look, they are trying -- certainly trying to improve it so that the -- and one thing I should add is on the AMDAL, once we receive approval for that, that approval lasts for 5 years. So the future RKAB process, we won't have to do a feasibility, which we have had to do in this case. We won't have to redo an AMDAL. We just simply make an RKAB application using all of the data from our existing approved feasibility in AMDAL. So this is just sort of the initial hill to get up. And then once we're over it, it should be a much simpler and straightforward process in the future.

Okay. Cool. And then just moving on to the RKEF, [indiscernible] you certainly got the power being more -- becoming cheaper?

Yes. We undertook some maintenance work at both our ANI and ONI power plants. That's resulted in better efficiency and generation. And so we're seeing that in reduced power costs, which is pleasing.

Excellent. Okay. And Chris has answered the question on the debt stack, which all sounds pretty good results.

[Operator Instructions] And there are no further questions at this time. I will turn the call back over to Managing Director, Justin Werner, for closing remarks.

Look, thanks, everyone. And look, clearly, the company's focus is steadfast on receiving this AMDAL approval. And we -- as I said, we're very optimistic of that happening over the coming days or certainly imminently in the next 1 to 2 weeks, and we'll update the market as soon as that is received. I think that's a big catalyst for the company, obviously, gives certainty around increased ore sales and certainty around increased ore sales for the commissioning of ENC. With that, thank you all for your attendance.

This does conclude today's call. Thank you all for joining us. You may now disconnect.