Nickel Industries Limited (NIC) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the Nickel Industries June quarter activities webcast. [Operator Instructions] And finally, I would like to advise all participants that this call is being recorded. 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 your attendance. If I could please ask the moderator to turn to Slide 2, please. We'll kick off with safety, 80 million man-hours LTI free for the 12 months to the end of June. We continue to remain the ESG leader in Indonesia, 1 of only 3 nickel mining companies to receive a green PROPER rating, and we achieved the highest score of all nickel mining companies in Indonesia. In terms of other ESG initiatives during the quarter, we've entered into a joint agreement to explore for natural hydrogen in and around our Hengjaya mine permit, which could potentially unlock low-cost clean energy sources. We've inaugurated our biodiversity area. And again, we continue to receive awards and also the university scholarship program is progressing very well. We've had another batch of candidates, and we're now up north of 20 candidates that are studying at university across various degrees. If you just go to the next slide, please. Quarterly results, USD 120.5 million in adjusted EBITDA, that was down on last quarter, driven by some maintenance at some of our RKEF operations. I would note, though, that the first half 2026 EBITDA from operations currently sits at USD 256 million. And that was, again, compared to the full year 2025 EBITDA of $283 million. We're certainly on track for a significantly stronger 2026 when compared to 2025. Other highlights throughout the quarter was the announcement of the CNE and TMI HPAL transaction. The CNE transaction, in particular, values the Sampala project at over USD 1.3 billion, which is a 5.4x value uplift. And it allows us to acquire additional high-value MHP units to 10,000 tonnes for NIL consideration. And we are also pleased during the quarter to announce a resource upgrade at Sampala of 1 billion -- over 1 billion wet metric tonnes at 1.24% nickel. So one of the largest resources globally, when combined with our HM and Siduarsi resources makes us one of the largest holders of nickel resources globally. Moving to the Hengjaya mine operations. We had a record quarter USD 45.7 million in adjusted EBITDA, up 58% from the previous quarter, and that was driven by a change in the HPM pricing or from the Indonesian government. Sorry, if I could just ask you to stay on Slide 2. In terms of mining, 2.9 million tonnes of ore was sold for the quarter. That despite a shutdown for a couple of days in April, and we're certainly progressing extremely well for July, we're already at 1.2 million tonnes, and we're targeting 1.3 million tonnes plus for July. So we've had a very strong start to July. And off the back of that increase in HPM pricing we've had a 66% increase in EBITDA per tonne. So it's up to $15.90 per wet metric tonne. At our RKEF operations, EBITDA was down to USD 60.3 million, predominantly driven by a kiln reline at ANI and some planned maintenance at the power plant that led to higher costs and lower output at ANI as we had to purchase third-party power which is higher. And also, we've commenced a full kiln and furnace rebuild at first Kiln at HNI. So we're seeing less production coming out of HNI and some increased costs. Despite that, I think the positive at the RKEF side of things is the continuing increasing NPI price averaged $14,522 a tonne for the quarter, up 10% on the $13,201 a tonne that was recorded for the March quarter. So that's come off a very low base of sort of $10,000 a tonne last year. And we're continuing to see strengthening in the NPI pricing which bodes very well for our RKEF operations. Given the work that was done at ANI, it's now performing very strongly throughout July, and so we're looking forward to a strong quarter again from RKEF operations. At HPAL, very pleased to announce this morning, production of first MHP from our ENC HPAL project. So that's a tremendous milestone, and we'll continue to update the market as we target first cathode in August and continue to -- this is the production from the first of 3 autoclaves, and we will look to sort of sequentially bring on the second and third over the course of the coming weeks. At HNC, adjusted EBITDA was down to $14.4 million, predominantly driven by higher costs. However, margins remained very strong at $8,090 per tonne and pleased to announce a maiden dividend of USD 3.5 million from HNC. If we could just go to Slide 4, please. So to summarize mining operations, 2.9 million wet metric tonnes of ore sold. I mentioned the 8-day suspension in April and that we're on track for 1.3 million already in July. You can see the increase in the average realized sale price to $37.8 a wet metric turn up from $25.20 in the March quarter, so up almost 50%, and that's translated into an increased EBITDA per tonne margin of $15.90 up from $9.50. So very strong quarter from the mine, and we expect the mine to continue to perform strongly for the remainder of the year. On the 21st of July, we did submit application to increase our RKAB to 19 million tonnes. We're entitled to make that application. The Indonesian government has signaled that it most likely won't be increasing RKAB, but we've certainly made the application, and we will advise the market as to the outcome of that. If we could just go to Slide 5, please. Sampala and Siduarsi projects, I mentioned the upgraded JORC resource over 1 billion wet metric tonnes. If you apply the current $15.90 blended margin across limonite and saprolite, you can see the significant value of Sampala. We've been able to monetize some of that value with a share swap for 18% of Sampala into 36% of the CNE HPAL, which has a nameplate capacity of 28,000 and that will give us 10,000 attributable nickel tonnes for NIL cash consideration. I think importantly, Sampala will be integrated with CNE and also TMI as the ore supplier, so 40 million tonnes a year of limonite into those projects. In terms of project development the ETL, which is 1 of the 3 IUP feasibility study is going through the iterative process of review, and we're hoping to be able to announce approval of that feasibility study shortly. And the feasibility study for ANN has been completed. We're targeting ETL approval of the feasibility study this year, submission of an RKAB, initial RKAB of 6 million by the end of this year. And for ANN, we're looking at an RKAB application early next year for around 14 million tonnes. Finally, on Siduarsi, the feasibility study there continues to work through the various government approvals. If we could you just go to Slide 6, please. In terms of the HPAL operations, as I mentioned, very pleased to announce first MHP from ENC. It's a tremendous milestone and looking forward to first cathode in August. And over at HNC, I think the key takeaway there is despite cost pressures from increased sulfur pricing. EBITDA margins remained very robust at $8,090 tonnes for the quarter. And obviously, $3.5 million maiden dividend back from HNC. If we could just go to Slide 7, please. Just to summarize again, the CNE and TMI HPAL projects. What it's allowed us to do is effectively acquire another 17,000 tonnes of attributable nickel for $169 million consideration, which makes it a capital intensity of slightly over $10,000 a ton. So significantly lower than our peers. And in the TMI HPAL, we're in a consortium of very good names, LS MnM, they're the world's second largest copper refiner. They have significant precursor production facilities in Korea for global customers. Hanwa, Japanese trading house and a very large strategic investor in the EV chain. And those projects are well advanced and looking at commissioning around sort of third quarter of next year. So the only consideration is that USD 169 million payment due November 2026, if for whatever reason, Nickel is unable to make that payment, then Tsingshan has provided a debt backstop if required at commercial rates. So I think, again, reflective of the very strong relationship that we have with Tsingshan and the support that they continue to provide to the company. If we could just go to Slide 8, please. Finally, on our RKEF operations. I mentioned down slightly this quarter due to the kiln relining at ONI and the maintenance of power plant. ONI are now performing very strongly in July. And we are undertaking a full kiln and furnace rebuild at one of the lines at HNI, which will take about 4 months. So that led to some lower output, some higher costs, the higher costs were also impacted by the increase in nickel ore. So we've sort of seen a transfer of margin away from the RKEF into the mine, which was reflected in the record EBITDA for the HM mine and the 58% increase in EBITDA compared to last quarter. But I think most pleasingly, what we're seeing is continued increasing NPI pricing. Moving to Slide 9, I'll hand over to Chris for this slide.

Yes. Thanks, Justin. Thank you, everyone. Just on the cash flow waterfall. You can see we've had an improvement in cash in the June quarter, which we foreshadowed at the end of our last quarter. Pleasingly, we had USD 82 million of cash flow prior to any growth in debt. You can see $74 million of that is from the RKEF operations. really unwinding the RKEF trade receivables balance. And also at HNC, as Justin mentioned earlier, we received our maiden dividend from that HPAL investment, which is obviously very pleasing, and we're looking for or expecting dividends to continue moving forward. The payments to -- for E&E assets is to cover the Sampala and Siduarsi operations. The developments there for our mining operations, the $28.5 million payments for investments, are there payments for -- again, for our Sampala investment to our local partner. And then the loan to related party of $20 million or $19.9 million is primarily working capital loan into the ENC HPAL, we've drawn down debt from the NEXI loans that we refinanced in April, the $450 million of bank debt there. And so the end result is an increase in the cash from just over $210 million to $270 million at the end of the quarter. Thanks, Justin.

Okay, thank you. So look, in summary, a strong quarter, although impacted by some maintenance at our RKEF operations. I think looking forward, we're very positive on the strong mine EBITDA for the remainder of the year from the Hengjaya Mine. At HPAL operations at HNC, we're seeing strong EBITDA margins despite cost pressures. First cathode in August will be another significant milestone for ENC and its commissioning ramp-up. And look, I think what we are starting to see is the Indonesian government has been quite active in policy but I think we are seeing the benefits of the HPM policy and the improvements in all margins. And certainly, the policy is reflecting into stronger NPI pricing. And so I think that the fact that they've also intervened in the HPAL space and a moratorium on any further HPAL growth. I think you're seeing, as I said, the results in that across different segments of our business. And so we're looking forward to the second half of this year. With that, I hand over to Q&A.

[Operator Instructions] And your first question is from the line of Austin Yun from Macquarie.

Just a question on the broader market, like we see quite a bit of a noise from media reports on RKAB relaxation and then rejection of that assertion. Just keen to get your first-hand understanding of the government stance on this RKAB and I note you mentioned that you submit applications, but at the same time, you don't anticipate that to be granted. And so any additional color would be very helpful to understand the broader market.

Look, unfortunately, we are a victim of the press quite often looks to sort of sensationalize any comment from an Indonesian government minister and immediately, and as you pointed out, the first headline was RKAB relaxation, a fairly unconfirmed report. But look, the Indonesian government has since come out and said that it will -- it is monitoring the situation. It will most likely keep the RKAB quota where it is. But certainly, companies such as ourselves invited to make an application to increase the RKAB, which we've done. And look, we'll see how the Indonesian government responds. So I can't give you an answer as to what their position is. But certainly, they've indicated that they are using RKAB as a lever to support better pricing.

Okay. And just a quick follow-up. Given the ramp-up of ENC, how should we think about the ore feed into the downstream against this context of quota restriction?

Yes. Look, we would expect to be at the sort of 1 million tonne a month limonite requirement for ENC by last -- fourth quarter of this year.

Lastly, just on the input materials. Could you please get an update on the sulfuric acid? And also, if any diesel costs or any other inflation cost pressure in the region?

Yes. So we currently hold sulfur stocks of 67,000 tonnes. That gives us coverage out to October and potentially longer than that. The first 50,000 was acquired at an average price of around $450 a tonne. We have gone into the market and acquired another 17,000 tonnes at a price of around $1,000 a tonne, which is less than the current price that's being quoted in the market. . And we're continuing to work with Tsingshan on sourcing lower-cost sulfur than what we're seeing in the market. And that's something that HNC has certainly been very successful in doing and that's been reflected in the continued strong EBITDA per tonne margin that we experienced over the June quarter.

Your next question is from the line of David Coates of Bell Potter Securities.

Congratulations on the commissioning announced this morning or the first product news this morning. Just quickly so the -- just checking on the RKEF outlook, you mentioned I think the 4-month reline at HNI. So just checking on the timing is that starting this quarter? Or is that rolling into this quarter .

Yes. So we will be progressively rebuilding the kilns and furnaces at both HNI and RNI. So that -- there are 2 lines each, so 4 lines in total. We've started on the first line of HNI. The time to fully rebuild the kiln and the furnace is about 4 months a piece. So over the course of the next year, we will be incrementally rebuilding in the kiln and furnace across our HNI and RNI operations, although when you look at them in terms of EBITDA contribution, they're certainly much smaller than ANI and ONI. But one thing that we certainly do expect is post the rebuild we should see significantly better performance from those kilns and a much lower cost. What happens as the kilns and furnace start to degrade is that you have to reduce the power that you can put into them and that, hence, reduces the output and the -- and increases the cost. So as we rebuild those, we expect to see improvements in those. But yes, it's over the course of sort of a year that we're going to rebuild those 4 lines.

Okay. So should we be, I guess, looking at around sort of 6% or so lower than nameplate production outlook for those, for HNI and RNI over the next 12 months, roughly speaking?

Yes. Yes, I think that's a reasonable number.

Just already touched on the sulfur costs, but I imagine that was one of the factors in the higher cost for the HPAL this quarter. Is that the main driver?

Yes. Yes. It's the main driver and also slightly increased limonite ore costs.

And finally, just a little bit curious if you just touch on that mention of natural hydrogen exploration. Obviously, a fairly low cost is a bit of a sort of option kind of pricing. Would you just add a comment or 2 on that.

Yes. So look, it's a group that has experience and I believe they have a plant in Spain. They are undertaking a study. It's no cost to nickel industries for the first year. So they will be undertaking a study over the course of the year, just to try and determine what the potential may be given that my understanding is, is that the ophiolites, which are a source of the nickel are highly prospective for the production of hydrogen, so look, as that study progresses, we'll be able to feed back the results from what they're seeing.

Your next question is from the line of Jit Ming Tan of Barclays Bank.

A quick one for me here on the ENC HPAL as you ramp up towards full production. Can you talk a bit about the customers that you've been able to secure besides Sphere?

Yes. So look, we're still talking to a number of interested parties. And we are -- predominantly given that we're commissioning the cathode plant, we will probably be feeding or nearly all of the MHP will be going into the cathode plant and producing cathode. So initially, as you know, cathode is LME deliverable, so there's no need for an end customer. But we still have ongoing discussions with a number of potential off-takers for MHP and sulfate.

Your next question is from the line of William Jing of Ion Analytics.

Congratulations on a strong results. My question is, first, about the nickel cathode. So I just wonder like how much will be the unit operating costs or the cash cost of conversion -- converting the MHP into nickel cathode? Because I remember from the April call that you will be like several hundred U.S. dollar premium of nickel cathode to the pricing of MHP, but I didn't know about the operating cost side. So what is the incremental cost per unit?

Yes. We don't have that conversion cost yet as we obviously, we've only just fed in MHP. And we haven't produced any nickel cathodes as yet. But we'll certainly be updating the market as to what that cost is. And then I think you've mentioned the premium. The premium is in regards to registering the cathode with the LME. So LME-registered cathode carries about a $200 a tonne premium to the LME price. The initial cathode that we sell into the LME will be at the LME probably about a $200 a tonne discount until we get it registered. Our intention is first cathode production, we will be sending some of that to LME to commence that registration process, which we think will take somewhere about a year to get successful registration.

Thanks for correcting me on that. And second question is on the working capital need for ENC project. So I remember from the April call that the company said it will be like, correct me if I'm wrong, like $40 million, $50 million working capital build for the ENC project and I see that in the second quarter, we've spent like -- around $20 million in that working capital loan. So I just wonder like how much do we still need for the third quarter for the working capital build or the $20 million is about all the costs that we are going to put the working capital to the project?

I can take that, Justin. Yes, we did say the $40 million to $50 million, I believe, on the last call, yes, we spent $20 million now. This is Nickel Industries share that we spent. We're currently looking around that level. However, as it's probably clear to everyone, it will very much depend on what happens with the sulfur price over the next 3 to 6 months. It might increase slightly, if it will increase slightly, if sulfur doesn't come down, but I'm not able to give a prediction on sulfur and I will not give a prediction on sulfur. I think that's -- everyone would understand why. So there's at least another $30 million for us to spend -- for Nickel Industries to spend over the next 6 months. I'm hoping it stays at that level, but obviously, it will depend on the sulfur level.

Okay. Yes. Fair enough. The last quick question is on the Sphere, the Korean partner for -- the offtaker for the ENC project. So I just wonder like are there any developments to the loan on their side that will provide credit enhancement for? And yes, and also just to understand, like because Sphere, although I've seen the news they've raised several -- a lot of cash from bond -- convertible bond issuance and et cetera. But it seems that according to the first quarter result, their cash is a bit still -- a bit tight. So just wonder, like in case that we will have to trigger that credit enhancement obligation to take over the loan, like what's the management's assessment of the current situation based on the loan covenants and the chance that -- how large or smaller the chance is, if we need to assume that loan, if Sphere's liquidity does not improve a lot in the near future?

Yes, I can take that one as well, Justin. The -- we have provided effectively a backstop to Sphere, to the 3 private lenders to Sphere. I think everyone is aware of that from when we announced the transaction. As things are currently standing, we're not expecting anything to be hit there for -- and what I mean by that, the covenants and some of the requirements sitting within that loan, we're very confident will be met by ENC in the ramp-up. We will know more as I get Sphere's 6 monthly numbers over the next month. But from what I can see, and it's all based around the ENC, expected ENC cash flows. I'm not expecting any issues there for us having to take over that loan, let's say, and in any event, if we were to take over the loan, we'd take over the shares at the price and we'd effectively be receiving those 10% shares at a much cheaper price given that they've already paid for those shares, and we would effectively be getting them at a much lower price. But as I said, we will give an update once I have their numbers and finalize numbers as well through -- in the August when we put out our half year result.

Your next question is from the line of [ Xu Louis ] of JPMorgan.

Hello. Can you hear me?