Nickel Industries Limited

Thank you for standing by and welcome to the Nickel Industries Limited June quarter results webcast. All participants are in listen only mode. There will be a presentation followed by a question and answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Mr. Justin Warner, Managing Director. Please go ahead.

Thank you very much and welcome to the Nickel Industries June quarter results call. Moderator, if I could please ask you to move to slide three. To kick it off, another record quarter. What was particularly pleasing is record EBITDA from operations in excess of US$100 million as we see the continued ramp-up of Angel Nickel with all four RKEF lines now in operation. We had record nickel metal production in the quarter of 15,567 tonnes, an increase of almost 40% on the March quarter. Record RKEF revenue of US$315 million, which translated into record RKEF EBITDA of US$84.9 million. Once again, the Heng Jaya mine continues to go from strength to strength with production of 1.3 million wet metric tonnes. As we recommence sales of limonite with more than half a million tonnes of limonite sold during the quarter, that translated into a record Heng Jaya mine EBITDA of US$18.4 million. As I said, that continues to go from strength to strength. As I opened this, it resulted in record underlying cash generation of in excess of US $100 million, and that's our first quarter where we've achieved that result of in excess of $100 million. We also completed a further 20% interest in the Oracle Nickel project, plus made an early construction payment of US $81.2 million. That was to facilitate an expected accelerated October 2022 commissioning of the Oracle Nickel project, which is four more RKEF lines under construction at IMIP and that's progressing very, very well. All four of our angel nickel RKEF lines are now successfully commissioned. With the recent announcement of the power plant now coming online, we expect to see that production ramp up significantly and start to hit somewhere in the order of sort of 130% of main plant capacity, which is the historical achievement for for all of our existing RKEF lines. And then finally, on a corporate note, there was a change of company name to Nickel Industries Limited. If we could just move to the next slide, please. Just in terms of the summary table, you can see the number of records that were achieved during the quarter. I've highlighted most of those numbers on the previous slide, but just to rehash, 40% increase in nickel metal production. We had record realized NPI price, $19,943. Significant increase in revenue, up to $315 million US. There was slight contraction in EBITDA per tonne. margin and that sort of has been driven by a bit of a lag in costs coming through, particularly in thermal coal. Pleasingly, what we're seeing is nickel ore and metallurgical coal. We're starting to see a downtrend in those costs, whereas thermal coal does remain stubbornly high. But if you look, that margin is still significant, still very large. and still much larger than the margin that we achieved at the same June quarter last year. So margins are still very, very strong. I mentioned the Hang Jaya mine, very pleasing result. And again, more than US$100 million underlying cash generation from operations. Moderator, if we could go to the next slide, please. From the operating performance summary here, you can see Angel Nickel really kicking in there in June, in the June quarter. Significant increase. March, we produced 1,077 tonnes. June, that was 6,389. And then, as I said, for the next quarter, we expect to see the ramp up to nameplate and in excess up to around sort of 130%. And based on history, we expect that... ramp up to be fairly seamless and to be achieved over the course of this quarter. If we could just move to the next slide, please. I mentioned the Ibadah-Patan margin. There was some contraction this quarter, and look, you're not going to set records every quarter. We've come off a very large Ibadah-Patan margin, which was a record. As I mentioned, in terms of the result compared to this time last year, you can see there still some $635 per tonne above the margins at the same point this year. And I should add that that margin and cost was somewhat impacted by a power shortage within IMIP for HNI and RNI, and also the A&I running at sort of 60% to 80% of capacity. With those power problems now solved, we would expect to see a... That did contribute to an increase in the OPEX costs. Both of those power issues have now been resolved. As I said, pleasingly, nickel oil costs and MET costs are decreasing, and thermal coal, whilst it... remains quite high, as I said, I think for those reasons in terms of the power. We expect costs to have hit their peak. If we could just move to the next slide, please. The Hang Jaya mine, I won't go into too much detail there other than what I stated earlier, the US $18.4 million EBITDA significant record that's a doubling of the $8.9 million in the March quarter and was boosted particularly by a significant increase in the price of the nickel ore that was received. In the March quarter, we averaged $40. In the June quarter, we averaged $52. And also the sale of limonite. And you can see the average price received there close to $15 a wet metric tonne. And we expect to see continued strong production from the mine moving forward. In terms of production, the saprolyte production is well in excess of the targeted sort of 3 million wet metric tonnes per annum. If we could just move to the next slide, please. EBIT data cash flow conversion, again, remains unchanged. You can see there 99%. That's not the profile of a mining company, hence the change in name to Nickel Industries to reflect the industrial nature of the business. If we could just move to the next slide, please. On the corporate front, as I mentioned, change of company name occurred and we're now Nickel Industries, which we think better reflects the nature of the business. and the nickel pig iron production and other production opportunities that we have. Angel Nickel was granted a commercial sales license and that allowed us to commence commercial sales. And by the end of the June quarter, we sold in excess of 6,000 tons for revenue of US $132.9 million. All four, Angel RKEF lines commissioned during the quarter and produced 6,389 tonnes of nickel for the June quarter. Once we're running at 130% of nameplate, we expect that number to be in around 11,000 to 12,000 tonnes on a quarterly basis. Pleasingly, the power plant is now commissioned well ahead of schedule. And we expect, as I said, that to contribute to ANI operating in excess of sort of 30% of the nameplate capacity. Ownership in Oracle Nickel was increased to 30%. That was completed by way of a placement of 108.1 million shares to Shanghai Decent at $1.37 a share. And that satisfied US $106 million consideration of the angel nickel purchase price. There was also, as I mentioned, an early construction payment during the quarter, and that was to expedite construction of the project. And as I mentioned, we expect first lines now coming on in October 2022. In terms of the nickel mat, everything is in place to produce nickel mat. The decision to switch will be determined by prevailing pricing relativities between the NPI and the nickel mat market, and we're looking at that very closely as to when would be an appropriate time to switch on two lines for production of nickel mat. Finally, during the quarter, we also executed a binding definitive agreement for the staged acquisition of 100% of the SITO-RC contract of work. It's a nickel contract. large tonnage limonite nickel cobalt project in West Papua Province. It's a contract of work, potential to host a large world-class limonite resource, and it has a lot of similarities to the Ramu resource, which is on the other side of the island but in PNG, and that is the world's lowest-cost HPAL producer, and so the drilling that we're currently undertaking there is progressing very well. If we could just move to the next slide, please. You can see here we're well sort of two-thirds of the way through a significant or tripling of our production profile. If you look at the top charts there, The green is the nameplate. If you start on the far left there, you can see 30,000 is the nameplate capacity. 10,400 is what we achieved. 10,410 in the blue is what we achieved over and above nameplate for last year. So 40,000 in excess of 40,000 tonnes. With ANI now coming online, you can see what that does to our production. And again, that 66,000 is just nameplate. ANI we expect to ramp up in excess of nameplate, as I mentioned, during this quarter. And then with ONI now coming on in October, you can see what that will do. That will put us in excess of 100,000 tonnes on a nameplate basis. And given the historical 30% increase, it's a more than tripling of our current nickel production profile. I would also add that these new lines have a 20% larger nameplate capacity than our existing HNI and RNI operations. And with the power, that's expected to deliver a 20% saving on our power costs, which is our second largest cost component. If we could just move to the next slide, please. So in summary, another very strong quarter. As I said, pleasingly in excess of US $100 million in cash generation. We are progressing very well through our tripling of production. ANI has said all four lines commissioned, power plant now commissioned. Expect this quarter to see significant ramp up there. To reiterate, we expect that the power plant will deliver significant cost savings on the cost of power. which is where we're seeing most of our cost increases across our RKEF lines. All of this growth is pretty much locked in, comes as it has historically with a CapEx guarantee. It's not growth that relies on inflated commodity prices. And if you look back at the production history, very strong, stable margins. These are low-cost, long-life operations. And so, you know, With the ability, as I mentioned, to produce nickel mat, we have flexibility to be a diversified producer of not just class one, but also class two nickel. I'll finish it there and hand over to Q&A.

Thank you very much. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. We have a first question from the lineup. Tim Hoff with Canaccord, please go ahead.

Hi guys, thanks for the call and we're done on the result today. Just had a couple of quick questions. First one around Laminate sales. How do we think about that going forward? Is that more or less a continuing basis? We'll expect to see these sorts of levels shift?

Correct. We, at this point in time, are looking at around 100,000 tonnes of limonite per month. So we'd be looking at targeting around sort of 300,000 tonnes of limonite per quarter. We continue to make good progress on a haul road between... the hang dryer mine and RMIP. Once that is complete, then we're targeting a material ramp-up in both saprolyte and limonite production, somewhere in the order of 5 million tonnes of saprolyte and 3 million tonnes of limonite. But for the near term, the current limonite targets are around 300,000 tonnes of limonite a quarter.

Okay, excellent. In terms of pricing, that's a mechanism that's linked to the LMEs, I understand? Correct, correct.

Sorry, Tim. Saprolite is linked to the LME. Limonite, as yet, is by negotiation. But we believe that that will fairly shortly be linked to LME as well.

Okay. And do you get cobalt credits in that limonite?

There is a small credit for cobalt, yeah.

Okay. And then perhaps finally just around the limonite, what do you see happening in the park at the moment around HPAL capacity? We've seen some pretty aggressive growth coming there. What's coming through in the pipeline in terms of HPAL?

Yeah, so HNC, which we're supplying to currently, as fully ramped up to hit nameplate capacity and is performing very, very well. We've had the opportunity to look at some of the metrics. And as I said, look, it's phenomenal that it was built in 18 months during a global pandemic and supply constraints. And it's performing very well at the moment. So that's online ramped up capacity of about 60,000 tonnes of nickel metal and about 8,000 tonnes of cobalt. QMB is not far behind that. It's in the process of commissioning at the moment. And so we expect by sort of end of this year that that would be somewhere near ramped up and probably at nameplate. That's similar size to HNC. And then there are plans for additional HPAL plants to be built sort of nearby to IMIP. And that's sort of something that as part of the MOU that we signed and future HPAL collaboration that we continue to engage in talks with Jingshan in regards to potential future HPAL collaboration and obviously the acquisition of the Siddawasi contract of work. given it's a predominantly limonite deposit, that's part of securing resources for potential future HVAL growth.

Okay, excellent. Perhaps I'll hand it over and I'll ask a question at the end if there's time.

No problem, thank you. Thanks, Jim.

Thank you. We have a next question from the line of Adam Baker with Macquarie. Please go ahead.

Hi, guys. Yeah, we've just seen a bit of a slowdown in China over the past quarter. Just wondering, you know, what you guys are seeing from a demand perspective, the NPR products and, you know, is China still wanting the additional, you know, NPR products that you bring into the market?

Yeah, look, thanks, Adam. There is certainly, you know, last quarter, I think, was one of the lowest GDP growth rates recorded for a long time in China. Obviously, as you know, they continue to chase a zero COVID strategy. In terms of the market, there is a bit of sluggish demand for stainless steel. But given that we're part of sort of Jing San's integrated stainless steel market, We see no issues in terms of oversupply. And in fact, interestingly, if you look at what's happening within IMIP and IWIP, a significant number of lines have been converted to the production of nickel mat. It's currently around sort of 12 to 15 lines that have or will be converted. So that will significantly reduce NPI output from both IMIP and IWIP. But I think it's important to remember that Qingshan is still far from self-sufficient in terms of supply of NPI for its existing operations in China. So while growth in China at this point in time, as I said, as they're chasing a zero COVID strategy is a bit muted. I think if you look back at the history, we would expect to see some stimulus coming in and pick up again as things hopefully return to more normal activities there.

Great. Maybe on the cost side, it's good that we've seen TTI coal prices coming back down, but Do you guys have any information as to when the thermal coal prices are going to subside?

Yeah, look, like everyone, we sort of can't predict what thermal coal pricing will do, but we are closely following the Indonesian Coal Index. That's where all of our thermal coal is sourced from. As I said, pleasingly, we are seeing a decrease in nickel ore, which is our largest cost component, and metallurgical coal. Coming back to China, one of the other interesting elements of the thermal coal price is whether China may open up again imports of Australian thermal coal. So there's still a bit of uncertainty and the market dynamics of thermal coal. I think it's sort of hard to predict where the numbers are headed. But I think it's probably safe to say that I don't think thermal coal is going to stay at these sort of levels for an extended period of time.

Thanks, guys. Maybe just a quick follow-up on Tim's question. are you constrained by the 300,000 tonnes of limonite that you can take out per year? Or is there potential that you can increase that number given you've got almost 3 million in stockpiles there?

Yeah, so that 300,000 per quarter, we do obviously prioritise saprolyte given the higher margins. And so you're correct, there is about 3 million tonnes of limonite sitting there. once that haul road comes online, then we'll be able to significantly increase both our limonite and our saprolite production. So, I mean, at this point in time, we continue to prioritise saprolite. But once that, as I said, once that haul road comes on, then we'll be able to significantly ramp up that limonite production. And look, we are exploring potentially other... other ways to move the limonite and there are other alternatives such as for example a slurry pipeline which is used in a number of HPAL operations globally. That's something that we may also look at and explore as a way to increase cost effectively our limonite production.

Thanks guys, I'll pass it on.

Thank you. We have next question from the line of Patrick Collier with Credit Suisse. Please go ahead.

Patrick Collier Hi, Justin. Thanks for taking the questions. First of all, Nikhil, Matt, do you mind reminding us of just any timing and cost considerations when it does come to switching over? And then secondly, just what you're seeing in the market in terms of the economics of MPI versus Matt at the moment and how far off Matt could potentially be?

Yeah, in terms of timing, the CapEx modifications are all complete. So it would really just be a matter of once the decision is made, there is an interim period of about two weeks where we continue to produce nickel but in an off-spec but saleable product. So it's about sort of two weeks until we would start to produce an on-spec low-grade nickel mat from the RKEF lines. In terms of costs, we expect that the costs would be very similar to the production of MPI. That low-grade nickel mat then goes through a converter, and that's a specialised converter that Chigsand themselves have built, and that converts it to a high-grade nickel mat. There is an additional cost to that conversion, but it's certainly sort of in the market. And so, you know, and obviously once we make the decision to move into nickel map, you know, those costs will become a bit clearer. But that's basically, you know, similar cost base except for a conversion cost added on top of that. And then if you look at the different markets, LME has sort of held up reasonably well. We are seeing a softening in NPI prices predominantly just through sluggish demand for 300 series stainless steel. So at this point in time, nickel mat would appear to potentially have better economics given the disconnect between the LME nickel price and the NPI price or the bifurcation. And so, look, that's something that, again, we'll sit down, we'll have a look at, we'll have a look at the demand outlook. And, you know, the payabilities for Nickel Mac in terms of the percentage of LME, and it is linked to LME or can also be linked to Sheffy, is quite robust. It's, you know, sort of getting up, in some instances, up to sort of high 80% sort of numbers. So... something that as said we're looking at very closely.

Okay thank you and then secondly I think in the comments we've got the dollar per tonne nickel ore costs increase on lower production but then the nickel ore prices themselves were roughly flat. I guess I'm just a little bit confused as to why those nickel ore costs aren't variable with production and why that production denominator would change given Presumably the bulk of the nickel ore cost is the nickel content itself. Are you able to clarify that?

Yeah, sorry, Patrick. I didn't quite understand the question.

I think just in the quarterly, there's a comment about the lower production due to the power issues driving higher dollar per tonne nickel ore costs. But I guess just if production is lower, I would assume that nickel ore costs would also be lower in that dollar per tonne. wouldn't change too much, but it seems like there's maybe a fixed component to the nickel ore costs and just trying to reconcile how that would work.

Yeah, there is a fixed component. So that nickel ore cost is set on a monthly basis, which is referenced off the LME price for the preceding month. And so, yeah, that ore cost is very much fixed for the month, but fixed to a reference to the LME price.

Okay, but in terms of nickel ore volumes, like if production is lower, and presumably the nickel ore that's consumed is also lower, so that's where I'm confused as to why the nickel ore unit costs would go up due to the power outage or power issues. Maybe we can take it offline if I'm not making sense. Yeah, yeah. No, no.

Sorry, you go. No, no, you're right. No, look, there is, obviously, there's an overhead cost as well, which is factored in. But, yeah, there was some cost impact from that power shortage.

OK, got it. And then just lastly, the Hengjia realised ore price... all sales price being $52 a tonne again versus the commentary of $42 to $44 a tonne as an input cost into the RKFs and just trying to understand the difference in terms of what you're selling out of Angioiverse, what you're paying to bring in to the RKFs and why those would be slightly different.

Ladies and gentlemen, stay connected. We lost line of Mr. Warner. Stay connected while we reconnect this line. Thank you.

Patrick, can you repeat the question? I actually missed that.

I'm sorry. Patrick, you may now go ahead. Your line was muted. Please go ahead and repeat your question. Thank you.

Okay, thank you. A question just on the Heng Jaya realised price being $52 a tonne and just comparing that to the $42 to $44 per tonne of nickel ore that's mentioned in terms of the RKF operations and really just trying to understand why those two prices would be, I guess, 15% to 20% different.

Yeah, I think it's a timing difference and it's what we've seen all the time in terms of the management of the stockpiles at the IMIP by the team on the ground in the IMIP. So it is a timing difference in relation to those stockpiles.

Okay, so should I kind of take the Hang Jaya price as a bit of a leading indicator on what might come through the RKFs then?

It always depends on the amount of stockpiles that are, the months of stockpiles that are sitting there at each time and we don't divulge that information.

Okay, understood. Thank you. I'll leave it there.

Thanks, Patrick.

Sorry, everyone. Line dropped out.

Thank you. We have next question from the line-up. David Coates with Bell Potter Securities. Please go ahead.

Good morning, guys. Congratulations on the result, and thanks for the presentation this morning. Justin and Chris, just quickly following on from that question, Is there also, on the ore sales between Hangzhou and the cost of the RKEF lines, is there also a grade differential where that sort of contributes to that as well?

Yeah, Dave, there is a grade difference between what we're selling and the grade of ore that's being consumed by the RKEF lines. Okay, cool.

Look, just a couple of other quick ones. You referenced power constraints at the IMIP, cleaning and drive of the oil production where it's dropped down below 10,000 tonnes. Can you just give us a little bit more kind of colour, obviously, or background on how those power constraints have emerged? You know, obviously, the power station's been there for a long time. It doesn't seem to have been an issue Is it more lines being added before the power station being added or the local disruptions? What sort of led to that motion, if you like?

To that situation, yeah. If you look at Angel Nickel, that illustrates it very well. The RKEF lines are able to be built and come online much earlier than the power plants. And so it's just, and these things are always built as a package. So, you know, whether it's, typically they build them in lots of sort of four RKEF lines with 380 megawatts of power. When they decide to, or make the decision to build or fund, it's just a difference in timing between when RKEF lines can be commissioned and when the power plant can be commissioned. And typically there's a differential there of sort of up to about six months. And so that's really all we just experienced there at IMIP. Just that lag whilst new RKEF lines were coming online, but we were waiting for the associated power plants to follow them into production. And that's now been resolved. So moving forward, we don't see that being an issue.

Okay, and just out of interest, how many RKF lines are there now at the IMIP?

There is now 44 in operation with another eight under construction. Four of those eight lines are Oracle, and with those eight lines, when they do come into production, that will bring the total to 52, and that will pretty much see IMIP built out for RKEF capacity. As I mentioned, there's two HPAL plants. One's fully ramped up. One's not too far from being ramped up. Potentially plans for more HPAL plants. Of those 52 RKEF lines, 10 of them are currently or in the process of producing nickel matte. If we make the decision to produce nickel matte, From two of our lines, that would take the total lines of the 52 that are producing nickel mat to about 12 within IMIP. There are also a handful of lines at IWIP that are also producing nickel mat at the moment.

Excellent. Extraordinary. And just on both those points, a couple of points you just raised there. Firstly, you mentioned the two lines that you're looking at getting converted Previously, I understood that once I converted, you know, that was, you know, nickel mat is what they would produce, but it sounds like there's sort of a capacity to sort of switch between NPI and nickel mat. What sort of flexibility do you guys have, I suppose, once that conversion's been done?

There is flexibility to switch between the two products. although we would run them in a campaign-style way. So once we make the decision to switch, it would be for a meaningful volume over a meaningful period of time. So it's sort of not something that we'd be sort of switching between month to month, but we do have the ability if, you know, for whatever reason, we decide that we wanted to switch back to NPI. Again, it's really the only... The only thing to be aware of when we do change between Nickel Pig Iron and Nickel Mat, as I said, is just that interim period of about one, two weeks where we produce an off-spec product, which is still saleable. But as you switch between the two products, that's just something to be aware of and that we factor into when we look at the decision of switching to Nickel Mat or perhaps at some point in the future. When we have made that switch, potentially switching back if the market conditions and economics indicate that we'd be better going back to producing nickel pig iron for a period of time. But there is correct flexibility to move between the two products. And again, it's a reflection of the innovation of Ching San in that they are the first company that has been able to successfully implement this kind of flexibility to produce a Class 1 or a Class 2 product out of rotary kilns and have the ability to switch between the two.

Yeah, yeah. And just touching on the HVAC plants which you mentioned and the construction there, and look, I imagine it does depend a bit on the market dynamics you mentioned, you know, the payability is being higher and, you know, that probably seems But are you getting a, do you have a sort of a high level kind of sense or intuitive sense in terms of, you know, perhaps like when you're considering your growth options, what sort of returns on capital you might get, you know, in an HPAL project versus the RKF projects that you've got a big portfolio of already?

Yeah, I mean, as you know, and you can look at the historical performance and the acquisition price that we paid for our RKEF, you know, sort of EBITDA, you know, payback of sort of 2.7 to 3.2 times. So, you know, very good return on capital. In terms of the HPAL, I mean, we have had the luxury of looking at some of the metrics and, you know, What we've seen, they appear to be performing very, very well. But it is something that that discussion is sort of... We are engaged. It's ongoing. And so I would hope that perhaps towards the end of this year or early next year, we might have a bit more colour or be able to sort of speak a bit more about what... what any potential HVAL aspirations may potentially look like. But certainly based on the successful commissioning of the HNC plant and its sort of current performance, it's looking very, very compelling. And I think if you look at plants like Ramu, which are reporting sub $2 per pound OPEX costs, Certainly when it works, it's very lucrative. And obviously a very attractive element of HPAL is obviously the significant cobalt credits. And not just cobalt, there's other byproducts, the chromium, which can also be extracted and even potentially other products. sort of trace elements, manganese, people looking at essentially taking out the scandium. So yeah, when it works, it looks to be compelling. Excellent.

Thanks very much, Justin. Cheers. I'll pass it on.

Thanks, Dave.

Thank you. We have next question from the line of Chunwei Mui with Orkin Capital. Please go ahead.

Hi there. Hi there. So quick question on the cost. So I remember last quarter in the call, and I think the cold cost was accounted for in first in, first out. So that's why we didn't see that material of a cold effect in Q1, but obviously it's going through in Q2. So I'm just curious whether that FIFO effect is you know, is all done with in Q3, or should we expect a further, I guess, you know, increase in, you know, EBITDA, or decrease in EBITDA per ton in the next quarter?

I think on the, I'll start with the costs. As I mentioned, nickel ore, net coal costs are coming down. Thermal coal, we are still seeing elevated costs there. How much longer that will continue, as I said, we're not here to make predictions on thermal coal pricing. But I would also add that a factor in our costs for this quarter has been the power constraint at IMIP and obviously the fact that we've only been able to run... angel nickel at sort of 60% to 80%. And we expect that now with the power plan online, we will be able to sort of ramp that up significantly to sort of 30% over main plate and realise a 20% decrease on our power costs. And so that's sort of on the cost side. On the EBITDA per tonne margin, you know, NPI prices have softened recently. And as I said, that's probably a reflection of the low GDP growth numbers out of China. They're still grappling with a zero COVID policy and lockdowns, which is having impacts on their economy domestically. So, but I think, you know, if you look, we sort of make the point that we sit right at the very bottom end of the cost curve. So, you know, if there is to be any margin pressure, you know, at the bottom end of the cost curve, we'll sort of should always enjoy a margin that's healthy.

Sorry, so I don't think my question was answered. So I wasn't asking you to predict, you know, kind of cold price directions, right? But what happened between Q1 and Q2 was effectively, you know, accounting first in, first out, and so, therefore, we saw a material increase in cold costs, right? So, my question is, you know, from an accounting perspective, you know, is the first in, first out effect, you know, done with now, or is there more, you know, time for effect to be flown through in Q3?

Yeah, look, I think there's probably still perhaps another month or two of lag there. And so that's... But we've seen part of that sort of come in the June numbers. So it has been captured partly in this quarter, yeah.

Okay, so there could still be some... Thank you.

Thank you. We have next question from the line-up William Morgan with Triple Eight Capital. Please go ahead.

Justin, two questions. One on specific ones just on energy and another one on strategy. Just with energy, sorry. To your mind, you're buying electricity, not buying coal. Have you got a complete rise and fall in the electricity prices? That's part of the question. And secondly, is there a... Excuse me, sir.

This is the operator. I'm sorry to interrupt. I would request if you can use your handset while asking the question. Your audio is not coming very clear. Please use your handset and repeat your question again. Thank you.

Thank you for that. Apologies. Strategy question and energy question. On the energy question, you buy electricity, you don't buy thermal coal. Have you got part A of the question? Do you have full rise and fall on electricity prices completely correlated to thermal price. Secondly, you've gone upstream with power plants. Can you go further upstream and get coal supply and have a fixed cost for your power longer term?

So to answer the energy question, there is an energy pricing formula which is linked to the thermal coal price. So there is visibility there for us in terms of how electricity prices are being charged and that price is consistent across the whole of the industrial parks. To the second question around strategy, look, it's not something that we've considered. I don't know that there would be any significant cost benefits to us trying to acquire any thermal coal mines, particularly given, well, at this point in time, if you look at thermal coal price, the valuations that any coal miner would be asking would be significant. And look, coal mining is not something or, you know, the name nickel industries, we're purely focused on nickel. And that's the focus for the company, yeah.

But then next, just a broader strategy question. The supply of nickel from Indonesia now is obviously getting to a point where you start... This is significant. You clearly are trying to chase a value add on going HPAL and capturing higher value product. But you've got... unconstrained competition doing the same thing that you're doing. What's the thinking amongst your co-owners of these assets with respect to oversupplying nickel?

Yes, I think if you look at Indonesian supply and Ching San in particular, given they're the largest player, IMIP, as I mentioned, will be built out once these last eight lines come online. Of those 52 lines, 12 of those have already been, or 10 of those have already been converted to the production of nickel mat, and that could increase. Over at IWIP, you've currently got about 34 operating lines. That will probably grow to about 52 lines or a similar size as IMIP. I think it's important to again note that the reason Chingsan is building all of this NPI capacity is is it's attempting to becoming more self-sufficient in NPI for its stainless steel operations back in China. Even with all this capacity that's coming online in Indonesia, they're still sort of well short of that requirement. So we don't see an oversupply issue. What we probably see is just replacement NPI requirements. as more Indonesian capacity comes on, you'll probably see a reduction in Chinese NPI capacity as higher cost producers sort of go offline and perhaps move into other businesses. And the ability to convert NPI lines to produce nickel mat, that's also another strategy that Ching San has adopted in terms of if there is any concerns or if there's apparent oversupply, the ability to then divert NPI production into the production of nickel mat, which obviously will take some NPI out of the market and potentially also feed into a higher margin side of the market where there may actually be supply constraints. Okay, thank you. And sorry, just to add sort of final comment to that, I think what you'll see now in Indonesia is a real pivot and certainly the government is encouraging and doing everything it can to foster a pivot into more HPAL development. And one of the reasons that's sort of driving that, the government's desire to see more of the HVAL development is obviously in the process of mining saprolite ore to feed these RKEF lines. A large amount of limonite is sort of discarded and sterilized and so that's something that the government is very keen to see that these limonite resources aren't sort of simply stripped off the top and as I said sterilized. They are also developed and significant value can be gained from limonite. And if you look at sort of limonite resources versus saprolyte resources, there's significant amount more of limonite than saprolyte. And that's just typical of sort of the ratio that you see in these laterite ore bodies. You typically have much thicker limonite, a much thicker limonite profile and resource tons when compared to the underlying high-grade sapolite ore body.

Just one more on supply and demand. Just the sell side generally is now forecasting peak carbon steel production of just over a billion tons and waning from here. I appreciate stainless steel completely different metrics and drivers, and you've spoken of that in terms of general GDP and consumption. Is there anything else? And we've obviously got the battery demand coming through for aged power products, et cetera. Is there any other guidance on metrics that you watch that we should be wary of?

No, look, I think, and again, it comes back to certainly, and looking at Ching San's strategy, there certainly is a pivot into the sort of battery metal space. And I think, as I said, I think that will play out in the fact that for their NPI capacity, that's been planned, it's been built out, At this point in time, there's no further plans for any more NPI or RKEFs that produce NPI to be built other than what's planned for IMIP and IWIP. And so the strategy moving forward, I think, will very much look at sort of HPAL, intermediate product for the battery market. Ching San is sort of listing a battery side of its business on the Hong Kong exchange. It's in the process of doing that. It's obviously announced a deal with Aramet on a lithium project in South America. So I think, and if you look at what's happening within Indonesia with companies like BASF committing to battery plants, companies like Ford signing MOUs with Vale and Huayu Nickel Cobalt, that's very much, I think, where the next wave of significant growth in nickel and cobalt will come in Indonesia and it will be in that Class 1 battery suitable or EV material related supply.

One more question just on ESG. Are you getting much flak or take up on resistance to invest institutionally from fossil fuel

the other side what you're doing in terms of mitigating that yeah we obviously released our maiden sustainability report um during the quarter um which i think was well well well received um we've obviously benchmarked ourselves um on a carbon intensity basis against all of the global nickel producers and you know we sort of pleasingly sit around that sort of 50th percentile um We've announced and we announced during the quarter a further 220 megawatt peak solar project, which will bring the total now to 420 megawatt peak. Both of those projects are advancing very well. We potentially are looking at expanding that from 400 megawatt to a much larger number. As well as that, we've also been doing quite a bit of work looking at LNG and cleaner sort of renewable forms of energy, as well as we've engaged Hatch to sort of look at a decarbonisation study and opportunities that may exist. So that's something that we're committed to. As I said, they're now producing an annual sustainability report. And on an annual basis, we'll be providing those numbers. And moving forward, we'll probably start at looking at potentially setting some targets. It's a bit premature for that, given the company's still very much in the growth phase. But I think there's, as I said, I think the response to the sustainability report and providing some transparency on the many initiatives that we're undertaking, not just on an environmental, but on a on a social perspective as well was well received. Thank you. No more.

Thank you. We have next question from the line of David Brennan with Petra Capital. Please go ahead.

Thank you. Just a quick question on the 285 million US dollars required to complete the funding of Oracle. Can you give us any insights there on your thoughts how that's going to be funded?

Hi, Dave. Chris, do you want to take this one?

Yeah, no problem. Thanks for the question, David. Look, as you know, we had 525 to fund and we've always said that we'll look to do that through a mix of equity, debt and cash flows. We've done our equity raise earlier in the year. As you know, including the placement of Shanghai Decent, we've made another $81.2 million of early construction payments to hopefully result in the early commissioning of Oracle at the start of Q4. And then the strategy hasn't changed with the remaining $285 million. We'll continue to look to use operating cash flows and debt for the remainder. As you know, our next payment is due in December, 31 December, so we've got a good runway to that payment obligation, David.

That's great. Just in terms of how the market is, the appetite for the debt that you'd be looking for, is a good appetite, how are negotiations going?

Yeah, I think it's fair to say that the market's changed since the start of the year. And it would be remiss of me to say otherwise. We are obviously in a different operating environment to where we were in Q1. Everyone can see that globally. And obviously our bonds are not trading at the par value that they were at the start of the year. So it is a more difficult environment, but it's something that's not overly concerning at this stage, to be honest. We've got good engagement, a lot of inbound inquiries on potential financing alternatives, some attractive, some less so, and we'll just continue to work through those. Great.

Thank you. Thank you. There are no further questions at this time. I'll hand back to Mr. Warner for closing remarks. Over to you, sir.

Thank you. Thanks, everyone, for your attendance. And look, as I said, pleasingly, first quarter where we've delivered over US $100 million in cash generations from operations, we're well ahead well-advanced in terms of tripling our production. And so we expect at the end of this year to hit that run rate of an annualized 130,000 tons of nickel metal production on an annual basis. And so it's really business as usual as we've sort of emerged, or Ching San has emerged through the LME squeeze. I know that that sort of created some... Some concerns there, but again, let me reinforce that there's very much absolutely no impact on our operations as you've seen from the two quarters, this quarter and the previous quarter. And it's really more just, again, more upside, more increase in production. And so, look, we look forward to the upcoming quarter, providing more updates. And thank you, everyone, again, for your attendance and questions today.

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