Nickel Industries Limited

Thank you and welcome everyone to the Nickel Industries September quarterly results call. If I could just ask the moderator to move the presentation to slide three and we'll start there. Another strong quarter for Nickel Industries with a number of records again achieved and a number of significant milestones including the recognition of Hengjia Mine's environmental performance which I'll touch on a little bit later on. In terms of the numbers, record nickel metal production of over 20,000 tonnes. That's 30% higher than the September quarter, which was about 15,567 tonnes. A lot of that was driven through ANI, which continues to ramp up very strongly. Contribution from ANI was almost 10,000 tonnes, up 56% from the June quarter. We expect further production increases from ANI. And pleasingly now with the power commissioned, We're starting to see costs come down significantly and we expect that to continue. We also during the quarter commenced production from HNI to produce nickel MAP and that's part of our strategy of diversification into the Class 1 market and I'll talk about that a little bit later on as well. There was record RKF revenue which was driven by the record production. there was weaker NPI pricing during the quarter. The average received was about $15,950. However, happy to say that we're now seeing, certainly this month, a strong uptick in NPI pricing. And so we believe we may have seen the bottom, not just for NPI pricing, but also for costs, which I'll talk about. RKF EBITDA of US $45 million, record-hanging giant mine production, and the mine continues to set records quarter on quarter, total production of almost 1.7 million tonnes of ore which was comprised of saprolyte and limonite. We achieved a significant milestone at the Heng Jaya mine during the quarter with a JORC resource upgrade to 300 million geometric tonnes at 1.22% nickel. That's 3.7 million tonnes of contained nickel metal and places us firmly amongst the top 10 known global nickel resources. It just highlights the size and scale and quality of the Pangjaya mine. And once again, it's important strategic significance to the operations within the Indonesia Morawali Industrial Park. Mayan Ibadah for the quarter was US$10.2 million. That was down, and that was predominantly driven by lower saprolite ore costs or prices, which declined from about... $52 in the June quarter to around $43 in the September quarter. And look, whilst we saw lower prices at the mine, that's also resulted in lower costs at our RKF operations. And as we state, the mine does provide a hedge on our ore costs. Underlying cash generation from operations of almost US$55 million. On the corporate front, we completed a further 40% interest in the Oracle Nickel project. We've now moved to 70% and commissioning has commenced as of 28th of October with the warming of the first kiln and we expect first MPI to flow within about the next two weeks. Again, Oracle Nickel has come on well ahead of schedule. We have the capex guarantee in place. As I said, we're now fully funded and we have our 70% interest. Finally, we signed during the quarter a strategic cooperation agreement with QMB New Energy, who's in the process of commissioning a 73,000 tonne per annum HPAL project. That's a 20-year strategic supply agreement, and the value of that in terms of revenue for the Hang Jaya mine is in excess of US$1.5 billion. And I think more importantly, it also... paves the way for nickel industries to take an equity participation within that high pressure acid leach plant and we're starting to see more of these plants commissioned and being constructed within Indonesia following on from the initial HPAL plant which has proven itself to be operating amongst the world's best HPAL projects. Finally we also received during the quarter our environmental approval for the completion of the haul road between the Heng Jaya mine and the IMIP and that paves the way for significant ore movements in the future and that will obviously flow through into significant revenue contribution from the Heng Jaya mine. If we could just move to the next slide four please. Just by the numbers, as I said, record production, 20,000 or in excess of 20,000 tonnes of nickel, of which Nick's attributable production is over 16,000 tonnes, record sales revenue. The other number I'll touch on there is obviously the Hang Jaya mine, close to 1.7 million tonnes of ore produced for the quarter. If we could just move to slide five, please. You can see the quarterly production numbers there, and you can start to see the significant contribution from Angel Nickel. Pleasingly, we're also seeing very strong production from both HNI and RNI, which return to historical levels of in excess of 10,000 tonnes combined for the quarter. As I said, ONI is commissioned, and that's ANI is commissioned, ONI is now commissioning and we expect a rapid ramp up as we've seen with all of our lines historically. If we could just move to slide six please. We obviously saw some margin compression this quarter, predominantly driven by a decrease in NPI contract pricing. Costs also decreased. We saw September costs decrease from $14,509 to $13,597 for this quarter, so almost a 1,000 tonne decrease in our costs, and that's partly through to the benefit of the ANI power coming through. And just to give you some idea of the significant cost savings and benefits that we're getting from ANI, ANI September, average quarter costs were $13,167. ANI's cost in September was slightly less than $12,000 a tonne. And so you can really see that as ANI continues to ramp up, we expect to see continued cost improvement from ANI. If you compare that cost of $12,000 a tonne or less to our September average contract pricing of $15,950. That's close to the sort of $3,000 to $4,000 a ton margin that we're used to experiencing. And just, again, puts ANI right at the very bottom quartile of NPI producers. As I stated, we're also pleasingly seeing an improvement in NPI pricing more recently. If we could just move to slide seven, please. The Hang Jaya mine, again, another record quarter, 1.7 million tonnes. That was despite higher rainfall for the period. We received 1,359 millimetres versus the historical average of 849 millimetres, but pleasingly, we were still able to deliver a record result. I mentioned Our approval for the haul road, we have about 6.6 kilometres remaining of that haul road to be built. Contractors are currently working on it now and mobilising. That will allow us to achieve our goal of 10 million tonnes of all movement between the Hang Jaya mine and the IMIP. So that's more than a threefold increase in the numbers and revenue coming out of the Hang Jaya mine and pleasingly quarter on quarter. We're seeing very strong EBITDA numbers. Finally, we received a number of accolades at Indonesia's 2022 Environmental and Social Innovation Awards. We actually received seven awards in total for various initiatives and recognition, water reduction, domestic waste management, biodiversity protection, just to name a couple of those. And we're really focused on the Hengjaya mine becoming a showpiece for ladderite mining within Indonesia. within Indonesia. We'll just move to slide eight, please. I mentioned the JORC resource upgrade that occurred during the quarter, and you can see where we sit amongst known global nickel resources in the top 10, 3.7 million tonnes. That resource covers an area of 1,789 hectares. Pleasingly, there's an additional 525 hectares of highly prospective laterite, which has yet to be drilled. And so our focus is to permit that up. And so we believe that there's still additional upside within that Heng Jaya resource. Not only that, we continue to work on additional resource acquisition. The Sidoasi project drilling is going very, very well, completed sort of over 15,000 meters of drilling. And we're seeing some very good results there. And as I said, we're looking to work on other projects nickel projects with a view that becoming on a sort of combined basis taking nickel industries to holding second, third, potentially the largest known nickel resources globally and that's certainly very much a focus for us moving forward. I think we'll just move to slide nine please. Again, continued excellent EBITDA to cash flow conversion, 99%, just to remind people we have a significant tax holiday, and we have very little sustaining capex. If we could just move to slide 10, please. On the corporate side, we signed a binding term sheet. for 200 megawatt peak plus 20 megawatt battery solar project follows on from the MOU that was signed. So that project is progressing very well. Pleasingly, it doesn't require any capital contribution from Nick. The electricity tariff is fixed, will remain constant for the next 15 years with no inflation escalation, which we find obviously very attractive. And we also have out there another 220 megawatt peak project, which is also progressing very well, so that brings us to 400 megawatt plus, with a stated intention of hopefully being able to take that up to somewhere in the range of about a gigawatt, and so good progress continues to be made. During the quarter, we increased our interest in the Oracle nickel project from 30% to... 70% through the early payment of US$212 million. There is a balance of payments of $72 million with only $11.2 million due by the end of this year and then a further $61 million by the end of March of next year. As I mentioned, Pleasingly, 28th of October, the electrification ignition of the first RKEF lines commenced. And so whilst the furnaces are being warmed up and we expect first MPI to flow by mid-November. Again, just reminding people that what we've seen with Angel Nickel in terms of the production capacity, but not only that, more importantly, the significant cost advantage of having the associated power. and the fact that this will now take our nickel metal production on a 100% basis to in excess of 130,000 tonnes on an annualised basis. We also completed the conversion of our HNI line to the production of nickel mat. Pleasingly, we have contracts in place through to the end of March 2023. which attract very good payabilities, and those payabilities actually increase as the nickel price increases. The pricing is linked to the Shanghai Futures Exchange, Sheffy, but that tracks very closely to LME. And so basically, you know, this diversifies us and makes us one of the only global listed nickel producers that has exposure and diversification across Class I and Class II nickel complexes. Finally, we signed a strategic cooperation agreement with QMV New Energy, which involves a slurry pipeline being commissioned or being constructed within our Hang Jaya mine area with the aim to supply around 5 to 7 million tonnes of limonite ore per annum to their newly commissioned HBAL plant. As I mentioned earlier, the revenue value of that is potentially in excess of US$1.5 billion over the 20-year period. And also, there is the key part of that agreement was Nickel Industries' opportunity to take a potential equity participation within that HPAL plant. And so, you know, this now makes the Hengjian mine a material supplier to the two HPAL plants that are currently operating within IMIP and, you know, once again, underscores the strategic importance of the HM mine. to IMIP and its operating partners. So in summary, another very strong quarter, a number of records, a number of very strong milestones achieved, including the JORC resource upgrade, again, in amongst top 10 global nickel resources with further upside, environmental approval for a haul road, which will directly link us into the IMIP and will increase our mine production by threefold once that road's complete. Strategic agreement with QMB, whose largest shareholder, JEM, is one of the largest Chinese recyclers, a producer of PCAM, and as I mentioned, the potential revenue that will flow from the sale of that limonite ore, but also the potential equity participation within an operating and proven HPAL plant. The production of nickel mat, which will diversify us into the Class 1 EV battery space. We look forward to providing updates in the next quarter on the performance of that nickel mat. And as I said, again, makes us the only diversified global listed nickel producer with exposure to the two Class 1 and Class 2 pricing complexes. Completed the move at Oracle from 30% to 70%. And obviously pleased to announce commissioning has commenced and we look forward to updating the market when first NPI is tapped. Just touching on the market quickly. Thank you. Look, apologies, everyone. I'm actually in Australia, so I'm going to blame Telstra for this one, not the Indonesian phone system. But I'm not sure where we got to. But as I said, in summary, another strong quarter, number of milestones, record production. And then just closing out with costs and market, you know, pleasingly, costs are decreasing at ANI, and we're really seeing the benefit of the integrated power, particularly, you know, September costs below $12,000 a tonne. If you compare that to the average price received for the September quarter of $15,950, you can see, you know, very strong margins. We are seeing a significant improvement in NPI pricing from, you know, sort of a low of $1250 earlier in the quarter. to close to 1,400 renminbi today. We've also, our contracts are now moving forward with significantly reduced penalties by an order of several hundred dollars for the production of grades in excess of 12%. I think if you look at the MPI market and certainly Within China, we've had GDP growth in China this quarter of 3.9% versus 0.4% for the previous quarter. Obviously, we had re-elections, Communist Party re-elections, which went smoothly. And so there's no significant changes there. And with ONI now commissioning and our production set to significantly increase past 130,000 tonnes per annum. Margins of temporary production is permanent and so we're extremely well placed to take advantage of hopefully what we see is improving margins. We think we've come through the worst of it and look really unscathed. We're still able to produce a very strong EBITDA for the quarter. achieve a number of milestones and we look forward to moving forward and continuing to grow our production base. With that, I'll hand over to questions.

Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star 2. If you're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Adam Baker with Macquarie. Please go ahead.

Yeah, good day guys. Just wondering with Angel, pretty quick ramp up there. Just wondering how that's looking in the fourth quarter. Do you think you'll be at that 130% capacity level by this quarter? Or do you think there'll be another quarter to go before we get to that 130% of nameplate capacity level?

Yeah, we achieved that towards the end of this quarter. So yeah, I think it's fair to expect that for the fourth quarter, you should see Angel at 130%. I also think costs have stabilised and so we'll also see the benefit in terms of much lower costs than what the Angel costs were at the beginning of the quarter.

Yeah, sure. Great. And the ramp up of O&I, you know, are we expecting to see quite a similar trajectory to the ramp up of O&I there? You know, kind of a six to nine, 12-month ramp up process?

Yeah, correct. How it will look is it will operate at around 60% of capacity until the commissioning of the power, which we expect around March. Once that power is commissioned, it's actually quite a fast ramp up in terms of to 130%. So, you know, post sort of one to two months post-March, we would expect Oracle to be at sort of that 130% capacity as well.

Yeah, great. And just in your quarterly, just interested around your comment around saying that there was a change in composition of the met coal injected into the rotary kilns. Just Just wondering if there's any cost savings that have been achieved there and maybe if you could just walk us through what you've actually done there.

Yeah, there is a cost saving that's been realised through that change in composition. And look, that's one of the reasons we're delighted to have Ching San as our partner and major shareholder. They're constantly innovating, they're constantly looking for ways to reduce costs. They've used innovative things like substituting nut cocaine, for example. So look, on a technical level, I can't tell you what the benefit is other than it has delivered a cost saving. And so again, just another example of the sort of innovation and the way that these guys are constantly looking to maintain their position at the very bottom end of the cost curve and improve the profitability of their operations.

Yeah, sure. And maybe lastly, just on the improvement in MPI pricing that you're just seeing in the recent month or so, is that on the back of improving stainless steel demand out of China or what's kind of driving that at the moment?

Yeah, we are seeing improving stainless steel demand. We've also seen a switch of about 20 RKF lines that were producing nickel pig iron now producing nickel matte. So some of that NPI that was in the market is no longer going to be in the market. And so we've seen an improvement in the NPI price off the back of that as well. So yeah, it's really sort of twofold. It's improving stainless steel market and also a reduction in the NPI units that are coming out of Indonesia as some of these RKEF capacities is switched to produce nickel matte.

Yeah, great. Thanks, guys. I'll pass it on. Thanks, Adam.

Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. We'll now pause a moment to allow for any final questions to register. Thank you. Your next question comes from David Coates with Bell Potter Securities. Please go ahead.

Good morning, Justin. Thanks for the call and nice work on the production costs this quarter. Just on a slightly separate thing, Ian, you just touched on it there towards the end of your presentation, the opportunities, potential opportunities with HVAC plants. Can you just give us a bit of a rundown on how the NGO of mine is kind of helping you perhaps with that and what opportunities might be presented in terms of picking up that equity ownership and how those build? might be structured as a toolbar on maybe on some ore feed or I'm not sure, but maybe there's a bit of colour in that.

Thanks, Kosti. The Heng Jaya mine is a supplier to both of the operating HPALs within IMIP, which is HNC and QMB. Obviously, with QMB, with the Strategic Ore Supply Agreement, You know, we'll be supplying sort of 50% to 60% of their requirements moving forward. So, you know, obviously a key part of their business. Hence, you know, that clause around the opportunity to take, you know, future potential equity stakes in that operating HPAL. You know, we're now sort of moving towards... There's a lot of work to be done to... Look at the construction of the plant within the Heng Jaya mine and permitting and licensing and those types of things. And then obviously the commercial discussion around pricing of our limonite and obviously pricing of equity participation in the QMB plant. That's a very real opportunity and it's something that both parties are looking to enter into because we believe it makes a lot of sense. What's attractive for us is that obviously it would be an equity interest in an operating plant so it's significantly de-risked. All of those discussions around can a portion of the ore body be valued as part consideration are ongoing at the moment and so that's something that we'll continue to work on. That's for the QMB plant. We also supply ore to the HNC plant which has the world record for the fastest build, fastest ramp up. We've seen its operating performance and we've been privy to its costs and its margins and it's operating extremely well. We also continue to talk with Huayu as we're a key supplier to their operations as well. And then finally, if you recall, we have the New Energy and Collaboration Agreement that was signed with Qingshan about a year ago, which also contemplated nickel industries taking or being involved in a new H-POWER build. And so those discussions are ongoing as well. So as we look to diversify the business, we're looking to do it on a number of fronts. And I think those will be small interests in operating plants, which I think will give people comfort in terms of these plants that they work and their financials, and then a longer-term strategy of our own standalone HPAL plant. It could be anywhere from 60 to 120,000 tonne capacity, depending on the size and where we build it.

That's analysing for the future. And just on the diversification theme, the nickel mat that you guys are producing, if I understood it correctly, is basically being sold to sort of existing counterparties with Sing Shan or SDI. Are there opportunities for you guys to diversify that customer base, I guess sort of to your own kind of direct downstream customers? And is that an important objective or...?

No, absolutely. I mean, we had the option from day one to sell it to third parties if we thought that was appropriate. Look, it made more sense to sell into existing contracts and just to allow potential customers to see grades, specifications, delivery, all of those types of things. But we have had a number of inbound inquiries from global companies Third parties, and so we'll continue to have those discussions over the coming months with a view to potentially perhaps a standalone contract with a third party, perhaps even a Western party, that could be concluded when that contract or when our contracted volumes at the end of March come up for renewal. So, yeah, it's a discussion we're currently having, and we look forward to continuing to seek potential markets for that nickel-mat potential buyers sort of outside of the current buyers that the Tsing San currently has.

Excellent. That's all from me. Thanks very much, Justin. Cheers. Thanks, Casey.

Thank you. We're showing no further questions at this time. I'll now hand back to Mr Werner for closing remarks.

Thanks again, everyone, for joining. Just to reiterate, another strong quarter, number of records, number of significant milestones. And as I said, pleasingly, NPI pricing has ticked up. Costs are trending down. And so look, even in a very difficult environment, I think we've just demonstrated to everyone the robustness of our business. It still generates very strong margins and we're extremely well-placed with production continuing to grow. When we see mean reversion back to historical margins, Nickel Industries is extremely well-placed to continue to make a lot of money, and not only that, we continue to work on our diversification into the Class 1 battery space. It's kicked it off in earnest with Nickel Mat, and we're now looking at HPAL opportunities and supply of our oil into those HPAL opportunities and building potential partners and relationships with existing HPAL producers that we can further leverage in the future. Look, thanks again, everyone, and I appreciate you attending the call.