Nickel Industries Limited

Thank you very much and could I please ask that you turn to page two of the presentation and we'll start there. Everyone who's on the call, thank you for your attendance today at the Nickel Industries June quarterly results presentation. Once again, very pleased to report record nickel metal production of 32,558 tonnes. Apologies, it's page two. You're on page one. If you could just move to the next slide please. Record nickel metal production of 32,558 tonnes. That was almost 20% higher than the March quarter which was 27,399 tonnes and it includes 10,141 tonnes from oracle nickel. We expect a further 20% scale up across the September quarter so there's still significant production upside to be delivered across the September quarter and I'll talk a little bit more what that means for our financial profile. For NIC's attributable production that was 25,000. That on a quarterly basis now takes us to in excess of 100,000 tonnes of nickel on an annual basis and so making us firmly cement this as a top 10 diversified global nickel producer. As I mentioned, further production growth expected across the September quarter with the power plant that we announced commissioned at the end of June and I'll talk a bit later on about what that means. RKEF revenue was down 11%, US$434.3 million, primarily driven by lower realised contract pricing. We believe that we have seen the bottom and we have seen a bit of an uptick. And I'll talk about that as well a little bit later on. RKF EBITDA was $43.9 million. That was lower than the March quarter, as I mentioned, primarily driven by the lower realized contract pricing. But pleasingly, we are also seeing corresponding reduction in OPEX between 8% to 15%. and we expect this reduction in OPEX to continue across the September quarter. The production weighted EBITDA per tonne was 1,533, which has said it was down significantly from March, although, and I'll talk again about this a little bit later on, ANI still maintained very robust margins of 2,754. That weighted average number of 1,533 was dragged down lower by ONI which had a margin of about 744. As I stated earlier, as the power comes on this quarter we expect to start to see ONI matching the ANI EBITDA per tonne margin of that 2,700 that we experienced this quarter. So there's about a $2,000 a tonne margin upside that we expect to start capturing across the September quarter. Another record this quarter for the Hang Jaya mine, 2.7 million tonnes of ore which was 10% higher than the March quarter. The opening of the HM mine to IMIP Hall Road is imminent. and we will expect to start to see a significant scale up in our mine production once that haul road is officially opened. Mine EBITDA was US$12 million, slightly lower than our March quarter, predominantly driven by lower realised saprolyte ore prices. Whilst that has an effect on our mine EBITDA it will also those lower saprolyte prices which we're starting to see will also push our RKEF costs lower. Underlying cash generation from operations of US $48.6 million and based on the performance for the first half of this year with a record EBITDA in March and a strong EBITDA for this quarter given where the nickel price currently sits, happy to announce an interim dividend of Australian $0.02 per share. If we could just move to page three please. Happy to report on the environment and safety front, 5.5 million man hours without an LTI for our RKF operations since January of this year. More than 7.3 million man hours since the last recorded LTI at our mine operations back in November of 21. These are obviously significant numbers. A couple of million man hours without an LTI is a tremendous achievement given the number of employees that we have across all of our operations. Also pleased to report across the quarter that the Hangia Mine received two gold trophies at the Noosantara CSR Awards. and most promising transition award at the ESG World Summit in Bangkok. So the hard work and the focus that we've placed on ESG continues to be acknowledged and we remain focused on being the most sustainable and responsible integrated nickel producer in Indonesia. If we could just move to page four please. Summary of the numbers versus the March quarter. As I mentioned, record for nickel metal tonnes, 32,558, an almost 20% increase on March. Our attributable production, 25,000 as I mentioned. That takes us to in excess of 100,000 tonnes on an annualised basis. And then the Hang Jaya mine, 2.7 million tonnes, again almost a 10% increase on the March quarter. In both of those nickel metal production numbers and hangiomine production numbers, as I said, we look forward to working towards delivering an increased number on both of those across the September quarter. If we could just move to page five please. You can see here since the June quarter of 2022 where we reported 15,556 tonnes of nickel metal production. We've increased that 110% since that point in time to the record number today of 32,558 tonnes. ANI produced 12,422 tonnes of that 32,000, which was 38%. and ONI 10,000, which is about 31%. So those two operations accounted for about 69% of our production. As I mentioned, with the commissioning of the power plant, we expect ONI to start to replicate ANI. So ANI did 12,400, ONI 10,000. we would expect that ONI will start to operate towards that same number, 12,400, and we expect those additional nickel units to come online across the September quarter. Not only do we have that further production upside, but more importantly we have further EBITDA and EBITDA per tonne upside at our oracle nickel operations. I mentioned ANI was still very strong. The margin was $2,754 for the quarter and that delivered 75% of our June quarter EBITDA which was $33.2 million from Angel Nickel alone. The ONI EBITDA per tonne margin was $744 a tonne and that was about delivered $7.5 million US of EBITDA or 17% of the total number. So combined our two ANI and ONI operations delivered about 93% of the RKEF EBITDA for the quarter. As I've mentioned we expect now with the Oracle power plant commissioning EBITDA per tonne margins to replicate those of Angel Nickels. So further not just production upside but also EBITDA upside. We have experienced a softening of LME and nickel pig iron pricing across the quarter. That declined about 17% compared to the March quarter. But we are also seeing a corresponding decline in OPEX costs, not at the same speed. But we do believe that those OPEX cost reductions will continue across the September quarter. If we look at ANI, we saw an 8% reduction from 11,800 in March to about 10,900 in the June quarter. And these reductions are being driven primarily by lower oil costs. and lower power costs. To give you some idea at ANI our power was down from 6.2 cents a kilowatt hour to 5.2 cents a kilowatt hour across the quarter. To give you some idea of that upside that exists at Oracle Nickel our cost for the quarter for 8.2 cents a kilowatt hour If they come down to match the 5.2 kilowatt hour of angel nickel, as I said, we see strong EBITDA and margin upside at Oracle across the September quarter. All costs were down about 10% and that's been reflected in from the results from our Hangia mine where we saw about a 10% reduction in the average saprolyte price received. If we could just move to slide six, please, or page six, sorry. As I mentioned, record month in terms of production, 2.7 million tonnes. The average price received for saprolite, as I mentioned, was down. It was $44 in the March quarter, down to about $40 in the June quarter. And so there may be some further changes decreases in that price received but that will flow into upside on our RKEF costs. Limonite production continues to remain strong and you can see the very strong margins there. Average price received actually increased from the March quarter from $18 to $20 and we had a reduction in the cost of production of our limonite from $3.60 to $3.11. If we could just move to page 7 please. Pleased to announce that the opening of the Hengjia mine to the IMIP haul road is imminent. We expect the opening of that haul road very soon. That once open will allow us to ramp up our production from $3.5 million last year. to an annualised rate of around 10 million tonnes which will comprise about 6.5 million tonnes of limonite and 3.5 million tonnes of saprolite. So we can expect to see almost a tripling in our mine EBITDA over the coming months as we ramp up production and so we see a strong upside there from our our Hengjia Mine operations as well and we look forward to reporting the opening of the haul road very shortly. The haul road also will make us one of the largest ore suppliers to the IMIP and so obviously just underscores the significant strategic value of the Hengjia Mine to our operations and to the IMIP. If we could just move to page eight please. We announced during the quarter conditional share placement and collaboration agreement with UT Tractors for Australian $943 million at an issue price of Australian $1.10 per share, which at the time of the announcement was a 27.2% premium to the last traded price on the 8th of June, which was 87 cents Australian. That premium has grown since that point. Those shares issued would represent 19.9% of the company's issued capital and along with that a conditional collaboration agreement for UT to acquire a direct 20% equity interest in the ENC HPAL project at a valuation of US$500 million for their 20% which translates into a US$2.5 billion project valuation. which is higher than the actual project valuation of US$2.3 billion, which we also recently announced and pleased to announce a reduction. So since the announcement of the ANCH power, we've seen a 20% increase in the capacity from 60,000 tonnes to 72,000 tonnes. and a 10% decrease in the cost from $2.5 billion to $2.3 billion. Again, those numbers come with the CapEx guarantee and I can only remind people of how strong and the value of that CapEx guarantee given I'm sure we're all familiar of the recent write-down of a significant Western Australian nickel asset In terms of who UT are, they're one of Indonesia's largest listed conglomerates. FY22 revenue of US $8.3 billion, 33,000 employees, very strong balance sheet, US $2.3 billion in cash. The ultimate beneficial owner is Jardine Matheson, a global diversified Fortune 500 company, very strong presence across Asia in automotive, mining, mine services, property retail. finance, over 425,000 employees and FY22 revenue of US$87.7 billion. We believe that UT is one of Indonesia's best blue chip investors and partners and obviously subject to shareholder approval. We do look forward to welcoming them as an investor into NIC. That investment obviously then means that we are pretty much fully funded for the ENC HPAL project for our percentage of that and it was announced that with them taking 20%, Tsing San holding 25%, that NIC's ownership in that would be around 55%. Pleased to announce the FIRB approval for the placement to Shanghai Decent for the acquisition of 10% in the HNC HPAL which was executed at $1.02. There was also strong support from members of the NIC Board with shares issued to Mark Lochtenberg and to Shanghai Wanlu. The HNC HPAL has the world record for the fastest build and ramp-up, one of the lowest global OPEXs and lowest carbon intensities. It will give us immediate access to 6,000 tonnes of marketable MHP, which we can diversify this further into the EV battery market. And it also gives a see-through into what a successfully operated HPAL looks like. ENC will effectively be a replica of HNC but as Ching San does do it will have some improvements and ENC will also further diversify to producing not just but also go further to nickel sulfate and to nickel cathode, providing product diversity and therefore allowing us to maximise margin opportunities where they exist in different parts of the nickel market. If we could just move to page 8 please. The ENC project I've just touched on. Feasibility is well advanced. We expect to make a final investment decision sometime in the September quarter. To reiterate, production has gone up from $60,000 to $72,000, a 20% increase, and the capex guarantee is actually reduced from US$2.5 billion to US$2.3 million. I've touched on the shareholding. subject again to a positive FID being taken by the Nickel Industries Board. We then would expect construction to commence in Q4 of FY23 and the capex guarantee comes also with a timing guarantee of the project's commencing commissioning within 24 months of commencing construction. If we could just turn to Slide, page 10 please. The placement to UT and the collaboration agreement for them to potentially participate for 20% in stage one of ENC also flows through into their potential participation into 20% of stage two. which would effectively just be a doubling of the project from 72,000 to 144,000 tonnes. I should add that the FID that will be taken in September is purely on Stage 1. Stage 2, that decision will be taken over time, depending on a number of factors. As I've touched on, we... commissioned the Oracle Nickel power plant and we expect that to deliver upside of 20% on our production from Oracle Nickel. We also expect a 36% reduction in costs, assuming that Oracle will mimic A&I's performance. So we also see EBITDA upside across the quarter and from our oracle nickel operations. Finally, as I said, I'm pleased to announce an interim dividend of Australian two cents per share. So in summary, we look forward to another busy and productive September quarter. As I mentioned, we expect further ramp-ups from ONI and further EBITDA growth from our ONI operations. We look forward to the opening of the Hangia Mine to IMIP haul road and the ramping up of production from our HM mine. We look forward to the 10% of the acquisition of the HNC HPAL. and also a final investment decision for the ENC HPAL project. I should just quickly touch that we are also working on a maiden JORC resource for our Pseudo-RC nickel cobalt project. So in summary we believe that we've seen the bottom of the soft pricing environment and we have seen an uptick in both MPI and NME pricing more recently. We still do have cost decreases to flow through and we believe that we still have further OPEX cost reductions from all which we should start to realise in July and in power in August. So with over 100,000 tonnes of attributable nickel metal production we remain very well positioned to take advantage of any upside in pricing and strengthening of the nickel market. And I think that that was reflected in our March quarter where we were able to report record EBITDA margins. With that, that concludes the presentation and now hand over for Q&A.

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 Michael Dodamo from Canaccord. Please go ahead.

Hi, guys. Just a couple of quick questions. Firstly, thanks for the call. The mat grade, why is there such a decrease on last quarter's mat grades?

Yes, so the decision was made during the quarter to, rather than sell high-grade mat, to sell low-grade mat. The reason for that is that the profitability is actually better selling a low-grade mat rather than what we were doing before, which was selling a high-grade nickel mat, which on top of that attracts a processing cost to convert it from low grade mat to high grade mat before it's then sold. So by selling a low grade mat, which is what the reduction in the grade is, we've removed that additional processing cost. It has flowed into a lower realised price but if you compare the realised price versus that additional sort of $1,800 to $2,000 a tonne processing cost we're actually achieving a better result from just selling a low grade mat rather than a high grade mat which is what we were doing previously.

Thanks for that. The other thing I've noticed is in the March quarter activities report, you've got total RKF production for December and March. The numbers are actually different than what you've put into the total production for December and March in this recent quarterly report. So I think it's about 23,072 versus 23,433 for December and then 26,665 versus 27,399 for the March quarter. Why are those numbers changed? Yeah, Chris.

Yeah, thanks. It's Chris Sheppard here, CFO. I think that there, Michael, will be reflecting on the move. Previously, we were doing high-grade angle maps, so the numbers we were announcing or reporting was the high-grade. Obviously, the high-grade and low-grade, it's not the exact same production volumes. So we've gone in and shown low-grade and to show like-for-like. There are also adjustments from the quarterly, from our contracts, which we've announced that you've got in this quarter. The contracts actually change across quarters. Final contracts will change the production numbers to deliver at the end of the quarterly. There are slight adjustments there.

Okay. Thanks, guys. It's all from me. Cheers. Thanks, Michael.

Thank you. Your next question comes from Cameron Taylor from Bank of America. Please go ahead.

Morning, team. Thanks for the call. So just quickly, you mentioned last quarter that you had, you know, This quarter you had lower margins for nickel mat, comparably similar to nickel pig iron now. How does this affect your strategy going forward? You mentioned some time ago that you would be converting future RKF lines to nickel mat production, notably the Angel RKF lines. Is this still the idea, the diversification, or given the lower margins, have you been forced to rethink that?

Now I think this just sort of highlights and reinforces our ability to have that flexibility. It was only sort of two quarters ago where nickel mat margins were around $7,000 a tonne. So at this point in time we just have two of our much older lines. which don't have the benefit of the power that have the ability to produce nickel mat. So we see that by increasing that capacity we will be able to take advantage of periods when there is a stronger price that's being realised for nickel mat as opposed to nickel pig iron. The real advantage for us is that we do have the flexibility to go back to the production of NPI and look, we will monitor margins. We're not going to flip and flop regularly between the two products. We will take a view and see where we think the price is going and where the margins appear to be. But no, I think, look, it just highlights that the margin realisation that can be achieved by having the two different products and it's up to us as a management team to try to maximise those margins by ensuring that we're getting the most profitable product out there at the right time.

Okay, fantastic. Having that flexibility is key, I guess. Secondly, the question around HNC, HPAL. It was mentioned that you were seeing margins of around $10,000 a tonne from Hawaii. Given the softening of LME nickel and nickel prices this year, what kind of assumptions do you use going forward for those EBITDA margins and does that affect your ENC? Do you have an IRR hurdle for FID of E&C and what sort of EBITDA margins do you predict for those? Thank you.

Chris, happy to let you talk about E&C margins and finance.

Yeah, no problem. Thanks for the question, Cameron. Look, as a minority shareholder, we're north. uh when we're not in a position to actually disclose those margins um of what are you and uh cmox position however it is quite it it is obvious to assume that if the market's softening those margins are currently uh depressed versus where they were last year um when we take our decision on emc obviously the margins are a factor but also we're not looking at a quarter by quarter uh investment strategy here so we will take a call in our FID. We'll take a call through the cycle on where we expect margins to be and make our decision accordingly.

Okay, thanks. That's all for me. Thanks, Cameron.

Thank you. Once again, if you wish to ask a question, please press star 1 on your telephone. Your next question comes from David Coates from Bell Potter. Please go ahead.

Good morning, Justin. Good morning, Chris. Thanks for the call. I'll just follow on from a couple of those questions. The ability to switch between low-grade and high-grade nickel mat or, indeed, just MPI, but specifically with the mat. What kind of... I mean, you've got the ability to change. What sort of timeframe would you typically sort of, you know, notionally look at, you know, making that sort of... taking advantage of that optionality sort of between the two products and, you know, quarter by quarter basis or lock it in for half a year or how are you guys thinking about that at the moment?

Yeah, I think certainly longer than a quarter by quarter basis, Casey. I think at a minimum sort of six months. And so, and the other, you know, the other, I guess it would be driven by, and, you know, we've had strong interest from a number of groups, and we're considering it, whether we do look to some longer-term contracts, whether we want to commit to those and fill those. But I think any decision would certainly be longer than a quarter-by-quarter basis, given it's not as simple as flicking a switch. There is a period of time where You have to transition backwards and forwards between products. So we sort of take that into consideration as well.

Cool. Thanks for that. And you talked to MPI pricing, which has seen the market soften, which seemingly on stainless steel demand seems to be one of the main factors there. But what do you guys, when you look at the market, what are you guys seeing as Is it a recovery in that sort of downstream stainless steel demand, or are you seeing cost and production support at the higher end of the cost curve? What are the key kind of factors you see supporting that NPI price, or bringing it off the bottom, let's just say?

Yeah, again costs, so marginal NPI producers in China Currently not profitable and typically costs support that at the higher end to keep them in business. We are pleasingly seeing obviously a reduction in OPEX costs. Ching sands of the view that we've seen in the bottom and that moving forward it's the demand will be relatively strong, I guess the big unknown is the meeting of the Politburo and whether China sort of pulls the trigger on further stimulus which obviously we would expect to have a meaningful impact on pricing. But at this point in time we think we've seen the bottom. There has been an uptick more recently but I think importantly from from our perspective sitting on that very bottom end of the cost curve with our costs which should continue to trend down across the September quarter. As I said, margins from our two main operations, ANI, are still very robust and ONI. There's still about a $2,000 a tonne margin opportunity that we hope to be able to capture along with the production increase across this quarter.

Great. Excellent. Thank you. And just sort of a high-level and probably a bit of a hypothetical question. In terms of others getting great margins at Angel and looking to replicate those at Oracle, is it sort of strategically available option for you guys to consider sort of selling out of the older RKF lines and sort of trading up in the newer ones and sort of, I guess, optimizing your asset portfolio that way or, you know, much more about kind of, you know, getting those, you know, margin up through, you know, product optionality or other things like that. Like, you know, could you actually sell some of those older lines off?

It's a good question and look, there always is that opportunity as long as there's a willing buyer. I think, and look, if you look at the government is no longer providing any tax incentives for any new RKEF lines. I think Indonesia is now pretty much built out. So look, anyone wanting to enter that space, look, absolutely we do have mature operations that someone may have an interest in and so it absolutely could potentially be an opportunity in the future assuming there's a willing buyer at the right price.

Interesting. Great. Thanks very much, Justin. Cheers. Thanks, Chris. Thanks, David.

Thank you. Your next question comes from C.W. Moy from Arkand Capital. Please go ahead.

Hi, management. Thank you for your time. So I got a couple of questions. The first one being, I think you guys mentioned earlier that ENC is now fully funded. You know, so does that assume that there's a certain level of debt that's going to be taken at the project level, you know, if you can give us a little bit of details, that'd be great. And then that's all about that.

Chris, I'll let you chat on the funding.

Yeah, thanks so much. Thanks for the question. There will be a level of debt. I've previously told the market we'll be looking around 50-50 debt equity. However, even without that debt, we like in our... you know, RKF acquisitions, say the recent ANI project and ONI project, we will be having a deferred payment schedule with Shanghai Decent, effectively a buy-in schedule, which will give us several years of lead time in order to actually fund the project. So with or without debt, we consider ourselves fully funded and we will not be issuing further equity for the ANC project at this stage.

Okay, got it. Second question is, I remember, if I remember correctly, the nickel mat that's been produced in HNI was being sold in existing Qianshan contracts to third parties. And then needed, I think you guys were trying to renegotiate some of those contracts into your own contracts, you know, selling to third parties yourself. So, Is there any progress in that in terms of actually getting kind of third-party contracts, you know, into the system?

Yeah, those discussions are still ongoing.

Okay, so nothing to report. All right, last question for me is I saw a headline, you know, a few weeks ago that there was an Indonesia onshore Forex deposit rule. And basically what it said was, you know, if you generated kind of, you know, export revenue and, you know, potentially in U.S. dollars, then you had to put that revenue into the bank for, you know, a certain period of time. So does that affect you guys, you know,

um is there any clarification as to whether you know like um you know that that still affect you guys and how that affects you guys financially yeah we we aren't flowing any of our dividends um back into indonesia which is where that requirement um for for a sort of a three-year deposit um would would sit um so ours flow directly out from Indonesia into Singapore and then in the case of NIC directly into Australia. So that's not something that would affect us. It's more for locally domiciled Indonesian companies that are taking advantage of a Singapore structure. but then flowing funds back into Indonesia, which isn't our case. And Chris, happy for you to add anything further to that.

No, that's covered it, Justin.

Thank you. All right, maybe I can take that offline. It seems a little bit more complicated than that. So I'll email you guys after the call. Thanks. Thanks.

Thank you. There are no further questions at this time. I'll now head back to Mr Weiner for closing remarks.

Thanks everyone again for your attendance this morning. Just to reiterate, again, another record production for both nickel and mine production and we look forward to continuing that growth across the September quarter with the added upside of strengthening margins at Oracle Nickel a ramp up in mine production and finalising the securing the acquisition of 10% in the HNC HPAL project. So once again thanks very much for your time and as always myself, Chris, Cam always available for any questions. Thank you.