Nickel Industries Limited

Thank you and welcome everyone to Nuclear Industries' 2024 half-year results call. If I could ask the moderator to please move to slide two. Thank you. Starting with safety, 3.25 million man-hours worked at the Hangia mine with no recorded LTI, so that's a lost time injury frequency rate of 0.07, which is world-class. Similarly, at our RKF operations for the first half of 2024, 4.93 million cumulative hours worked and that's a lost time injury frequency rated 0.316 and there was one LTI recorded at the ONI operation. In terms of group safety, first half of 2024, 8.18 million man hours worked with one LTI. And that's a lost time in the frequency rate of 0.182 per million work hours. In terms of ESG, we continue to be a leader in the sector. We've maintained the highest MSCI ESG rating through the Indonesian-based mining and metals company. And then throughout the first half of this year, we continue to receive a number of awards, including two gold awards at the Nissan Tower CSR Awards. and winner of the ESG award for the nickel sector by Treenasia and Visa, local domestic groups that have recognised and awarded us for our work in the ESG sector. Finally, the green proper rating. We've maintained again our green proper rating and achieved the highest score of any nickel mining company in Indonesia, as well as the fourth highest score of all mining companies ordered across all commodities. If we could move to slide three, please. This is a very proud achievement for the company. We have now established a local foundation and through that we've set up a university scholarship program and delighted to welcome our first 10 local Indigenous students. We will be putting them through undergraduate degrees across the field of different studies including metallurgy engineering, mining engineering, environmental engineering and we will continue to do that so by the end of year five there will be 50 students annually which will be going through these various fields and it's the first initiative of many under our recently established foundation in Indonesia and so we look forward to tracking the progress of those students and obviously very proud of their achievements and wish them well in their studies. If we could just move to slide four, please. First half review, challenging due to some exceptional circumstances, but still robust EBITDA across our operations despite challenges including a delay in issuing mining licenses and then exceptionally high rainfall for the second quarter of this year. Maintenance of and declaration of an Australian 2.5 cents per share interim dividend, which was fully funded from 100% of our conduit foreign income. In terms of nickel production, 63,000 tonnes for the first half of the year and 4,117 tonnes of nickel and MHP from HNC. I'll talk about HNC and EMC a little bit later on, but we're seeing exceptional results out of HNC and strong EBITDA. The ton margins, which bodes well for EMC, looking at commissioning towards the end of next year. The mine continues to go from strength to strength. We saw realized mine EBITDA of US$39 million. That was impacted somewhat by the first two months of this year, January and February, we were unable to make any sales, but we now are catching up and in fact we're on track for August to be a record in terms of all sales for the mine. And then finally on the corporate front, we've increased our equity interest in the EMC HPAL project to 44%, so there's only a remaining 11% to be acquired. We announced the trial sales of Nickel Cathode to a leading Western space and aeronautical company. And we are seeing a lot of interest in Cathode, particularly for the alloying industries. And that's a market that is quite exciting for us, and I'll touch on that a little bit later on. We successfully syndicated out two loans, a US $400 million from BNI and then a $250 million term loan to Citi. And as I mentioned, we were awarded the highest sustainability score in the intervention mining sector with our green cooperating. If we could just move to slide five, please. Key numbers here, sales, slight decrease by about 9.5%, decrease in EBITDA from RKEF operations, but pleasingly, a significant increase in EBITDA from line operations. So that was up almost 50% from $26 million to $39.1 million. As I mentioned, maintained the Australian 2.5 cents per share dividend. And this has been across the first half of this year. If you look at what's been happening in the global nickel market, we've seen significant global shuts and a number of operations with a loss matrix. And so despite that, as I mentioned, still robust EBITDA and we are looking forward and optimistic to a strong second half of this year, which actually probably is reflective of similar sort of conditions for 2023. We had a somewhat slower first half of 2023 and then we came home very strongly in the second half of 2023 and we're focused and optimistic of having the same result in 2024. If we could just go to slide 6, please. EBITDA to profit reconciliation. You can see the numbers as we work through them. Increase in interest expenses, obviously with the loans, and some increase in interest given the difference in cash. And that's led to profit after tax of $14 million. So the numbers are pretty consistent there. If we go across to the next slide, please, slide 7, just going into our RKF and HKL operations in a bit more detail, an increase in nickel and NPI tons of 25%, and that's really just a factor of we have ONI fully ramped up. Nickel and NAP tons, a decrease. We decided at the beginning of this year to convert that to nickel-pig iron. and there was an increase in total nickel production tons from the first half of 2023 to the first half of 2024. You can see here the significant decline in the weighted average contract price, down 27%, so it was averaging $15,476 in the first half of 2023, down to an average of $11,290 for the first half of 2024. Pleasingly though, seeing our cash costs trend down in line with that contract pricing. So our costs have come down from $12,800 to $9,700, and we continue to focus on the leaders that we can to improve the cash costs and also improve the yield out of our RKEF operations. So overall, that led to EBITDA from RKEF operations of US$90.9 million Moving across to HNC, you can see nickel and MHP of 41,000 on an annualized basis that's over 80,000 tons and HNC has a main plate capacity of 60,000. So you can see the material beat there to the main plate capacity that HNC is achieving and we would be hoping for a similar result from EMC. provided there both the EBITDA and the equity accounted profit from HNC and also at the bottom there the combined pro forma HPAR EBITDA of US$22.6 million. Across the first six months that gives you an EBITDA per tonne number of about $5,500 and pleasingly that number is currently sitting around $7,000 to $8,000 a tonne so we are seeing very strong margins in the HPAL business, in Intermediary and Class 1 nickel. And as I said, that bodes very well for EMC coming online next year. If we could just go to slide eight, please. Continue to maintain a conservative balance sheet. The change in assets is really just a reduction in cash and inventory. But as of 30 June, debt of US$753, cash of US$350, so net debt of US$402. Subsequent to the quarter, we drew down on the US$250 million five-year loan facility and we also made a US$379.5 million acquisition payment to increase our ownership in ANC to 44%. We brought that payment forward from the original schedule with the intention of bringing forward cathode and sulfate production from the contracted date of October next year. If we could just go to slide nine, please. Despite a challenging first half, which, as I mentioned, delays in AAD licenses, and that was really just a result of greater scrutiny on mining operators across Indonesia. We were amongst the first 40 to receive our RKOD, and those RKODs are now for a period of three years, so thankfully it won't be a process that we will have to go through at the beginning of next year. So that resulted in two months of no sales for the first quarter of this year, And then we came into the second quarter and we had exceptionally high rainfall, 1.3 metres over the quarter, which is 48% and 91% higher than the prior corresponding periods in 2022 and 2023. We are now in the dry season. I mentioned August, we're on track for record sales and production. During the dry season, we are now focused on doing a lot of work on our haul road, with the aim of making it available 24 hours during wet periods. And that's involving a lot of work in terms of resurfacing, shooting the road, geotechnical work, drainage and things like that. So the goal will be that we will be prepared for next season where we will look to significantly limit the impact of any rain on all sails. pleasingly though despite those challenges as I mentioned the 50% increase in EBITDA from the mine of $26 million for the first half of 2023 to almost $40 million for the first half of 2024 and again we expect a strong second half from the mine we are seeing increasing ore pricing and in fact we're seeing premiums of up to $20 per tonne above the current HPM price So that bodes well for a strong performance from our mine for the remainder of this year. If we could just go to slide 10, please. Excellent progress has been made on the E and C HPAL. Birthworks and footings are now largely complete. And the key long-lead critical items, such as the autoclaves, the preheaters, and the flash vessels, which are really the heart of the HPAL, They have all been fabricated. You can see some photos there of the Auto Club. They are ready to be shipped over the course of September, along with other critical equipment. And that equipment, some of it is being sourced from Australia, from the US, Germany. And so all of those parts are ready to be shipped out. particularly excited to unveil that Ching San has committed to this project becoming a green forest living precinct and this is a precinct that Ching San is building. This is not part of the E&C project but it will house E&C staff and it will be the support base for all of the E&C operations and this will be a state-of-the-art living precinct. You can see a photo there of the living accommodation and it will be surrounded by shops, restaurants, sports fields. So it really is going to be a world-class operation. Everything within it will be electric, so electric trucks, electric transport, electric forklifts, everything like that. So the aim is this really will be a showpiece of sustainable and world-class nickel production in the center of Indonesia. And so we're obviously delighted that Qingshan has chosen the EMC HPAL for this particular project, which I think, as I said, will be a world-class showpiece. If we could just move to slide 11, please. This is just really a recap of the first half. So I've mentioned nickel cathode and we're seeing good interest from nickel cathode. One of the attractive elements of EMC's ability to produce nickel cathode is that it's also LME deliverable. So we have a market that's there at all times and able to attract the spot price. If we could just go to slide 12. Again, all of these points we've responded to. Finally, we announced the appointment of an independent non-executive director, Emma Hall. We warmly welcome her to Nickel Industries. She brings a range of diverse industry experience, particularly across the global battery metal chain, and she has been involved in various roles with energy manufacturers across USA, Europe, Japan, China, and South Korea. So give them the transition of the company into HPAL and to that EV battery market, we warmly welcome Emma. And as I said, she will have a tremendous amount of experience and expertise inside of the industry. So in summary, despite some exceptional circumstances and challenges this year, we were able to Robust EBITDA again against the backdrop of a global nickel environment where numerous producers were going out of business or shutting down. We are now set up for a strong second half of the year given much drier conditions and very strong ore pricing coming through for the Hang Giant mine as well as an improvement in the nickel pig iron price and then Looking at our HPAL, again, we've seen margins increase there, as I mentioned, to $8,000 a ton for the MHP. So with that, I'll hand over to Q&A. Thank you.

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Thank you. Good morning, Justin, and congratulations on the result this morning. and thanks for the opportunity to ask a question. The questions around the dividend are really a positive surprise for me anyway to see that dividend increase. We've been expecting it to kind of come through but a little early in expectations which I think is a great signal. Can you just give us a bit more background perhaps on the thinking behind that list in the dividend?