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.

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 two. If you are on a speakerphone, please pick up the handset to ask your question. As a reminder, please restrict yourself to one question. Your first question comes from the line of David Coates with Bell Potter Securities. Please proceed with your question.

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?

Yeah, Chris, I'll let you go on if you like. Yeah, sure. Thanks, Justin, and thanks, Kotsi, for the question. Yeah, I think the dividend, obviously, it's up on the first half of last year, but it is a consistent number with what we paid for our final dividend back in February, so back in Q1. As you know, we announced a revised dividend policy on the 30th of January. where we're moving from just maintaining the same dividend to actually basing it off our free cash flows. You'll note that off our free cash flows, this dividend, and sorry, the range there and its guidance, it is a guidance, is 30% to 60% of free cash flows. We've come in just above that at 65%. However, as Justin alluded to, and when we took you through our quarterlies as well, this was an exceptional quarter, abnormally hit by some exceptional items to our EBITDA, and our free cash flows. So when we back that out, when we consider the back out of those items, the payout ratio is more like 45%. So it's within our range that we've guided investors in the market to. But you're right, some people would see it as a positive surprise, and I think that's evidence of where we're seeing the market evolving over the next six to 12 months and the strength of our cash flows and where we see the company positioned when ANC commissions early next year and we get the boost from that.

Excellent. Thank you.

Thank you. Your next question comes from the line of Adam Baker from Macquarie. Please proceed with your question.

Thanks for the result. Just one on the share buyback, which was previously announced, the $100 million buyback. Just wondering what the status of that is and how that fits into the capital management framework. Thank you.

Yeah, I'll take that one as well, Justin.

Yeah, you go.

Oh, sorry, sorry. Do you want me to? Yeah, okay. Yeah, Adam, thanks for the question. We obviously, it wasn't just a revised dividend policy on the 30th of January. It was actually a broader capital framework program, as you just mentioned. Part of it was the dividend, part was the share buyback. We couldn't do anything in the share buyback for the first six or seven months after announcing that because we were waiting for FERB approval for our second largest shareholder to be able to increase through 20%. Subsequent to that, we've obviously had, or during that, subsequent to that announcement on 30th of January, on that same day where we announced a record EBITDA quarter of $135 million, I think it's fair to say the next two quarters were significantly below that due to those abnormal factors that Justin's run you through. We've obviously just announced a Sampala acquisition as well, a project acquisition. And so we're balancing the returns of capital to shareholders, as we mentioned we always would, to actually the capital requirements for the company. And conscious of the operations of the company, whilst we are positive on the outlook, hence the increased interim dividend, we think it's prudent to be a little bit cautious for now, and particularly as our cash flows are significantly lower than we were expecting when we announced that share buyback. We're not saying it's off the table, but we're constantly monitoring it, the management team, and if we see a need to get to, or if we see a desire to do that, we still have, I think, 10 or 11 months under that existing approval to continue on that by-vote.

Okay, great.

Thank you. Thanks, Adam.

Thank you. A reminder to all participants that you may press star one to ask a question. We have a follow-up question from David Coates with Porter Securities. Please proceed with your question.

Thank you. I was stuck to one the first time around, but I might give you a couple this time. Guys, let's see. So the margins that you're getting from the HPAL... production. They're really strong and good relative to the current offtake. How's that impacting or affecting the consideration of a sell-down in the Excelsior Nickel Project interests?

We are still working through that process and we do have a a number of interested parties, some of which have submitted a non-binding offer. They're now in the process of sort of appointing advisors and moving into a more thorough due diligence phase. And so that is progressing well as well as we're in dialogue with a number of groups around off-take of MHP, cathode and sulfate. process is progressing and we look forward to updating the market sort of hopefully more towards the end of this year.

Coatsy, just so that there's no misreading of that, any sell-down would be of Singchun State, not of Nickel Industries. We will be remaining at the 55%. Yeah, correct. Understood. Okay, thanks.

And secondly, Justin, you mentioned oil prices attracting some pretty good premiums at the moment. Can you just run us through some of the factors that are driving that?

Yeah, a number of factors. The crackdown in the issuance of RKAB licences Poor operators or those with a bad track record of mining have not been given any allowance for all sales until they rectify the defects that have been identified in their mining operations. So that has meant that there is a reduced volume of ore available to be sold. The significant rainfall obviously impacted all mining and all sales as well. And so that has led to a short squeeze in the oil market, which being reflected with, in June, almost a million tonnes of oil was purchased from the Philippines. This sort of highlights, I think, again, the advantage of NIC being fully integrated with the mine to our RKEF and HPA operations. We're currently 50% self-sufficient with oil for our RKEF operations, HNI operations, R&I and ONI in IMIT and with the Sampala acquisition that we also just recently announced this week that will take us to 100% self-sufficiency for the next sort of 40 to 50 years so it won't be an issue that we will have to concern ourselves with but it is something that has arisen through a number of factors but again it just highlights the the importance and the advantages of being fully integrated from mining all the way through to processing.

Excellent. Thanks, Justin. Thanks, Chris.

Thanks, Dave. Thank you.

Thank you. Your next question is from the line of Dim Arya Singh with UBS. Please proceed with your question.

Thanks, guys. Thanks, Tim. Just a couple of questions from me. Maybe just first on the market. You made some comments earlier about a recovering MPI price. Can you maybe just give us a little bit more on that? Like what's driving that? Is that demand-led or is it some of the supply correction that we're seeing? Please, I'll come back with a second.

Yeah, thanks, Tim. No, you've highlighted there it is a bit of a supply correction as well as that what is interesting in the NPI market is for the first time we're now seeing a market outside of China. So we have European stainless steel producers that are actually now purchasing nickel pig iron as opposed to scrap nickel just given the cost benefits. And despite sluggish conditions in China, stainless steel growth still looks relatively robust moving forward. And again, there has been a supply correction, so we have seen higher costs. It hasn't just been producers of Class I and intermediaries globally that have been affected. There has been NPI producers in China that have also been affected. come out of the market, some of the higher cost producers. So that's what sort of led to a strengthening and improvement in the MPI price. As well as in Indonesia, there has been a lot of conversion of RKEF lines from nickel pig iron to nickel matte, which has also taken a considerable sum of MPI out of the market.

Cool, thanks. And just a follow-up question on Impala. It appears a pretty good strategic move to secure a ore supply and become further integrated. I'm just wondering around that, was it a competitive process? and maybe some questions from the other day, but, you know, did you initiate proceedings or... I'm just trying to get an idea of, you know, competitors for Indonesian ore supply and actually locking up volumes like you've done.

Yeah, no, look, thankfully for us, it wasn't a competitive process. So it was done in partnership with our long-term... local partner who we have had a long-standing 15-year relationship with and he's been our local partner in the Angiomine. And I say thankfully it wasn't a competitive process because if you look at the valuations that we had in the presentation, the most recent nickel mine transaction was done at a multiple of $272 US per ton of contained nickel metal. We're currently acquiring Sampala at US$39. So it's a very attractive acquisition price, very attractive terms in terms of deferred payment, not for 18 months or longer. And look, our local partners always had a long-term view. As I said, we've worked together for a long time. With Fengjia Mine now producing the volumes in the EBITDA that it is as a 20% shareholder, he's going to have a very strong dividend for the next 20 to 30 years out of Fengjia, and likewise for the Sampala project. And I think if you take those multiples even outside of Indonesia, if you look at the IGO acquisition of WSA, that was done at a $900 a tonne multiple, and Mincol... It was done at $2,100, so $39 US a tonne. Very compelling acquisition. Already over 2 million tonnes have contained nickel metal in just 20% of the project area. The opportunity for this to be one of the largest global nickel resources in close proximity to our existing operations made it very attractive. It was really a result of the strong relationship that we have with our local partner. The opportunity was only made available to us and we've been able to capitalize on it.

Okay, cool. Thanks. I might squeeze one last one there, if okay. I might have to take it offline though and maybe it's one for Chris, but just on the reclassification of some of the prior period expenses. I think there was a list of consensus on that. Is there a simple explanation for that? I might come back next week, but yeah.

Yeah, okay. Sorry, you cut out a bit then, what was the reclassification?

Yeah, so just on just like explaining it at a high level, like what you've done. So I note that there was a bit of a risk to MPAT because of those reclassified expenses.

Yeah, yeah. So when we're going through the audit with KPMG, I think you're talking about where we reclassified some of the... dividend distributions. So it was the withholding taxes on dividend distributions. When working through it with KPMG, we just decided that that was best to come out of other expenses where it was previously sitting and putting into income tax expense. There was also a foreign exchange gain in there as well that we reclassified to financial expenses.

Okay, cool.

Okay, thanks, Tim. Thank you. Your next question is from the line of Eddie Lee with Medlife Investment Management. Please proceed with your question.

Thanks for the presentation. Just a couple questions for me. First, could you give us a little bit of an idea on like a Sampala acquisition funding plan? So I know the actual payment could be further delayed, but just curious what your thoughts are on the funding side. That's my first one.

Yes, so we have a three-month due diligence period before we're required to pay a commitment fee of US$2.965 for two of the projects. Then an 18-month period where we've agreed an exploration program and we will drill it out. And then based on only... Every dry metric tonne at 1.7%, so anything less than 1.7% we don't pay for. We pay a multiple of $2.50 per dry metric tonne. So that payment based on the agreement is more than 18 months away. And pleasingly, the ETL IUP, which is the one to the far north, A lot of work is already being done in terms of feasibility studies being submitted, environmental studies being submitted. A haul road has already been planned and geotechnical work has been done on that. So applications to start construction of that haul road have been submitted, as well as a mine plan for ETL. And so our target is that we aim to start mining from ETL by the end of next year. which means that we should be able to be in production actually before we make the final acquisition payments. Our local partner's comfortable with that. And so for us, pushing out, deferring the payments and allowing money to go into the ground in exploration and then in mine development to see us through to cash flow, obviously very attractive. And in terms of CAPEX, Less than $50 million. We don't have to build a jetty because we're not on the coast. We do have 22 kilometres of haul road to build, but that then links into 30 kilometres of haul road that is already existing and that leads directly into IMIP. So from a CapEx perspective, very low CapEx. And then if you look at the current oil margins, using an average of sort of $15 a tonne, Our initial plan is to be at 6 million tonne per annum, ramping up to 12 million to sort of reflect the run rate at Hangia Mine. Applying a $15 margin to those numbers, you can see that the payback is extremely quick and the IRR is sort of around 50%, so very healthy. These mining operations are long-term, low-cost and extremely profitable.

Yeah, my question was more like in terms of the actual kind of consideration of cash you will hand over to your partner for purchasing Sampala. So just kind of curious on that debt and equity funding mix for that or internal cash.

Yeah, I mean, we obviously won't know the final number until we complete that exploration program. But given the very strong cash flows out of Sampala, out of Hengjia Mine. We could fund the acquisition out of the cash flows of our existing mining operation. And we actually did put in the presentation that at this point in time, the acquisition price would be around $42 million for 62%. Okay.

Got it. Thank you. And then my second question is just regarding the appointment of Ms. Emma Hall as an independent non-executive director. Just curious, so how many independent directors do you have on board?

At the moment, we have two.

That's including Ms. Emma Hall?

Yes.

Got it. Thank you. That's all for me.

Thank you. A reminder to all participants that you may press star one to ask a question. Your next question is from the line of Tim Shaw with Lizard. Please proceed with your question there.

Oh, hi, Justin and Tim. Thanks for the presentation. Two questions for me. First one, just on the acquisition, can you confirm that, I mean, I understand the haulage row you have or you try to build, I think it's probably bypassed some of the dead cast acreage. Can you confirm that that is not an issue for you guys to build a haulage row there? Second question is, can you, I know you guys don't provide any cost guidance, but could you provide some maybe directional guidance on where you see cost, I mean, obviously, consider where the coal price is today or even the senior stock price today. And I think your earlier comment about, you know, oil price become quite expensive at the moment. So, yeah, can you just give us some directional comments on where do you see cost from here today? Thank you.

OK, look, apologies. For some reason, it's a bad line, so I didn't quite catch all of that, but I understand the question was around costs and... and coal pricing. Costs have come down as you can see from the first half of 2023 to the first half of 2024. We are expecting a small increase given the issues that we've outlined with ore supply. But the benefit again of having the mine is that whilst we may see higher costs in our We are actually seeing this being reflected in higher NPI pricing, and so we're seeing some margin preservation through that. But pleasingly, we're picking up a significant margin improvement at our mining operation.

The other question was around the haul road and whose property it was going through. Tim might have thought it was going through Medeca's, but you might want to talk to him about BDM.

Okay. Assume this is the Sampala haul road, but that will go 22 kilometres from our project into Bintang Dilapan, which is a mine that's 49% owned by Ching San, 51% a local partner, and then using 34 kilometres of existing haul road there. So that's the plan at this point.

Great. Thank you, guys. Thanks.

Thanks, Tim. Thank you. There are no further questions at this time. I'll now hand back to Mr. Werner for closing remarks.

Okay. Thank you again, everyone, for your attendance today. And again, the sort of final comment I would leave you with is that, you know, the skies have cleared and we're seeing that already in terms of mine production, strengthening NPI, strengthening HPL margins. So, you know, the We're very focused and look forward to delivering a strong second half to the year. So thank you again for your time.