Nickel Industries Limited

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

Thank you and thanks everyone for joining the Nickel Industries March quarterly results call. If I could ask the moderator just to move to slide two please. Kick off with safety and sustainability. Company-wide 12-month lost time injury frequency rate across NIC controlled entities was zero with no lost time injuries recorded during the quarter against 4.8 million safe man hours worked. And for the 12 months to 31 March, 17.7 million man hours worked without any LTIs. Company-wide TRIFR at the end of March was 0.45. We were saddened to report that there was unfortunately a fatality involving a contractor engaged by PT Fajar Metal Industry, who's building the ENC HPAL. It occurred on the construction of the transmission lines between the ENC plant and the slurry plant and dry stack tailings facility, which is being built on the company's Hengjia mine. Full support has been offered to the victim's family following a comprehensive investigation by the relevant authorities. All activities have recommenced within the Hengjia mine operations. except for work on the transmission lines. And we expect work to recommence there shortly. In other sustainability work, Hang Jaya mine is one of only a handful of mines that has been awarded a biodiversity area. And as at the end of the quarter, we were 50% complete in terms of construction of various facilities with inside that biodiversity area. which will allow endemic flora and fauna to be studied, act as an area of education, but probably most importantly, to be able to preserve those species. And then finally, we're pleased that we've been able to increase our university scholarship program. We're entering our third year of that particular program, and we're expecting to be supporting 30 students by year end. If we could just move to slide three, please. Police report US $135.6 million in adjusted EBITDA from operations. That's our strongest quarter since December 23, where we reported $135.4 million, which was an unadjusted number. So, strongest quarter in a while. RKEF production remained steady and pleasingly we saw a very strong increase in margins and that's reflected in the EBITDA rising from $35 million last quarter to $85.8 million for the March quarter. Our H&C HPAL continues to perform well above nameplate capacity, over 40%, and we saw increased EBITDA there, particularly in EBITDA per tonne. Mining all sales back at levels that we were pre the RKAB issuance and we were pleased to announce that we were able to secure 14.3 which is a nearly 60% increase on the 9 million tonnes that we held last year and that's against the backdrop of many of our peers receiving significant cuts. So the mining EBITDA was close to $30 million. If we could just move to slide four, please. Looking at our RKEF operations, the real story here is the significant increase in the NPI price. Sale price was up 19%, so the average sale price went from $11,100 in the December quarter to $13,201 in the March quarter. Pleasingly, costs were only up about 4% over the same period and so that allowed us to expand our margins by 155% from $1,114 in December to $2,842 over the March quarter. If we could just move to slide five, HPAL operations at HNC. Again, we saw an increase in the sale price there, up 15% from $17,110 to $19,690 in the March quarter. EBITDA was up, EBITDA per tonne was up as well. We are seeing some cost pressures from increase in sulphur price and the average sulphur price for the quarter was around $570 a tonne. But in terms of sulphur supply and security, we still maintain healthy stockpiles and at this point there appears to be no issues with securing supply of sulphur. If we could just move to slide six, please. The commissioning of ENC is progressing very well. We've been pre-commissioning a number of the major assets, power, water, acid plant, countercurrent, decantation, thickeners, precipitation tanks, autoclaves. That's in preparation for commencing fully integrated commissioning in May. So next month, and then we're targeting to achieve 100% of nameplate expected by around the end of October in 2026. Slight delay there, but still progressing very well. Again, coming to addressing the challenges with sulphur, we have stockpiles which will last us up till the end of September. And they were acquired at an average price of $450 a tonne, which is well below the market price at the moment at this point, which is $900 to $1,000 a tonne. And we were also pleased to announce during the quarter that Sphere completed the payment for acquisition of 10% at a 2.4 billion valuation. Sphere is one of only three accredited suppliers to SpaceX. and they're the only one with a long-term contract and we also now have started the process or about to start the process for registration with the LME for our nickel cathode. Assuming we're successful in that registration that we'll see our nickel cathode hopefully commanding a premium to the LME nickel price once registered. If we could just move to slide seven please. Again touching on RKAB, very pleased to announce that almost 60% increase to $14.3 million when a number of our peers have had significant cuts. The mine has had another strong quarter, over 3 million tonnes of ore was sold. Subsequent to the quarter, just recently on the 15th of April, the Indonesian government announced changes to the benchmark price or the HPM. In terms of SAPA-like pricing, the HPM pricing will bring the pricing more in line with what the current market price is. And in fact, it will still remain below the market price. And so we don't see any real change to the sacralite pricing. However, it will increase limonite pricing. At this point in time, and we supply to third-party HPALs, none of the HPALs in Indonesia have adopted this new pricing regime. And so we'll obviously continue to monitor that and see how it plays out. If we could just go to the next slide, please. In terms of new projects and development of our Sampala project, we're making very good progress. You can see that in the photograph there on the top left of the haul road. We've completed eight kilometres of a required 24 kilometres, which you can see on the bottom there, that haul road into the IMIP. And so that's progressing very well. The remaining 16 kilometres, we'd love to start building that today. We do need to wait for the necessary permits and approvals, which are in process. And in terms of the ability to mine, we're also well progressed in terms of approval of feasibility studies, particularly at the ETL project. On our Situasi project in Papua, we're also well advanced in gaining approval for a feasibility study. That feasibility study envisages a 2 million wet metric tonne per annum DSO operation of limonite and obviously given the recent changes in the pricing of nickel ore, we remain very focused on looking to develop these projects in the near term given the the very attractive economics of all sales at the moment. If we could just move to slide nine, I'll just hand over to Chris for the next two slides on cash flow and the recently announced debt refinancing.

Thanks, Justin. Morning, everybody. As Justice mentioned, we had an extremely strong EBITDA from operations this quarter of just over $135 million. The cash flow effect of that across the operations, across the RKF business, the mining business, the HPL business did not appear as strong with cash outflow across those three operations of approximately $10 million. This was predominantly due to the first item being trade payables reduction of $72 million. We had quite a lot of December inventory purchases that we paid in January and we also had some quite hefty December contract standby costs at the mine. When the mine was on standby, as everyone's aware, due to the RKB issues in December, we paid that during Q1 as well. Our trade receivables increased by $38 million, and that's quite very simply due to the increase in the NPI prices, as Justin mentioned, throughout the quarter. The HNC EBITDA of $16 million, that's removed as this is equity accounted and there's no cash inflows from HNC yet as HNC continues to focus on debt reduction, which is nearly down to zero. We also brought forward at SYN Creation, our trading arm, we also brought forward the payment cycle to HNC. All shareholders brought that forward. And we received some late payments for our sales, for March sales in April. So we've received some of that cash back in April. Other key cash flow items included the E&C payment, our final payment for 2% of E&C, which was $46 million US. The bank loan principal repayments, which was $25 million during the quarter. Bank and bond interest of $44 million US. And then we had some capex as well of $15 million. That was the H&I line repairs at the H&I RKF operation, some line repairs and some contractor setup costs at the mine post the standby. Can I move to the next page, please, operator, to page 10? Okay. Okay. As we announced yesterday, we successfully refinanced our existing bank loans. We had $398 million of bank loans outstanding. So on the 28th of April, we announced US $450 million new unsecured facilities. So we've removed all security from our bank loans now. That 450 comprises a 350 mil term loan and a 100 mil revolver. So we've increased our revolver from $50 million to $100 million. This refi or the financing was led by BNI. Obviously BNI have been with us since day one in our bank loans. And it also included six other banks, which was a mix of Asian and European banks. And we continue to thank all of these banks for the ongoing support that they give to nickel industries. The interest rates we are at so far, which is currently around 3.6%, plus 3.5% for the first six months. So that's exactly the same as where we are with our existing bank loans. And then it's a leverage-linked margin. So as we reduce our margin, as our operations increase, as E&C increases, ramps up. Hopefully Hangia we increase that beyond the 14.3 million stage and with Amparla on we expect to see our leverage naturally fall and as a result our interest margin will fall as well. We have managed to give ourselves a six-month amortization holiday on these new bank loans and you can see the effect of that on the right-hand side with the charts and It's for that reason why we're paying 3.5% for the first six months. Our current leverage would have us below 2.5 times, so we'd be in a much lower margin. However, we decided to pay that additional interest for the six months in order to give ourselves the cash flow benefit of the principal reduction as E&C ramps up. The loans have a final maturity of 30 June 2030, and we will continue with quarterly principal repayments. You can see on the right-hand side in the bottom chart the new bank loan amortization. I think we believe that's good discipline to continue to reduce the debt in the bank loans. The post-refinancing, we will have net debt of just under $1 billion, so US$994 million. US $800 million of the senior notes, the 144A notes expiring September 2030, and US $256 million of cash. We have changed the covenants. The covenant improvement in our previous bank loans was 2.5x, so net debt to EBITDA of 2.5 times. We have now increased that to a maximum of 3.5 times, which again reflects... the bank's views and then their credit committee's views of our strengthening business as we bring on E&C and we ramp up the mining operations. And importantly, we have included a covenant carve-out for the Sphere loan guarantee. So the credit enhancement that we gave to the Sphere lenders back in at the end of January There's a guarantee under there and under certain conditions, if Sphere was to default, Nickel Industries would be required to take on that loan. That contingent liability obviously has covenant effects and so for the purposes of these new bank loans, we have carved out the Sphere loan contingent guarantee for our covenant purposes. This refinancing has really, I think, given the company significant additional flexibility through the cash flow benefit over the next two to three years via the reduction in principal amortization and given us the ability to react or not be constrained by a two and a half times net debt to EBITDA covenant in a very cyclical industry as we're currently seeing the nickel industry to be. We, and again, we think that's a very strong result for the company and we are thankful to our, particularly the B&I, but to all banks for their support. Justin?