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?

Yeah, thanks Chris. So look, in summary, another very productive profile quarter. Just touching on Chris's comments, obviously optimizing the balance sheet holds us in very good stead given that there is some market volatility at the moment. Outside of that, our focus remains on just completion of the EMC, particularly around the commissioning, and then just ensuring that we make that ramp up at the end of October of this year. Given the significant increase in the value of all resources in Indonesia, we remain extremely focused on delivery of the Sampala and the Sidoasi projects in the near term. So whilst we are experiencing cost pressures, it should be noted that we've also seen a significant increase in the LME nickel price, so that's up from $14,892 average price for the December quarter to $17,338 for the March quarter. And current spot price is well over $19,000 a tonne. So whilst we are seeing some increasing cost pressures, we are also seeing the LME nickel price rising in step with those rising cost pressures. And given the integrated nature of our operations, that stands us in much better stead than a lot of our peers. So with that, I'll hand over to questions.

Thank you. If you do wish to ask a question, please press star then one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. And if you are on a speakerphone, please pick up your handset to ask your question. Your first question today comes from Richard Knights at Nickel Industries. Please go ahead.

Oh, I'm working for you guys now. Don't tell anyone. Hey, thanks for the call, guys. Just on the cash generation, perhaps could you just dig a little bit deeper into the cash generation at the RKEFs in particular? It just seems a little odd to me that it was so low given the $86 million of EBITDA and I think it was $3.5 million of operating cash flow, the RKF.

Chris, do you want to play on? I can take that. Look, the big one in it is the reduction there in payables. We had a significant decrease in the trade payables. We did, Richard mentioned, We took a decision in December when the mine was on standby and there was uncertainty around the archive. We really did build up a lot of the... We had December inventory purchases, quite a large stockpile build. And we paid for a lot of that. Obviously, the payments for that came in Q1. That was a very large part of it. And I think that's turned out to be a very... prudent decision um in in given where we've seen oil prices continuing to increase uh i think buying it buying back then what what was what was the right thing to do um and we're very happy uh that we made that decision with sing shine to do so okay so i mean would you expect that to sort of unwind or are you going to keep your infantry that Look, you can see that it's a very uncertain period at the moment. Ordinarily, I would say, yes, we expect it to unwind. But I think we really need to carefully monitor the market situation in response to the ore pricing formula changes. It won't have a huge effect in the RKF business, the saprolite. So, yes, I would expect it to unwind. But it's more we just have to watch how things evolve over the next couple of months.

Yep, okay. Okay, thanks. Maybe just on the sulphur issue, can you remind me just what your cost sensitivity is in the HPALs, i.e. how many tonnes of sulphur per tonne of nickel production?

Chris, do you want to take that one or do you want me to take it?

Yeah, no, that's fine. Look, the sulfur, I don't think we've actually given the specific tonnage, and I don't think we are in a position to give that, given we're a 10% minority shareholder, where PNC is obviously not up and running yet. We have given some information around the effect of what an increase for every... every $100 increase in the sulfur price increases our operating costs by about $1,000. That's the expectation when ENC is up and running. So $1,000 per ton of sulfur.

Yep. Yep, yep. Okay. And, you know, given the current situation, I mean, how are you thinking about... How are you thinking about inventory levels and when you'll need to restock? Obviously, it's a day-by-day thing, but I suspect you don't want to run that three to four months of inventory down to zero.

Again, it's not only the ore situation which is fluid. Clearly, the Aram water is a fluid situation. As Justin mentioned, we've got the inventories out to August or September, as it currently stands. And that inventory was purchased, the sulfur was purchased at $450 a ton. Clearly, when you've got a current spot price of well over $1,000 a ton, we're well positioned. As you said, we're not going to run it down to zero, of course. And if we have to go into the market and secure more sulphur, and at a later date we'll take that decision at the time.

Yeah, okay, thanks. Perhaps you can't answer this one, but just in terms of the broader industry, non-integrated producers must be really feeling the pinch right now of these limonite price hikes and obviously higher sulphur prices. Is there any evidence or any comment you could make around the broader industry and what their reaction has been to, A, these price hikes and the input, the limonite price hikes, and, B, the sulphur squeeze.

Yeah, Justin, I'll hand that one over to you.

Yeah, thanks, Chris. Look, I think the reaction to the increase in limonite pricing has been that the broader industry hasn't adopted it and it looks like it's unwilling to adopt it. So we'll see how that plays out. And, I mean, you are seeing, we had an announcement recently of a non-integrated HPAL producer, Huafei. They're taking this opportunity where we've got sort of high volatility, high prices in terms of ore and sulphur to do some maintenance on their HPAL. So we will see some tons coming out of the market. And there's reports of other producers, again, non-integrated, potentially, you know, sort of either reducing production or taking the opportunity to do maintenance as well, like Huafei. So I think, once again, what it's highlighting is the advantage of being a fully integrated producer from mining across RKEF and HPAL projects, as well as, you know, having our own captive power. But look, margins at this point, still remain very healthy across HPAL and RKEF and I think it really comes back to your question of we have significant stockpiles across all of our operations which I think was the right decision to go into the market and buy before a lot of this volatility was introduced and then we'll obviously continue to monitor the market in terms of the appropriate time to come in and refresh our stockpiles of of ore and sulfur and other key consumables for our operations.

Okay. Great. Thanks, Justin. Thanks, Chris.

I'll pass it on.

Thanks, Chris.

Thank you. Your next question comes from Austin Yoon at Macquarie. Please go ahead.

Morning, Justin and Tim. Just a couple of questions for me. The first one is just extension to the sulfur exposure you have. I understand you're a minority stakeholder. I'm just keen to understand if you can provide some colour, like knowing that the price is going to be doubled, is there any kind of hedging or any special, you know, price protection or cost protection mechanism in place? Or we should just think, you know, once you switch to spot market, the cost is going to go up. That's the first one. I'll circle back with the second. Thank you.

Look, thanks, Austin. At this point, no hedging of sulphur. I would add that... We've been very active as well in looking at alternative supply sources for sulphur and there are a number of alternatives to the Middle East. At this point, given that we have at ENC stockpiles out until almost the end of the year, we are, as we've said, continuing to monitor the situation. and depending on how things play out, we'll react accordingly.

Okay, thanks. Secondly, on the new HPM regime, you mentioned that this hasn't been implemented. I just need to understand if you have a view on how quickly or how slowly this can be thrown out. And also, given that...

um nickel industry has a bit of exposure how should we think about the exposure from the royalty cost perspective thank you yeah so look it it um the hpm is has been implemented by the government it's just it hasn't been adopted um on the limonite pricing um by by current hval producers within uh within indonesia um based on the initial work that we've done um The net-net for our business across, obviously, an increasing saprolyte price means better margins for our Pangaea mine, which we own 80% in, could potentially put pressure on margins at our RKEF business, which we also own 80% in. So, look, net-net, there's not a big change. We're just simply transferring margins from RKF operations to mine operations, although we will lose the benefit of the tax holiday that we currently enjoy within the RKF operations. And then on the HPAL side, as I said, at this point the new pricing regime has not been adopted by any HPAL producers. Assuming that remains in place, they do have the buying power at the moment, given that limonite is in abundance, and there's a number of producers with very limited RKABs that need to be able to sell all. I think that that may stay in place, but again, it's obviously a... very dynamic environment at the moment, not just in terms of nickel pricing, but in terms of global volatility and what's happening in the Middle East.

Thank you. Thank you, Dr. Carter. I'll pass it off.

Thanks, Austin.

Thank you. Your next question comes from David Coates at Bell Potter Securities. Please go ahead.

Great. Thanks, Justin. Thanks, Chris. Some really good color from both of you there on the results. Just an apology if I miss this, but just on the talk about sulfur and what about on the diesel front? Indonesia is reportedly close to self-sufficient and the government does have a hand in setting pricing. Can you just give us a bit of background on prices and availability and the outlook for diesel in Indonesia, please?

Thanks, Dave. As you've correctly pointed out, Indonesia is self-sufficient in terms of supply of diesel, so there's no supply disruptions anticipated in the pipeline. Given that it is heavily subsidised by the government across the whole archipelago, we've seen very modest increases in diesel, and I should note that in terms of our operations, our Refining operations, our RKEF, our HPAL use very little diesel. The only real major usage is in our mining operations and we have contract miners who obviously are responsible for sourcing fuel for their equipment. And over 30% of our fleet in terms of trucks is electric. So we haven't seen any real... any real interruptions or any significant cost pressures from the increase in diesel prices, which has obviously impacted other operations globally.

Excellent. Good news. And just finally on the ENC HPAL commissioning, you've given us the date of October as sort Can you just give us some background on what delays have been and how that ramp-up is looking from here?

The unfortunate delay has been the fatality of the contractor to FMI. That set us back a couple of weeks. challenge being is that sort of pre that we had somewhere sort of in the vicinity of about 3,000 contract workers on Hang Jaya mine working on the slurry pipeline on the dry stack tailings facility and on that transmission line. With the temporary stoppage of work And then the restart, it obviously was challenging to recruit and bring back that large number of workers. And so that's sort of what's led to the delay in commissioning. But I think, obviously, testament to Ching San, they've still been able to start the pre-commissioning of a lot of the key pieces of equipment. And that's progressing very well. And so it's really now the key milestone for us is the Surrey pipeline, which obviously is going to feed ore into the plant, completion of that, and that's now back on track. And whilst we've lost a small amount of time, you know, Tsing San remains extremely confident of the ramp-up profile and hitting that nameplate capacity by fourth quarter of this year. which is, you know, it's a very, you know, if you look at it, it's a very quick ramp up. But they've done it before.

Yeah, well, the HNC is a great template. Well, thanks, Justin. Thanks, Chris. Cheers.

Yeah, thanks, Abe.

Thank you. Your next question comes from Mitch Ryan at Jefferies. Please go ahead.

Morning, guys. Thanks for taking my question. Just with regards to the HPALs electing to not pay the HPM or not adopting it, Are they challenging it on legal grounds or are they just literally ignoring the government regulation?

Yeah, no challenge on legal grounds, simply just ignoring the government regulations. So pushing the burden back onto the mining operations in that the mine, whilst they can sell at a lower than HPM price, they will still have to pay a royalty on the HBM price and they will still have to pay tax on that deemed HBM price as well. So, you know, on mining operations, you know, that pass is actually being... Rather than being passed on to the refineries at this point, it's simply being passed back to the miners. And, look, that's just on limonite. There's... saprolite, the HBM, actually brings the price in line, or actually still a little bit less, but in line with what the current market price for saprolite is. And obviously, you know, the government receiving royalty on a, you know, $26 saprolite price when the current market price is around $40, they're losing out on the royalty on that $40. So that, I think, is sort of what drove the decision to revise that price. that HBM pricing, although I think they've probably overcooked the limonite pricing. And as I said, we'll see how that plays out over time.

Okay. So the government's still getting its take on the limonite pricing. It's just from the miners.

Correct. So at this point in time, that change is being borne by the miners themselves. And I mean, look, I do think the HPALs probably had some pricing power here in that, you know, mines have limited RKABs. and very limited customers that they can actually sell limonite to.

Okay, perfect. No, I appreciate the colour, and for taking my question, that's it for me.

Yeah, thanks, Mitch.

Thank you. Your next question comes from Jitmin Tang at Barclays Bank. Please go ahead.

Hi, morning. Just one question here. You said your mining unit operating cost for the quarter is significantly higher than what it was a year ago. Were there any other reasons besides the contractor's standby costs?

No, look, predominantly driven by the contractor's standby costs. We have had increases in mining costs driven by, obviously, inflation, also increases in the diesel price. But mostly, we've seen standby costs last quarter We saw a small amount of standby costs this quarter related to the temporary stoppage with the incident that occurred. But overall, costs at the mine remain pretty stable, and we don't see that changing.

Appreciate that.

Thank you. Thank you. Your next question comes from Donovan Tan at BlackRock. Please go ahead.

Good morning. Thank you for the presentation. I think I have a couple of questions. I'll start with the first one. So I think you guys mentioned on the software site about the MEDOE supply. But I was kind of just reading about China banning the export from May to December. Do you guys think that that will have an impact on your margins?

China's banned the export of sulfuric acids. We have our own sulfuric acid plant, so we make our own sulfuric acid. So we obviously buy sulfur. So the Chinese ban purely relates to the end product, sulfuric acid, which we don't buy or consume.

Oh got it, I understand. Alright, then the second thing is more of a clarification point. So in your covenant carve-out for the sphere loan guarantee, what's the carve-out like? Because I'm assuming that this is if you guys take over the loan then that wouldn't be included in the leverage calculation, is that correct?

Yeah, so thanks for the question Donovan. The carbon I'm really focused on is the net debt to EBITDA. So we've got a three and a half times net debt to EBITDA cut max, up from two and a half times. As it stands now, as it's a contingent obligation, it is not included in that calculation, in the net debt to EBITDA calculation. If it is exercised, then it will come in and we will need to consider, sorry, I say if it's exercised, If Sphere defaults and it ends up that they cannot cure and Nickel Industries ends up taking over that loan, it gets put to us, then it will be included in the calculation and we will address that as and when we get to that situation. One of the things we did when entering into the agreements regarding the Sphere loans and providing that credit enhancement, we started having those discussions in late 2025. And for that same reason, we started looking to refinance our bank loans in 2025 to accommodate this. So we've worked with our existing bank loans over the last five months to give us as much flexibility regarding that sphere loan guarantee.

Got it, thank you. Just one final question on my end regarding the registration of your products on the EME site. Is this basically like a almost confirmed kind of thing or?

Sorry, what was that?

Is it a formality? Once we produce the cathode out of the ENC project, and start to seek to qualify with the LME. Is it a formality? Is that correct, Donovan?

Yep, that's correct.

I mean, there's certainly a process. It's not a formality in terms of its being guaranteed registration, but we're extremely confident given that we've passed a significantly extensive and exhaustive testing process from Sphere and SpaceX in terms of the quality of cathodes. It's not a formality but we're very confident of being able to meet the LME requirements for registration.

Alright, got it. Thank you. That's all from me.

Thanks, Conrad. Thank you. Your next question comes from Aman Agarwal from JP Morgan. Please go ahead.

Hi, thanks Justin and Chris for the presentation. I had a couple of questions, firstly on the payables. Are these payable reductions mostly to Sing Shan or are these third party, what is generally the split there?

Sorry Aman, it just cut out there halfway through. Regarding the payables, can you re-ask the question please?

So these payable reductions, are these to SingShine or are these to third parties? What is the split there?

It's predominantly for the ore and so there's payables not to SingShine per se. It's HNI, RNI and ONI which are purchasing ore from Hengyomine and also payables to Bit The payables, the majority of it is going from the industrial parks. So it's from the industrial park as opposed to St. John.

I see. So is it fair to say that these are mostly third party?

Yes, yes.

All right, okay. And you said this is mostly RKEF. So why is there substantial cash outflow from the HPAL operations?

So the HPAL operations is slightly different. There's a few things that you need to look at there. We have brought forward payments to HNC. And when I say we, all shareholders, there's three shareholders of HNC. being Wayu Cobalt, CMOC Group and SingCreation, which is Nickel Industries. All of them, the payment cycle was reduced under agreement by all shareholders and the board and shareholders. So we ended up bringing forward payments. Their SingShine brought forward payments. So we've had cash outflow from Nickel Industries or from SingCreation. And then we also had our SingCreation trading division. We had March... shipments of our sales where we didn't actually receive the cash until 1st of April. So you'll see quite a bit of that cash come in in the next quarter. The HPAL agency is a 10% minority interest. So whilst we show the EBITDA to show an overall adjusted EBITDA number, we're currently not getting cash flows directly from being a 10% shareholder in HNC is focusing on priority reduction of debt, which we're very happy about in this environment, to be honest. And hopefully throughout the course of this year, we'll actually see that get down to zero and commence actually getting cash dividends from HNC.

All right. So you're expecting cash dividends from HNC maybe starting next year. In the meantime, your trading division would still generate cash. Exactly. Alright, understood. And my second question was on the Veda Bay RKB cut. For ANI, how are we sourcing feedstock there and do you expect any margin impact if there's an increase in oil prices?

Yes, Veda Bay is sourcing from third party suppliers. The change in the saprolyte HPM actually is not had any impact on the actual market price. So the HBM actually remains still below the saprolite market price. We've been paying that market price at ANI for a number of months now. So we don't expect any change in oil pricing. The only thing that will impact oil pricing is obviously changes in the LME nickel price.

All right. And also, very quickly, I think your grade, NPI grade, has dropped this quarter. Any reason for that? And where do we see that trending going forward?

Look, that's just reflective of lower-grade saprolite ore going into the operations. I don't think we'll see that continuing to significantly decline. We're Where we've moved in the past couple of years is we've moved from sort of an average grade of around 1.8 down to around an average grade of 1.4, 1.5. There is significant resources of 1.4 to 1.5 that remain in Indonesia. So we think we'll probably trend around these levels for a long time. But again, what it highlights is just the advantage of our hang giant mine and our ANN project, given that they host significant high-grade saprolyte resources. And so our intention is, with developing the Sampala project, is that we become fully self-sufficient, which means that we'll be able to supply higher grade, if required, to our A&I operations.

Understood. Thank you.

Excellent. Thank you. Once again, if you would like to ask a question, please register by pressing star then one on your phone. Your next question comes from Bharat Shetagar from Standard Chartered Bank. Please go ahead.

Yeah, hi. Thanks for the call. A few questions from my side. Firstly, in terms of the mining quota, What is the ideal mining quota you would require for next year, assuming the ENC is operating at 100% and you have the RKEF requirements as well? What's the ideal quota you would want?

So the ideal quota would be around 12 to 14 million tonnes of limonite. And then if we were to maintain our current supply profile of saprolite, which is about 6 million tonnes, we'd be somewhere around that sort of 19 million tonnes, which is the number that we were targeting for this year. We weren't given that, given that we're obviously not going to have a full year of ENC this year. If nothing else changes, the current RKAB that we have at 14.3 means that we're fully self-sufficient for ENC, which is key. We will be making and we're entitled to make an application for an increase in the middle of this year, which we'll be doing. I think we'll probably be more likely to have success in increasing the RKAB at the end of the year when we resubmit for next year. once we can demonstrate that ENC is ramped up and operating nameplate capacity and we can demonstrate the all requirements there.

Sure. Then the other question is, there's been a lot of chatter about potentially export taxes on minerals. Anything that you heard on the nickel side could NPI face an export tax sometime in the future?

Yeah, there has been talk. If it was applied to nickel pig iron, the majority of our nickel pig iron is consumed in country, in ching sand stainless steel operations. So it wouldn't be applied to ONI, HNI, RNI. If it was to apply to ANI, where we do export some of that, we'd simply look, given Ching San's our largest shareholder, to just divert that NPI in-country. So I think we're well shielded from any potential export tax on NPI. The talk has been around potentially that tax being applied to MHP. Again, given the integrated nature of our operations at ENC, We actually go through to nickel cathode and nickel sulfate, higher value product, which at this point in time the government has said they don't want to tax because they want to encourage further downstream value adding, which is what we're doing by taking MHP through to nickel cathode and nickel sulfate.

Sure, understood. And the final question is on the loan covenants. A couple of points on that. Firstly, is the loan covenant of net debt to EBITDA of 3.5 calculated based on full consolidation of ENC or is it based on a proportional 46% consolidation of ENC?

Thanks for the question, Bharat. No, it's not consolidating ENC for the covenant purposes. Clearly, we are not consolidating ANC. We have no intention to consolidate ANC, so it's not going to be included on a 100% basis. There was a lot of discussion about how we would deal with it, and we've settled on rather than consolidating a full 100%, we will be proportionally taking on the 46% for both, obviously, the earnings there at ANC. So we've got quite a bit of flexibility there, which is great. And again, it's something which we managed to negotiate with the banks over the last five months and we're very supportive for them of that. Now, having said that, Brad, we've increased it from two and a half times to three and a half times. I want to make it very clear to everyone I call equity and debt investors. We do want to bring down our leverage significantly. to something significantly below where it is now, where we're sitting just under two and a half times at 31 December, I'd like to see at half that level. So around one to one and a quarter times net debt to EBITDA. And I think the margin grid, which we have, you can see that that incentivizes us to do that.

Right. I mean, in the annual report, there was a section where you had said that for 2026, you would not be in compliance with the earlier covenants. So just trying to understand, was that related to net debt to EBITDA or some of the other covenants in the earlier loans?

Yeah, that was in the earlier loans. It didn't say we wouldn't be in compliance. There was a potential that we wouldn't at 30 June, and that entirely related. Well, it didn't entirely relate. It was very much to do with this sphere. If we included the sphere guarantee at the full $210 million loan, there was a potential, depending on how margins went through in Q1 and Q2, i.e. how EBITDA was in Q1 and Q2, that we could have been in breach of our covenants at 30 June. And that's entirely the reason why I commenced, or it's not entirely, it's a very key reason why we look to refinance those two bank lines into a single bank loan and accommodate the sphere guarantee so we didn't have any issues come the middle of the year.

Right, and then now based on the new covenant definition, what's the net debt to EBITDA as of, let's say, December or March?

We haven't released March, so obviously I'm not going to say that. As of December, it's still 2.3x.

Okay, understood. Thank you.

Thanks, Brian. Thank you. Your next question comes from Cindy Huang at Invesco. Please go ahead.

Hi, thanks for the opportunity. Just a few questions. I think You mentioned that about stockpiling for E&C till the end of the year. So I just wanted to understand what kind of working capital we expect for the E&C. And also you mentioned, Sophia, you've got stockpile to September. Is that just for the H&C or you've also started, you've got the stockpile for E&C as well?

Yeah, I'll take those if you like, Justin. When we talk about our stockpiles, we're talking purely in relation to ENC, the numbers we said earlier. HNC, again, and I know this is difficult, but as a 10% minority investor, we're limited in what we can release and we wait for HNC to release their numbers and then we can effectively report on those. So I can't give advanced discussions on their stockpiles. But ENC, which is obviously the key one for investors, is out until the end of Q3. The other question, working capital. Yeah, there will be some working capital built, obviously, at ENC. And that will be borne by all shareholders. And our share of that's 46%. It clearly depends. You've got Sulphur to continue. We've bought a lot of the Sulphur already. obviously and there will be sulfur for Q4 that will be required I can't tell you the size of that because I don't know the price and then obviously we're waiting as we said earlier the ore price the limonite ore price is currently very fluid on what will get paid from E&C or any of the HPALs in the market but there will be over the course of this next call it six months There'll be a working capital bill for nickel industry share of somewhere between $50 to probably $75 million. $50 to $75 million. Okay. And I'm sorry, I can't be more accurate, but given what's going on with the sulfur price and the limonite oil price, it's very difficult. Okay, understood.

And final question from me, you mentioned the cathode registration. Can I just check how much of the ENC will be nickel capital is it just for the 10% sphere of take or we will be producing more than the 10% yeah we have good capacity to produce 40,000 tons of capo to you okay and how much you mentioned you will be a premium off of the enemy price is there an indication of how much premium of the LME price we can expect for nickel cathode?

At this point in time, the LME registered premium is around $200 to $300 a tonne above the LME price.

Alright, thank you very much.

Thanks, Cindy.

Thank you. That does conclude our question and answer session for today. I'd like to hand the call back for closing remarks.

Yeah, thank you, everyone. I gave some closing remarks earlier, so we'll end the call here. Thank you again for attending and your questions. And I think, look, we look forward to focusing on delivering another strong second quarter for this year and delivery of ANC. So thank you, everyone.

Thank you. That does conclude our call for today. Thank you for participating. You may now disconnect your lines.

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