In a recent earnings call, Nickel Industries Limited (NIC (NASDAQ:EGOV).AX) maintained a steady production output and announced strategic acquisitions aimed at expanding its resource base and production capabilities. Managing Director Justin Werner highlighted the company's safety performance, environmental initiatives, and financial developments, including a successful $250 million loan facility. The company reported a slight decrease in nickel metal production but showcased record ore sales from the Hengjaya Mine and anticipates strong performance in the second half of the year with new projects coming online.
Key Takeaways
- Nickel Industries reported a 12-month Lost Time Injury Frequency Rate of 0.12 and a Total Recordable Injury Frequency Rate of 1.24.
- The company's S&P Global ESG score improved significantly to 37, up from 7 in 2021.
- Nickel metal production was marginally lower at 30,663 tonnes with an RKEF EBITDA of $60 million.
- Hengjaya Mine achieved record ore sales of nearly 3 million tonnes, contributing $37.3 million in EBITDA.
- Conditional acquisition of Sampala Nickel project and a 51% interest in the Sulawesi project, both with significant JORC-compliant nickel resources.
- A $250 million loan facility was syndicated with global banks, and Simon Miller was appointed as ENC HPAL Manager.
- The company is exploring hedging strategies to manage foreign exchange volatility.
Company Outlook
- Anticipated approval of an application to increase the RKAB to 22 million tonnes by early next year.
- Commissioning of new projects expected in the second half of the next year.
- Continued strong performance forecasted from Hengjaya and new project commissioning.
Bearish Highlights
- A slight decrease in nickel metal production compared to the previous quarter.
Bullish Highlights
- Record ore sales from the Hengjaya Mine.
- Strategic acquisitions with significant nickel resources aimed at increasing production capacity.
- Strong support from global banks evidenced by the successful syndication of a substantial loan facility.
Misses
- None explicitly reported during the call.
Q&A Highlights
- The company is considering foreign exchange hedging strategies due to recent gains from the strengthening of the Indonesian Rupee.
- Jefferies analyst Mitch Ryan inquired about the company's foreign exchange gains and strategies to mitigate future volatility.
Managing Director Justin Werner concluded the earnings call with an optimistic outlook for Nickel Industries, citing the progress on the Sampala project and the positive developments in ENC construction. He also noted the potential for improved nickel pig iron pricing and margins as market shortages stabilize. With the strategic growth initiatives and the upcoming commissioning of new projects, Nickel Industries appears poised for robust performance in the upcoming periods.
Full transcript - None (NICMF) Q3 2024:
Operator: Thank you for standing by, and welcome to the Nickel Industries Limited September Quarter Activities Webcast. All participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I'd now like to hand the conference over to Justin Werner, Managing Director. Please go ahead.
Justin Werner: Thank you, and could I please ask you to advance to the next slide. Welcome, everyone, to the Nickel Industries September quarterly activities results presentation. Kicking off with Safety and Sustainability. The company wide 12 months Lost Time Injury Frequency Rate at the end of September was 0.12. There was one LTI during the quarter, that was against 4.6 million man hours worked and the company-wide TRIFR or Total Recordable Injury Frequency Rate as of the end of September was 1.24. Very pleased to announce once again, we were shortlisted for the Green PROPER rating for the third consecutive year. Again, we were one of only two companies last year to receive the Green PROPER rating. Having now received three consecutive ratings, and that assumes that we do receive the full Green PROPER this year, we have already been shortlisted. That makes us eligible for a Gold rating and we're targeting to be the first Nickel mining company in Indonesia to achieve a Gold rating. We also received an updated S&P Global ESG score of 37 in 2024. That's up from seven in 2021 and is significantly higher than the average score for Metal and Mining companies worldwide, which is 29. So our efforts and the work that's being done is being recognized by independent third parties in their audits and reviews. We also received formal endorsement to develop a 197-hectare biodiversity area. This is an area that we've been working on for a long period of time. It's involved a lot of work in terms of determining what forward and former species exist, mapping them, measuring them, monitoring them. And this now creates an area where it's going to be used for protection, education and further monitoring. So again, we're very pleased in the award and the hard work that's gone into identifying and now being able to manage this biodiversity area, which is in post proximity to our mine. We also received the Nusantara CSR Awards, an award for our program, which is aiming to improve the health and nutrition of local communities. And we're honored with the Best Climate Reporting and Transparency Award at the 2024 GRIT Awards, which are held on the October 28, 2024. So number of milestones across our ESG activities, and we continue to be the leader in Indonesia in terms of ESG. If we move to the next slide, please. Nickel metal production of 30,663 tonnes on a 100% basis, slightly lower than the June quarter. That was due to predominantly eight days of scheduled maintenance at our R&I RKEF operations, and slightly lower output from our Angel operations at IWIP as we continue to draw down on lower grade ore as IWIP looks to increase its all quota. RKEF EBITDA of $60 million, that's 43% higher than the June quarter. EBITDA per tonne was $1,919, which is 48% above June, which is $1,296. However, there were FX gains in that number across the quarter. And removing that FX gain actually brought the margin back to $1,144, so a slight reduction against the June quarter. That reduction in EBITDA per tonne has been mainly driven by increased ore costs. And this is where the Hengjaya Mine acts as a very strong hedge against that. So we're very pleased to report record ore sales from the mine of almost 3 million tonnes, and that delivered mine EBITDA of $37.3 million, which was 51% higher than the June quarter. And we're also pleased to report our maiden dividend distribution back from the Hengjaya Mine. Given the impact that we're already seeing from ore shortages within Indonesia, and the hedge that provides against these ore shortages and premium prices currently being play -- very pleased to announce during the quarter, the conditional acquisition of the world-class Sampala Nickel project, it's in close proximity to IMIP. It already has a very large JORC-compliant resource, which we believe will expand significantly, and I'll touch in a bit more detail in further slides on the Sampala project. We moved to a 51% interest in the Sulawesi project, along with announcing the maiden JORC Resource there of around 0.5 million tonnes of contained nickel metal. It's a predominantly limonite resource, but it's a high-quality limonite resource, very similar to the [indiscernible] resource in the neighboring Island or Papua New Guinea, and it would make an excellent feed for HPAL, probably most likely at a number -- any number of the HPAL, IWIP. We also successfully syndicated out $250 million loan facility, which is arranged by DBS and BNI, and also pleased to announce the arrival and installation of the first autoclave at our ENC HPAL project. So that marks a significant milestone as good progress continues to be made in the delivery of the ENC HPAL project. If we could just move to the next slide, please. You can see the quarterly RKEF production here. As I mentioned, down slightly from the June quarter due to the scheduled maintenance on RNI and lower than expected production from ONI. HNC continues to perform well and there was 2,125 tonnes of Nickel -- as nickel-led mixed hydroxide precipitate -- that was delivered from HNC as part of NIC's 10% interest in that HPAL project. If you could just go to the next slide, please. We are seeing continued recovery in NPI pricing. You can see here on a quarterly basis the average price received. So we are up from the low $10,688 in the March quarter to $12,400 in the September quarter. And we are continuing to see price increases across this quarter. But hopefully, again, bodes well for a strong second half to the year, probably similar to what we saw in 2023 where we certainly reported a much stronger second half to the year than we did in the first half. If we could just move to the next slide, please. ENC progressing very well. The first photo that you can see that, that is all of the earthworks, which is complete. You can already see in concrete foundations and footings are already in place. A lot of the key critical items that will sit at the top, all of those footings have already been either fabricated or procured and are now being progressively shipped to site for erection. I was pleased to be on site just last week to welcome the arrival of our first and three autoclaves. You can see it in the bottom right-hand side there. And that's a tremendous achievement. As I said, it's -- the autoclave is really the heart of the HPAL operations. And the first one is now in place. And as I said, we look forward to continued arrival and installation of key parts of the ENC, not just the HPAL, but also the nickel cathode and nickel sulfate plant. So progress has been made -- progress is being made. If you just move to the next slide, please. The Hengjaya Mine. Given that we've now moved into the dry season, you can see the significant improvement there in nickel ore mined, up from 3 million tonnes to 5.7 million tonnes, and also almost 1 million tonne increase in nickel ore sold to 2.97 million tonnes of nickel ore sold, so almost 3 million tonnes for the quarter, which is a new record in terms of ore sales. That helped to deliver $37.3 million in EBITDA. And we're seeing continued strong performance from the mine across this quarter. And so we expect that to continue into Q4. A lot of work is being done on upgrading the Haul road, including rebasing it geo-textiles. That is really where the focus of ensuring that when we come to the wet season around sort of March to April of next year, that we look to significantly reduce the impact of any weather delays during the wet season. And so progress on that Haul Road upgrade is progressing very well. If we could just go to the next slide, please. The conditional acquisition of the Sampala Project, we announced that we signed a condition or so CSPAs, the three contiguous highly prospective advanced IEPs. The total area is 6,654 hectares. It already has a JORC-compliant resource of 2.3 million tonnes of contained nickel metal and 0.2 million tonnes of cobalt. This resource is within just 900 hectares with over 4,000 hectares of mapped prospective laterite area. So the potential for this to be somewhere near to 10 million tonnes of contained nickel metal. It's certainly realistic. And that would make it amongst the top five known global nickel resources globally. It has excellent logistics. You can see from the map there, how close it is to IMIP. And the project itself is actually already well advanced. We've submitted feasibility studies. We've submitted environmental studies. We already have a RKAB, which is an activities license approved. And our target is to be able to shipping first ore from the Sampala project at the end of next year. And what this will do is it will allow our RKEF operations within IMIP to be fully self-sufficient in terms of ore supply. And again, coming back to premiums that are being paid and the ore shortages that are being experienced currently in Indonesia. This integrated mining and processing operations being fully self-sufficient means that we will have a natural hedge against any increases in oil prices or the risk of any ore shortages, which may limit or impact production. It also has a very low acquisition price, $43 per tonne of contained nickel metal, significantly lower than the Indonesian average, which in past transactions, which has been over $140 a tonne. And then if you look globally, numbers have been as high as $2,000 per tonne of contained nickel metal. So a very favorable acquisition terms done in a staged way. So we have 18 months to prove up the resource before we required to make payment. And in terms of CapEx, we've already estimated CapEx to bring this into operation less than $50 million. And when you look at the types of numbers that the Hengjaya Mine is producing $30 million to $40 million EBITDA on a quarterly basis. It's a very fast payback off a very low capital base. In terms of the Haul Road, there is already -- and if you look at the map there, the green is the new Haul Road that will need to be built. It's about 20 kilometers, and then the purple is an existing Haul Road of about 34 kilometers. So there's only really about 20 kilometers of new Haul Road that needs to be built. And again, to put this project into perspective in comparison to our Hengjaya Mine. Hengjaya has around 3.6 million tonnes of contained nickel metal currently producing in excess of 10 million tonnes per annum. We have made an application to increase our RKAB to 22 million tonnes. And we are hopeful of gaining that approval, if not at the end of this year, certainly early next year. So we expect to see another ramp-up from our Hengjaya Mine. But given the financials and the performance you can see from Hengjaya, we expect Sampala to be of a similar size and economics. So it's, for us, a highly value accretive deal and provides ore security. If you just go to the next slide, please. On the corporate front, I mentioned we completed acquisition of 51% interest in the Sulawesi project. We announced the maiden JORC resources of 52 million dry metric tonnes at 1.1% nickel, so around 0.5 million tonnes of contained nickel metal. That's within an area of 1,614 hectares. There is an additional 1,374 hectares in prospective laterite area, which is yet to be tested, and we have an exploration target within that area of between sort of 22 million to 110 million wet metric tonnes. So there is the opportunity to potentially double that resource to somewhere around 1 million tonnes of contained nickel metal. These projects continue to put nickel mines in terms of resource ownership is one of the largest global nickel tonne [indiscernible] globally. And that has been a focus of us over the past two to three years to identify these projects that we can acquire on favorable commercial terms that will deliver significant contained nickel tonnes and that can be brought into production as direct shipping operations off a very low capital base. So Sulawesi is progressing well. And just to refresh, we earned that 51% by only spending AUD5 million over a two year period. We successfully syndicated a $250 million term loan facility, which was jointly provided by Bank Negara Indonesia, BNI, and this is our second loan with BNI, and we appreciate their support, and DBS Bank. It was successfully syndicated across a mix of banks from Asia, Europe and the Middle East and India. So very strong broad-based support. And I think it's indicative of the company's growing reputation and established our ESG credentials. And then finally, we're happy to welcome Mr. Simon Miller as the ENC HPAL Manager. Simon was most recently our Director of Northvolt's Raw Materials division. So he has a very strong background and understanding of the global EV and battery supply chain as well as very strong relationships across this supply chain. And before being promoted to lead Northvolt's Raw Materials division, he was also a Director of their Cathode Materials. So he will bring significant value to ENC to the diverse product mix that it will produce mixed hydroxide precipitate, nickel cathode and nickel sulfate, and we welcome Simon to the Nickel Industries team. That ends the presentation. And with that, I'll hand over to Q&A.
Operator: Thank you. [Operator Instructions] Your first question today comes from Mitch Ryan at Jefferies. Please go ahead.
Mitch Ryan: Good morning, Justin and [indiscernible]. Thank you for taking my question. It's just quite a simple one. Obviously, you were a beneficiary of FX moves during the quarter, which was great. How do you think about that from a risk profile going forward? Would you look to put in place hedges and what -- how are you been considering FX moves going forward?
Justin Werner: Thanks, Mitch. I'll hand over to Chris on this one.
Christopher Shepherd: Yes. Thanks for the question, Mitch. Look, the FX gains, we had losses last quarter. We've had gains this quarter, which were a mix across gains on the cash that we're holding in our Indonesian operations, net of the accounts receivable and accounts payable. As you're aware, we need to do all of our invoicing in Indonesian Rupee and with the Indonesian Rupee strengthening against the dollar, we've had gains there. And it's also the effect of gains in our receivables balance for VAT receivable from the government. That one is difficult to hedge, but we are looking into the others and that what's the most appropriate way to hedge these. Previously, the numbers -- the swings haven't been as large. But whilst it's again this quarter, that's lovely, but we would rather seek to remove the volatility out of the earnings. So we are looking into it. We'll update the market in due course.
Mitch Ryan: I appreciate the color. Thank you very much. That’s it from me.
Justin Werner: Thanks, Mitch.
Operator: Thank you. [Operator Instructions] We are currently showing no further questions at this time. So I'll hand it back for closing remarks.
Justin Werner: Well, thank you again, everyone, for attending. As mentioned, we're looking forward to delivering a strong second half, particularly continued strong performance from our Hengjaya mining operations. We will continue to work on the Sampala project and provide updates in terms of delivering our first ore at the end of next year. ENC construction progress continues to be very good. We look forward to providing continued updates as we look forward to commissioning and first product in the second half of next year, and through DNC coming on that really provides a significant diversification. It puts us into a place where we're seeing products that are experiencing significantly higher margins than what we're currently seeing in NPI. Although that said, we are seeing strengthening NPI pricing. And so as all shortages are dealt with, we believe that we will continue to see a stronger NPI pricing, which should translate into stronger NPI margins across the end of this year as well. So thank you, everyone, again, and I appreciate the time.
Operator: Thank you. That concludes our conference for today. You may now disconnect your lines.
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