Thank you for standing by, and welcome to the Nickel Industries Limited 2024 HY results. 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, sir.
Thank you, and welcome everyone to Nickel Industries 2024 half-year results call. I'd like to ask the moderator to please move to slide two. Thank you. Starting with safety, 3.25 million man hours worked at the Hengjaya Mine with no recorded LTI, so that's a lost time injury frequency rate of 0.07, which is world-class. Similarly, at our RKEF operations for the first half of 2024, 4.93 million cumulative hours worked, and that's a lost time injury frequency rate of 0.316, and there was one LTI recorded at the RNI 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 injury frequency rate of 0.182 per million worked hours. In terms of ESG, we continue to be a leader in the sector. We've maintained the highest MSCI ESG rating for an Indonesian-based mining and metals company. Then throughout the first half of this year, we continued to receive a number of awards, including two Gold awards at the Nusantara CSR Awards and winner of the ESG award for the nickel sector by TrenAsia and Visa local domestic groups that have recognized 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 audited across all commodities. If we could move to slide three, please, but 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 ten local indigenous students. Nickel Industries, we will be putting them through undergraduate degrees across a field of different studies, including metallurgy, engineering, mining engineering, environmental engineering, and we will continue to do that.
So, you know, by the end of year five, there'll be 50 students annually, which will be going through these various degrees. And, you know, it's one of the, it's the first initiative, but 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 4, please. First half of the year, challenging due to some exceptional circumstances, but still, you know, a robust EBITDA across our operations, you know, despite challenges, including a delay in issuing of mining licenses and then exceptionally high rainfall for the second quarter of this year.
Maintenance of and declaration of an Australian AUD 0.025 per share interim dividend, which was fully funded from 100% of our conduit foreign income. In terms of nickel production, 63,000 tons for the first half of the year, and 4,117 tons 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 and towards the end of next year. The mine continues to go from strength to strength. We saw realized mine EBITDA of $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, $400 million from BNI, and then a $250 million term loan facility. And, as I mentioned, we were awarded the highest sustainability score in the Indonesian mining sector with our Green PROPER rating. If we could just move to slide five, please. Key numbers here. Sales, you know, slight decrease by about 9.5% decrease in EBITDA from RKEF operations, but pleasingly, a significant increase in EBITDA from mine operations. So that was up almost 50% from $26 million to $39.1 million. As I mentioned, maintained the Australian two and a half 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 that are loss making. 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 in 2024. If we could just go to slide six, please. EBITDA to profit reconciliation, you can see there that the and some increase in interest given the difference in cash.
And that's led to profit after tax of $14 million. So numbers are pretty consistent there. If we go across to the next slide, please, slide seven. Just going into our RKEF and HPAL 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 in matte tons, a decrease. We decided at the beginning of this year to convert back to nickel pig iron. And there was an increase in total nickel production tons from the first half of 2023 to first half of 2024. You can see here a 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, with that contract pricing. So our costs have come down from $12,800-$9,700, and we continue to focus on the levers 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 $90.9 million. Moving across to HNC, you can see nickel in MHP of $41,000.
On an annualized basis, that's over 80,000 tons, and HNC has a nameplate capacity of 60,000. So you can see the materially beat there to the nameplate capacity that HNC is achieving. And we would be hoping for a similar result from EMC. We've provided there both the EBITDA and the equity accounted profit from HNC, and also at the bottom there, the combined pro forma HPAL EBITDA of $22.6 million. Across the first six months, that gives you an EBITDA per ton number of about $5,500. And pleasingly, that number is currently sitting around $7,000-$8,000 a ton.
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 on online next year. If we could just go to slide 8, 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 $753, cash of $350, so net debt of $402.
Subsequent to the quarter, we drew down on the $250 million, five-year loan facility, and we also made a $379.5 million acquisition payment to increase our ownership in EMC 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 9, please. Hengjaya Mine, despite a challenging first half, which, you know, as I mentioned, delays in RKAB licenses, and that is really just a result of greater scrutiny on mining operators across Indonesia.
We were among the first 40 to be, to receive our RKAB, and those RKABs 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, you know, 1.3 meters over the quarter, which is 48 and 91% higher than the prior corresponding periods in 2022 and 2023. Now that we're 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 twenty-four 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 sales. Pleasingly, though, despite those challenges, as I mentioned, a 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 ton above the current HPM price. So, you know, that bodes well for a strong performance from our mine for the remainder of this year. If you could just go to slide 10, please. Excellent progress has been made on the E&C HPAL. Earthworks 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 autoclave. They are ready to be shipped over the course of September, along with other critical equipment.
That equipment, some of it is being sourced from Australia, from the U.S., Germany, and so all of those parts. Excited to unveil that Tsingshan has committed to this project becoming a green forest living precinct. This is a precinct that Tsingshan 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. 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 sort electric forklifts, anything like that.
So the aim is this really will be a for nickel cathode. One of the attractive elements of E&C's ability to produce nickel cathode is that it's also LME deliverable. So, you know, we have a market that's there at all times and able to attract the spot price. If we could just to slide 12. Again, all of these points are directed at Emma Hall. We warmly welcome her to Nickel Industries. She brings a wide range of diverse industry experience, particularly across the global battery metal chain. And she has been involved in various roles with other energy manufacturers across USA, Europe, Japan, China, and South Korea.
Given the transition of the company into HPAL and to that EV battery market, we warmly welcome Emma, and as I said, she's a tremendous amount of experience and expertise in this side of the industry. In summary, despite some exceptional circumstances and challenges this year, you know, we were able to still maintain robust EBITDA, again, against the backdrop of, you know, a global nickel environment where numerous producers. We are now set up for a strong second half of the year, given much drier conditions, so and very strong ore pricing coming through for the Hengjaya 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, $2,500-$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 one 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. David Coates with Bell Potter Securities, please proceed with your question.
Thank you, and good morning, Justin, and congratulations on the result out this morning, and thanks for the opportunity to ask a question. Questions around the dividend are really more positive surprise for me, anyway, to see that dividend increase. We've been expecting it to kind of come through, but a little earlier than expected, which I think is a great signal. Can you just give us a bit more background, perhaps, on the thinking behind that lift in the dividend?
Yeah, Chris, I'll let you have one, if you like.
Yeah, sure. Thanks, Justin, and thanks, David, 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 thirtieth 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 it's guidance, it is guidance, is 30%-60% of free cash flows. We've come in just above that, as at 65%.
However, as Justin alluded to, and as we, 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, the number, when we consider the back out of those items, the payout ratio is more like 45%. So it's, it's within our range, that we've guided investors in the market to.
But you're right on. Some people would see it as a positive surprise, and I think it's just 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 ENC commissions early next year, and then when 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.
Yeah, 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.
Yes, sure. Yeah, you got it.
Oh, sorry. Sorry.
Yeah.
Do you want me to take it?
I got this.
Yeah. Okay. Yeah, Adam, thanks for the question. We obviously, as it wasn't just a revised dividend policy on the thirtieth 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 FIRB 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 thirtieth 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 the actual capital requirements for the company. And conscious of the operations of the company.
While we do, 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 buyback.
Okay, great. Thank you.
Thanks, Adam.
Thank you. A reminder to all participants that you may press star on one to ask a question. We have a follow-up question from David Coates with Bell Potter Securities. Please proceed with your question.
Thank you. Yeah, I was stuck at one first time around, but I might give you a couple this time, guys. Let's see. So just the margins that you're getting from the HPAL production they obviously sound like they're really strong and good relative to the current offtake. How's that kind of impacting or affecting the consideration of a sell down in the Excelsior Nickel Project interests?
We are. Yeah, thanks, David. We still were working through that process, and we do have 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 offtake of MHP, cathode, and sulfate. So, that process is progressing. And, you know, we look forward to, you know, updating the market sort of hoping, hopefully more towards the end of this year.
So, just so that there's no misreading of that, any sell down would be by Tsingshan of Tsingshan stake, not of Nickel Industries. We will be remaining at the 55%.
Yeah, correct. Understood, so.
Okay, thanks.
Secondly, Justin, you mentioned ore prices attracting some pretty good premiums at the moment. Can you just run us through some of the factors that are driving that?
Yeah. So a number of factors. The crackdown in the issuance of RKAB licenses, poor operators or those with a bad track record of mining, have not been given any allowance for ore sales until they rectify the defects that have been identified in their mining operations. So that has meant that, you know, there is a reduced volume of ore available to be sold. The significant rainfall obviously impacted ore mining and ore sales as well. And so that has led to a short squeeze in the ore market, which has been reflected within June, and almost a million tons of ore 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 HPAL operations. We're currently 50% self-sufficient with ore for our RKEF operations, HNI, RNI, and ONI in IMIP, and with the Sampala acquisition that we also just recently announced this week, that will take us to 100% self-sufficiency, you know, for the next sort of 40-50 years. So it won't be an issue that we will have to concern ourselves with, but you know, it is something that has arisen through a number of factors. But again, you know, it just highlights 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 Dimas Arya Singh with UBS. Please go ahead with your question.
Thanks, guys. Thanks, Dim. Just a couple of questions from me. Maybe just first on the market. You made some comments earlier about a recovering NPI 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, you know, some of the supply correction that we're seeing, please? I'll come back with a second.
Yeah, thanks, Dim. 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 the sluggish conditions in China, stainless steel growth still, you know, it looks relatively robust moving forward. And again, you know, 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 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 NPI 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, you know, a considerable sum of NPI out of the market.
Yeah. Cool, thanks. And then just a follow-up question on Sampala. It appears, you know, a pretty good strategic move to secure ore supply and become further integrated. Just wondering around that, like, is it? Was it a competitive process? And maybe some questions from the other day, but, you know, did you initiate proceedings or? You know, I'm just trying to get a idea of, you know, competitors to for Indonesian ore supply and actually locking up volumes like you've done.
Yeah. No, no, look, thankfully for us, it wasn't a competitive process. So it was done in partnership with our long-term local partner, who, you know, we have had a long-standing fifteen-year relationship with, and he's been our local partner in the Hengjaya Mine. And I say, thankfully, it wasn't a competitive process, 'cause if you look at the valuations that we had in the presentation, the most recent nickel mine transaction was done at a multiple of, you know, $272 per ton of contained nickel metal. We're currently acquiring Sampala at $39.
So, you know, it's a very attractive acquisition price, very attractive terms in terms of deferred payment, you know, not for 18 months or longer. And look, our local partners always had a long-term view. You know, we've, as I said, we've worked together for a long time with Hengjaya Mine now producing the volumes in the EBITDA that it is as a 20% shareholder. You know, he's gonna have a very strong dividend for the next 20 to 30 years out of Hengjaya, and likewise for the Sampala project.
And I think if you take those multiples, even outside of Indonesia, you know, if you look at the IGO acquisition of WSA, that was done at $900 a ton multiple, and you know, Minco was done at 2,100, so $39 a ton, you know, very compelling acquisition. You know, already over 2 million tons of contained nickel metal in just 20% of the project areas. So, you know, the opportunity for this to be, you know, one of the largest global nickel resources in close proximity to our existing operations, made it very attractive.
But, you know, again, it was really a result of, you know, the strong relationship that we have with our local partner that, you know, 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. 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, like, I think there was a list of consensus on that. So, is there a simple explanation for that? I might come back next week, but yeah.
Yeah, okay. So sorry, you cut out a bit then, Dean. What was the reclassification?
Y- yeah.
Question.
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 NPAT because of those reclassified expenses.
Yeah, yeah. So when we're going through the audit with KPMG, I think we-- you, you're talking about where we reclassified some of the dividend distributions. So it was the-
Yep.
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 put it into income tax expense. There was also a foreign exchange gain in there as well, that we reclassified to financial expenses.
Right. Okay, cool. Yep, yep, that's clear. Thanks.
Okay. Thanks, Dean.
Thank you. Your next question is from the line of Eddie Lee with MetLife Investment Management. Please proceed with your question.
Thanks for the presentation. Just a couple questions for me. First is, could you give us a little bit idea on, like, the 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 $2.965 for two of the projects. Then an eighteen-month period where we've agreed an exploration program, and we're going to be able to drill it out. And then based on only every dry metric ton at 1.7%, so anything less than 1.7, we don't pay for. We pay a multiple of $2.50 per dry metric ton. So that payment, based on the agreement, is more than eighteen months away. And pleasingly, the ETL IUP, which is the one to the far north, a lot of work has already been done in terms of feasibility studies being submitted with environmental study.
It's been 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, you know, before we make the final acquisition payments. Our local partner is comfortable with that. And so, you know, 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, you know, less than $50 million, we don't have to build a jetty, because we're not on the coast. We do have 22 km of haul road to build, but that then links into 30 km 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 ore margins, you know, using an average of $15 a ton, our initial plan is to be at 6 million ton per annum, ramping up to 12 million, to sort of reflect the run rate at Hengjaya Mine.
You know, applying a $15 margin to those numbers, you can see that the payback is extremely quick and the IRR is, you know, sort of around 50%. So very, 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, you know, your partner for purchasing Sampala. So just kind of curious on the debt and equity funding mix for that or internal cash.
Yeah, we, 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 Hengjaya Mine, you know, we could fund the acquisition out of the cash flows of our existing mining operation. And we actually, we did put in the presentation that, you know, 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. Yep.
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 Lazard. 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 growth you have or you're trying to build. I think it's probably bypassed some of, is it the deckers acreage? Can you confirm that, that is not an issue for you guys to build a haulage road 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 single soft price today. And, 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.
Okay, look, apologies for some reason a bad line, so I didn't quite catch all of that, but I understand the question was around costs and coal pricing. So look, costs have come down, as you can see, from sort of the first half of 2023 to first half of 2024. We are expecting a small increase given the issues that we've outlined with ore supply. But the... I mean, the benefit again of having the mine is that whilst we may see higher costs in our KEF operations, we are actually seeing this being reflected in higher NPI pricing. And so, you know, we're seeing some margin preservation through that.
But, you know, pleasingly, we're picking up, you know, a significant margin improvement at our mining operation.
Yeah, the other question was around the haul road and whose property it was going through. Tim might have thought it was going through Madecas, but you might want to talk to him about BDM.
Okay, assume this is the Sampala haul road, but that will project into Bintang Delapan, which is a mine that's 49% owned by Tsingshan, 51% a local partner, and then using 34 kilometers 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. Well, 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 HPAL margins. So, you know, we're very focused and look forward to delivering a strong second half to the year. So thank you again for your time.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.