Thank you for standing by, and welcome to the Nickel Industries Limited Sampala Project Overview. 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 thank you, everyone, for attending this call in regards to the acquisition of the Sampala nickel portfolio. If I could just ask the slide moderator to move to page three of the presentation, please. We are delighted to announce the acquisition of the Sampala portfolio, comprises three highly prospective advanced contiguous nickel IUPs, covering an area of six thousand six hundred and fifty-four hectares, with an initial two thousand and twelve compliant resource of two point three million tons. Could I just confirm that you've moved to slide three, please? The project has had a significant amount of historical exploration, which includes five hundred and seventy-four kilometers of line kilometers of ground-penetrating radar, and forty-six thousand nine hundred and eighty-two meters of drilling.
It's in very close proximity to IMIP and to our existing, Hengjaya Mine operations. Of the prospective area of 4,700 hectares of laterite, only 20% of this has been drilled. We already have a resource of 2.3 million tons of contained nickel metal in a resource area of just 900 hectares, with a total prospective area of 4,700. The Sampala Project has the potential to host in excess of 10 million tons of contained nickel metal, making it one of the largest known nickel resources globally. The acquisition was transacted on very favorable terms from our existing local partner, with whom we've had a 15-year long-standing relationship.
And as I mentioned, on very favorable terms, which I'll touch on a little bit later on in the presentation. A majority of the acquisition payments are pushed back to at least 18-24 months from the signing of the CSPA. So it's not. There's no requirement for immediate upfront large payments. As I mentioned, it's done over a period of 18 months, and I'll talk about the commercials a little bit later on. If you look at the map on the right-hand side there, you'll see the Sampala Project there. It inhabits that area which is shaded in white. That's also very attractive because that is not a forestry area.
Every other shade that you can see there, and yellow, and the different shades of green is forestry, and forestry does require a significant amount of permits and other requirements to be able to use it. We have actually acquired 7,000 hectares of that land, so we own all of the land. All three of the IUPs are operation production IUPs, so they're actually already permitted to to commence mining. What the Sampala project will do is ensure that NIC becomes fully self-sufficient for its IMIP downstream operations for at least the next 40-50 years. Security of ore and ore supply is increasingly becoming a major issue within Indonesia.
The opportunity to acquire such a large project in close proximity to our existing operations is very exciting for us. If you could just move to slide four, please. The strategic rationale for the Sampala Project acquisition, it's a world-class nickel resources, as I've outlined. Only 20% of the prospective area has been drilled. Already there's 2.3 million tons of contained nickel metal, and we believe potential to for that to increase to somewhere around about 10 million tons. It's an advanced project. So as I mentioned, it's already operational production IUP. It's already had a significant amount of historical exploration, and there's already been a lot of work done in terms of designing a haul road, mine planning, geotechnical work, land acquisition, and other things like that.
As I've touched on, it enables us to be self-sufficient in terms of nickel ore with our fully integrated nickel operations, and we see this as being extremely important. Attractive acquisition terms, and we'll look at how it compares to recent market acquisitions in Indonesia and also outside of Indonesia. And what's very attractive about nickel mining operations in Indonesia is that off a very low capital base, there's very attractive economics with a very short payback. And if you look at our Hengjaya mine, our fourth quarter EBITDA for 2023 was $42 million. And so, you know, these mines are very profitable with a very long mine life. If you could just turn to slide five, please. You can see there where Nickel Industries is progressing.
We have the Sampala Project there, the blue bubble, 187 million dry metric tons at 1.2%, combined with Hengjaya Mine, which is 300 million dry metric tons at 1.2%. You can see the combination of those. Our intention is to continue to grow that bubble in size and also to continue to advance down the right-hand side of that curve, to the point where our aim is to sit on the largest known nickel resources globally. That gives us a number of benefits, not just security of ore supply, but also we see nickel mining economics as being extremely favorable and attractive. If we could just move to slide six, please.
Location is everything, and the location of Sampala is excellent. It's one of the closest mines to IMIP. We were able to actually leverage existing ore facilities that already exist from the BDM mine, which you can see there, is the purple road. We've already designed a 22-kilometer ore road, which is the green section, which will link up with the existing 34-kilometer ore road that's already built, and allow us to take ore directly into our operations in IMIP. This has the advantage of obviously significantly reducing the required CapEx. We're only talking about a 22-kilometer ore road. Given its location as well, we will save CapEx on. There is no requirement to build a jetty. And so that will also save a significant amount of CapEx.
We're targeting first ore production by the end of 2025 , with an initial run rate of about six million wet metric tons of ore. And thereafter, we expect the ramp up to follow in a similar vein to Hengjaya Mine, which is 12 million tons, and then ramping up to 22 million tons, which our Hengjaya Mine is in the process of getting the approvals to ramp up to 22 million tons. If we could just go to slide seven, please. You can see there on the left, our in the blue, HNI, RNI, and ONI, RKEF, 80,000 is the nickel tons that are consumed per annum.
You can see that currently, the Hengjaya Mine feeds about 50% of our requirements for our HNI, RNI, and ONI RKEF. Moving to the right, with Sampala coming online, saprolite will come 100% from Nickel Industries-controlled mining operations, as well as our NIC HPALs, which is ENC. Ore is one of the biggest levers, along with power, that we can use to improve RKEF performance. So by being able to have a better control of grade, of silica to magnesia ratios, of iron to nickel ratios, we will be focusing on, you know, improving the performance of our RKEF operations through self-sufficiency of ore supply. If we could just move to slide 8, please.
I mentioned the attractive economics and just to run through them at a very high level, so we've agreed that an 18-month exploration program, which is about 90,000 meters of drilling, and that's at a cost of $5.8 million over the 18 months. We do actually, from signing, have a 3-month due diligence period before that even starts, and we pay a refundable commitment fee of $2.965 million for both the MJN and the ETL projects. At the end of that 18-month exploration period, we will then calculate the JORC resource, and we'll then be paying $2.50 per dry metric ton of ore for every ton at 1.7%. We don't pay for anything less than 1.7%.
And so if you look at where we currently stand today, for MJN, we have 28.6 million dry metric tons at 1.7%. If you multiply that by $2.50 a ton, and then multiply it by our 60% ownership, you come up with $42.9 million, plus the additional $2.965 million commitment fee. So that brings it to a total of $45.9 million. And then the same for ETL, where we have 4.9 million dry metric tons, multiplied by $2.50 a ton, multiplied by 60%, which gives you $7.4 million, plus the $2.965 million commitment fee, which equals $10.4 million.
In total, the valuation today sits at about $56.3 million, and that's for that 2.3 million tons of contained nickel metal. If you look at the chart there, you can see what others have paid in Indonesia per ton of nickel. Starting at the left there, you can see SCM, $59, PT Position $61. They're older transactions. If you look at the most recent transactions of Stargate and AKP, you can see $172 and $272 per ton of contained nickel metal.
AKP is the most recent, and you can see the steady increase in the value of ore resources in Indonesia. If you look at the MJN and ETL projects, you can see what we're paying there: $47 for MJN, $23 for ETL, on a combined basis, $39. That compares very favorably to other market-based transactions in Indonesia, particularly recent transactions such as AKP, which is up at $272. And then, if you were to look at, compared to other global transactions, such as Australia, the IGO acquisition of Western Areas is valued at about $900 a ton. The Wyloo acquisition of Mincor, about $2,100 per ton of nickel. We're buying it at this point at around $39.
And then finally, if you look on the far right there, the Hengjaya Mine, based on the independent experts' report, is valued at $139 per ton of contained nickel metal. So very attractive project economics, and that really has come about through the long relationship that we've had with our local partner, but the fact that he is a long-term investor, he can see this as a 40- to 50-year mine life. He obviously will retain 40%, and, you know, he, he's in this for the long road, and as he has been since the inception of the company, back when we started in Indonesia in 2008. I should add that there is a third IUP. The commercial arrangement for that is simply at $7 million for 624 hectares.
We've paid $5 million already. And then there is an additional payment if we secure an additional 491 hectares of $4 million. That brings the total to $11 million. Extremely attractive acquisition terms spread out over a long period. Three months due diligence, 18 months appealing, and then we don't make payment until, you know, until that point. It gives us confidence in the resource. What I should point out is that we don't pay for anything below 1.7%. Currently, 1.6% nickel ore is selling at greater than $40, and 1.3% ore is selling at around $22.
So both, you know, grades below one point seven are still highly economic and making very strong margins in today's price environment. And the only final point to add on the commercials is that commitment fee of two point nine six five across both MJN and ETL that is repaid preferentially through an agency fee from first production. If we could just move to slide nine, please. You can see Hengjaya Mine twelve million tons of production at CapEx of around fifty million. Sampala Project will be targeting initially half of that, but moving to then twelve. Similar CapEx number of less than fifty million, and we've already done a lot of work on that. Justin? You're looking at...
Yep.
We need slide ten, please. Operator. You're on slide ten. Okay, yeah. Sorry, if you could jump to the next slide, slide ten. That's the one. We can see it now. So, yeah, just to rehash, Hengjaya Mine, CapEx of $50 million, 12 million tons, annualized EBITDA of $170 million. The Sampala Project, as I mentioned, initially 6 million, moving to 12 million. We've already done high-level CapEx, and we're looking at less than $50 million. Based on the numbers that we've modeled, we're looking at a 500 million NPV, which is similar to our Hengjaya Mine and around a 50% IRR.
As I mentioned, there is a very quick payback on these mining projects, very attractive IRR. The project is very advanced. I mentioned we've acquired all of the land. We've already submitted a feasibility study and an environmental study. We've already developed block models and mine plans for the first production, and we're just simply awaiting those approvals. Once they are approved, then we can start construction on the 22 kilometers of haul road. Once that is complete, then we'll be able to to complete a pre-strip and get stuck into mining. You know, it is very advanced. As I said, we see production targeting production towards the end of next year.
If you look at the ore situation in Indonesia currently, ore imports have actually jumped five times month on month to almost a million tons in June. Ore from the Philippines has hit its highest price since November 2023, and there is now a premium above the market price of $10-$20 over what's called the HPM price for saprolite ore currently. So, you know, the economics of ore is extremely favorable, but also, you know, security and declining high grades in Indonesia is impacting the cost of particularly saprolite ore.
So given that we have already a very good high-grade core to the drilling that we've done, and we expect to grow that, we see this, you know, low CapEx, quick payback, and extremely attractive economics for the next forty or fifty years. That completes the presentation, so happy now to hand over to Q&A.
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're on a speakerphone, please pick up the handset to ask your question. Your first question comes from Kate McCutcheon from Citi. Please go ahead.
Hey, good afternoon, Justin and Chris. Thanks for setting up the call. The deal is to go to 60%. Can you just remind me on the foreign ownership limit, so they're still at 49%, and how do you navigate that? Is that why this is a share purchase agreement, and similarly for Hengjaya, where does that fit, given you're still at 80%?
Yes, so you are legally able to implement the dual share class structure, and by implementing a second class of shares, those shares have no voting rights, and the only economic interest that they have is a nominal dividend per annum, which, you know, it is sized a couple thousand dollars a year, and that dual class share structure has been implemented across a number of projects in Indonesia, so it has been tried and proven.
Okay, that makes sense, and then the timing, why now? What is, what is the catalyst for this? Is it obvious you've known these projects for a while. Is it becoming harder to get third party, or is there more scrutiny on traceability as you go downstream, and that's another sort of lens to look at it through?
Yeah, and look, I think, given the ore premium that's emerging, $10-$20 a ton that's currently being paid, the increasing imports, you know, up to 1 million tons from countries outside of Indonesia, the AKP transaction, you know, where they, you know, $166 million valuation, so, you know, barely 500,000 tons of contained nickel metal.
You know, we're seeing more of that sort of valuation being asked by holders of nickel licenses in Indonesia because of the commercials, because of the relationship with our local partner, because of the proximity to IMIP, and because of the size and scale. This transaction made a lot of sense, and you know, with the deferred payment and the extremely quick payback, and obviously our very strong ESG credentials, we think that you know, this project brings a lot of value to not just the company, but also to our integrated operations, just ensuring that we have self-sufficiency.
Okay. And then final question. At a high level, is this sort of portfolio completion now? I mean, there's certainly been a lot of deals. I know there's a due diligence period to go through, but I guess I'm wondering how I think about you buying more things now or, and how you're thinking about the portfolio.
Yeah, look, so RKEF is done, and look, even... We're not interested, but even if we were, the government has obviously put out a halt on any further issuances of RKEF licenses, which we see as a positive, particularly to the NPI market. HPAL, we're obviously fully funded for EMC, and we will be putting out a construction update soon, but that's progressing very well. Our focus is really just on ensuring that EMC comes online and ramps up and delivers the sort of margins that we're seeing at HNC, which we're seeing margins at HNC at the moment of around $10,000 a ton. So, you know, our focus at the moment in terms of other opportunities is really just on EMC.
And we've been flagging for some time that, you know, we've been working on resource acquisitions. We are still looking at other potential resource acquisitions. You know, there are opportunities that are, you know, that we have identified that are earlier stage than this, but significantly cheaper given the very early stage. So we assess it on a case-by-case basis, you know. Is it value accretive? But certainly at the moment, there is nothing that we're looking at acquisition-wise that, you know, is going to require a significant amount of CapEx or upfront acquisition costs.
Okay, that's helpful. Thank you, Justin.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. Your next question comes from Adam Baker, from Macquarie. Please go ahead.
Good afternoon. Thanks for the call, Justin. Just wondering on the current resource, I think you got about a hundred and eighty-seven million dry metric tons. About 74% of that is in Limonite and the rest in Saprolite. Just wondering on the nature of the ore body and the nature of the drilling that's currently being conducted, that you've got that higher proportion of Limonite. Is that just a factor from, you know, the current depth of drilling that you've got, and if some of those holes were pushed a bit deeper, you would have defined more Saprolite resource? Or is there another factor currently swinging in favor of the higher Limonite proportion? Thank you.
Yes, yeah, thanks, Adam. So all of the holes we drill the bedrock. So we drill basically through the limonite and saprolite zone. So there aren't any holes where we've ended in mineralization. We always go through to bedrock. But the ETL IUP is predominantly limonite, whereas the MJN IUP, we are seeing you know some nice high-grade saprolite. So we have, for example, about 45 or 30 million dry metric tons at 1.6 of saprolite in MJN. Whereas in ETL, we only sort of 10 million, so significantly smaller amount. So that's just you know the geology of the area.
So North ETL is predominantly limonite. The center of MJN is, you know, very good areas of high-grade saprolite. And obviously, as we drill, you know, I think we expect to see that high grade continue in MJN. But as with everything, look, we won't know until we drill it out, what the proportion of limonite to saprolite is.
Thanks for that. I, well, I guess if you've got more limonite, the grade is gonna be lower, so therefore, all the limonite you kind of define, you're not actually paying for, in a way, given the contingent pricing structure that you got set up. Maybe if you just could talk through that.
Exactly.
Yeah. Okay. You know, it seems like, you know, the more you drill, the more you'll find. And, you know, what's there stopping you from, I guess, pulling back on the drilling program? Are you just committing to that ninety thousand meters, and then, you know, recutting it for the resource and then determining the payment structure from there? Just wondering if you could talk through that. Thanks.
Yeah. So the commitment for the eighteen months exploration program that was drilled as part of the conditional share purchase agreement. What that meant is it just meant that on both sides, you know, we were comfortable with the resource that we were buying. And also, you know, allowed the vendor the opportunity for some of the upside if there is high grade. And so that was how it was priced. But I think if you look at it, again, coming back to that valuation slide relative to recent transactions in Indonesia and then outside of Indonesia, it's still on extremely attractive terms. So, you know, currently, RKEF plants have got a feed grade of about 1.55%.
So as you correctly pointed out, you know, anything at 1.5, 1.6, it all still makes a good margin, even 1.2, 1.3 limonite, there is a market with a margin. You know, basically everything below 1.7, we are getting for free, and it comes with a very healthy margin.
Thanks, Justin. I'll hand it over.
Thank you. Once again, if you wish to ask a question, please press star one. Your next question comes from David Coates from Bell Potter Securities. Please go ahead.
Thank you, and, thanks, Justin and Chris, for the call and presentation this morning. First question is just, I suppose, on, I guess, sort of the timing of, I guess, milestones over the next eighteen months. So you've got the resource drill out to be completed in that time. You also sort of flagged first production in that time, and then you also have the AMDAL, so you know, in being submitted and, and presumably awaiting approval in that time. How do you kind of expect that, what's the timeline gonna look like, you know, with each of those milestones over the next eighteen months?
Yeah. So the milestones really are ETL related. That is the IUP that has been drilled out in terms of most of the prospective area. And that's the one that we had focused on in terms of submission of the feasibility and a AMDAL. We've also received our RKAB, which is basically your work permit, or you submit your planned activities, and that gets approved, and that's been approved to do all of these activities. We are aiming to hopefully have this sort of feasibility AMDAL for the haul road completed this year, which should allow us to sort of commence construction of that haul road, beginning of next year.
And then with the target to commencing first production out of ETL at the end of next year. In it, side by side with development of ETL and early cash flows there, we will be drilling out MJN to the south. And that's obviously quite a large IUP, couple thousand hectares, so there's a lot of drilling to be done there on a 100-meter spacing.
Okay, cool. And, you've outlined, you know, sort of some, you know, sort of high-level kind of case, for the, the, you know, performance of the Sampala Project. But, in comparing it with the existing Hengjaya Mine, what are sort of some of the key kind of performance or profitability drivers, like now it's along the haul, but is it, you know, higher grade or, you know, you've got shipping out of Hengjaya Mine still, I believe. What are the sort of, you know, pros and cons in terms of economics between the two, between the two projects?
Yeah. So we will save on CapEx in terms of there is no requirement to develop the jetty, which is probably, we'll save about 15-20 million. The haul road that we will need to build is only about 22 km, and the haul road that we had to build from HN to IMIP was around 16 km. So there's not a great difference in terms of the haul road that needs to be built. The only difference there, the mining costs will be consistent across both projects. The only difference is just there will be a slightly higher hauling cost between the two projects, just given that you know, Hengjaya is currently about 16 km, and Sampala will be about 50 km.
But, you know, we see that as only adding sort of, you know, a couple of dollars a ton. Not a large number, and given margins at the moment are very strong, you know, there's still more than enough, even with that additional couple of dollars a ton, hauling costs to make it, yeah, a very good margin.
Excellent. And just final, sort of, a higher level question: What's driving the increase in value of these assets, and you know, the importing of ore from the Philippines? What are the sort of market dynamics, you know, driving those sort of changes in the laterite nickel ore market in Indonesia?
Yeah. It is getting. It's certainly getting more challenging to identify and acquire, you know, large, high-grade assets. If you were to look at Indonesia, it's sort of particularly the nickel mining industry, it's segmented into hundreds of small little IUPs, many of which have had next to zero exploration. Although they're all highly prospective, very little exploration's been done. The vast majority sit in forestry areas, which require permits, which is, you know, requires time, and effort, so you know, the development timeframe, assuming that you, you know, firstly, can drill up and make a reasonable discovery.
Logistics, obviously, you know, to be logistically competitive, you need to be either close to the coast or, in the case of Sampala, close to either IMIP or IWIP. And there's very limited large tonnage mines that are left in close proximity to IMIP or IWIP, for that matter. So you are seeing, you know, ore having to come from, you know, further distances, and from mines that probably have logistics that weren't as favorable as they have been in the past. So, you know, we see this transaction as, you know, a project of this size and scale at this sort of price as, you know, being extremely attractive.
Awesome. Thanks very much, Justin. Cheers.
Yep. Thanks, Dave.
Thank you. Your next question comes from Kate McCutcheon from Citi. Please go ahead.
Hi again. Thanks for taking the follow-up. You said the projects have got the RKAB licenses for 2025 and 2026. Is that correct, and then what are they permitted for?
Correct. So RKAB isn't just for ore sales. It's actually it's an all-encompassing work plan. So the RKAB that we have currently is to complete geotechnical drilling, to do mine planning, to do drilling of the resource, and to submit a feasibility in AMDAL, which we've done. Once those are approved, we will then do a revision to the RKAB, and that RKAB will be in the form of, you know, the intended mining volumes that we'll be wanting to sell.
Okay, that makes sense and then finally, the BDM haul road, how do you ensure you get the tons through that? Is there a payment that you make to use that part per se?
There is, yeah, so we've been in close dialogue with... and in fact, the BDM mine is 49% owned by Tsingshan, but we know the other 51% shareholder very well, and we've been in close dialogue in terms of just negotiating a fee to be able to use that existing haul road.
Okay, excellent. Thanks.
Thank you. Your next question comes from David Coates from Bell Potter Securities. Please go ahead.
Thanks again, gents. Just one final follow-up from me. How important... You know, you mentioned traceability, and, and, you know, this obviously gives you much greater control over that. How important is that for offtakers, and in terms of, you know, securing, you know, sales with, you know, Western customers, I suppose, in particular? And presumably, one of your objectives out of this will be to match the standards that the Hengjaya Mine, or take the standards of the Hengjaya Mine to the Sampala and achieve a green PROPER rating, in time. Is that sort of... Is that a part of the plan?
Absolutely, yeah. We've worked very hard to develop the best ESG credentials of a nickel mining company in Indonesia, and so we'd be looking for that to follow into Sampala, and look, it's not just the traceability, which is, you know, a lot of Western counterparts, that's really the key thing that they look at, but for us it is things like, you know, RKAB approvals. We were one of the first to get our RKAB approved, even though there was a delay at the beginning of the year, and that all stems from the fact that, you know, all of our reporting is up to date.
You know, all of our mine rehab, we've met basically all of the provisions of the license, you know, we've met or exceeded. And so that's what has allowed us to actually not only, you know, have our RKABs consistently reissued, also increase the tons that we've been mining. Great. Thanks, Justin. Cheers. Thanks, mate.
Thank you. Your next question comes from Adam Baker, from Macquarie. Please go ahead.
Thanks for the follow-up. Just the breakdown when you're planning on mining this and putting the volumes through the haul road, how should we think about the breakdown of saprolite versus limonite?
Yes. So, in that first, as we ramp up to six million, the split would be about two million sap, four million limonite.
Great. Thank you. And with regards to strip ratio, I'm guessing it's similar to Anggona, not a lot of strip there. You're straight into ore?
Exactly. Straight, straight into ore. Yeah.
Got it. Yeah, thanks. That's all.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Werner for closing remarks.
Yeah. Thanks everyone again for your attendance. As always, any follow-up questions, please don't hesitate to reach out to any one of us. But again, we're excited by this transaction. You know, the economics of mining nickel in Indonesia is extremely attractive for the reasons of very low CapEx, very fast payback, and then the other benefits of self-sufficiency of all through our RKEF operations, obviously our ESG credentials. You know, I think if you look at some of our peers in Indonesia, you know, their mines are valued at $2-$3 billion in some instances.
You know, if you're looking at a cash flow of, you know, $150 million plus or $150-$200 million USD per annum for the next sort of 30, 40, 50 years, you know, it's not hard to see how you can reach that sort of valuation with the potential size of the resource that we think could be hosted at the Sampala Project. So look, we look forward to providing further updates as we continue to take mine development forward and look to commence drilling. Thank you again, everyone, for your time.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.