Thank you for standing by, and welcome to the Nickel Industries Limited June quarter results webcast. All participants are in 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 very much, and welcome to the Nickel Industries June quarter results call. Moderator, if I could please ask you to move to slide three. To kick it off, another record quarter. What was particularly pleasing is record EBITDA from operations of in excess of $100 million, as we see the continued ramp up of Angel Nickel with all four RKEF lines now in operation. We had record nickel metal production in the quarter of 15,567 tons, an increase of almost 40% on the March quarter. Record RKEF revenue of $315 million, which translated into record RKEF EBITDA of $84.9 million.
Once again, the Hengjaya Mine continues to go from strength to strength. The production of 1.3 million wet metric tons, as we recommence sales of limonite with more than 500,000 tons of limonite sold during the quarter. That translated into a record Hengjaya Mine EBITDA of $18.4 million. As I said, that continues to go from strength to strength. As I opened this, resulted in record underlying cash generation of in excess of $100 million, and that's our Q1 where we've achieved that result of in excess of 100 million. We also completed a further 20% interest in the Oracle Nickel Project, plus made an early construction payment of $81.2 million.
That was to facilitate an expected accelerated October 2022 commissioning of the Oracle Nickel Project, which is for more RKEF lines under construction at IMIP, and that's progressing very, very well. All four of our Angel Nickel RKEF lines are now successfully commissioned. With the recent announcement of the power plant now coming online, we expect to see that production ramp up significantly, and start to hit somewhere in the order of sort of 130% of nameplate capacity, which is the historical achievement for all of our existing RKEF lines. Finally, on a corporate note, there was a change of company name to Nickel Industries Limited. If we could just move to the next slide, please.
Just in terms of the summary table, you can see the number of records that were achieved during the quarter. I've highlighted most of those numbers on the previous slide, but just to rehash 40% increase in nickel metal production. We had record realized NPI price, 19,943. Significant increase in revenue, up to $315 million. There was slight contraction in EBITDA per ton margin. That sort of it has been driven by a bit of a lag in costs coming through, particularly in thermal coal. Pleasingly, what we're seeing is nickel ore and metallurgical coal. We're starting to see a downtrend in those costs, whereas thermal coal does remain stubbornly high.
If you look, that margin is still significant, still very large, and still much larger than the margin that we achieved that same June quarter last year. Margins are still very strong. I mentioned the Hengjaya Mine, very pleasing result. And again, you know, more than $100 million underlying cash generation from operations. Moderator, if we could go to the next slide, please. From the operating performance summary here, you can see Angel Nickel really kicking in there in June, in the June quarter. Significant increase. March, we produced 1,077 tons. June, that was 6,389 tons.
As I said, for the next quarter, we expect to see the ramp up to nameplate and in excess up to around 130%. Based on history, we expect that ramp up to be fairly seamless and to be achieved over the course of this quarter. If we could just move to the next slide, please. I mentioned the EBITDA per ton margin. There was some contraction this quarter. Look, you're not gonna set records every quarter. We've come off a very large EBITDA per ton margin, which was a record.
As I mentioned, in terms of the result compared to this time last year, you can see there's still some $635 per ton above the margins at the same point this year. I should add that that margin and costs were somewhat impacted by a power shortage within IMIP for HNI and RNI. Also, the A&I running at sort of 60%-80% of capacity. With those power problems now solved, we would expect to see that that did contribute to an increase in the OpEx costs. Both of those power issues have now been resolved. As I said, pleasingly, nickel ore costs and met costs are decreasing.
Thermal coal, while it remains quite high, as I said, I think for those reasons in terms of the power, you know, we expect costs to have hit their peak. If we could just move to the next slide, please. The Hengjaya Mine, I won't go into too much detail there other than what I stated earlier, the $18.4 million EBITDA. It's a significant record. That's a doubling of the $8.9 million in the March quarter, and was boosted particularly by a significant increase in the price of the nickel ore that was received. In the March quarter, we averaged $40, in the June quarter, we averaged $52. Also the sale of limonite.
You can see the average price received there, close to $15 a wet metric ton. We expect to see continued strong production from the mine moving forward. In terms of production, the saprolite production is well in excess of the targeted sort of three million wet metric tons per annum. If we could just move to the next slide, please. EBITDA to cash flow conversion again remains unchanged. You know, you can see there at 99%, that's not the profile of a mining company, hence the change in name to Nickel Industries to reflect the industrial nature of the business. If we could just move to the next slide, please.
On the corporate front, as I mentioned, change of company name occurred and we're now Nickel Industries, which we think better reflects the nature of the business and the Nickel Pig Iron production and other production opportunities that we have. Angel Nickel was granted a commercial sales license, and that allowed us to commence commercial sales. By the end of the June quarter, we sold in excess of 6,000 tons for revenue of $132.9 million. All four Angel RKEF lines commissioned during the quarter and produced 6,389 tons of nickel for the June quarter.
Once we're running at 130% of nameplate, we expect that number to be sort of in around sort of 11,000-12,000 tons on a quarterly basis. Pleasingly, the power plant is now commissioned well ahead of schedule, and we expect, as I said, that to contribute to A&I operating in excess of sort of 30% of the nameplate capacity. Ownership in Oracle Nickel was increased to 30%. That was completed by way of a placement of 108.1 million shares to Shanghai Decent at AUD 1.37 per share. That satisfied $106 million consideration of the Angel Nickel purchase price.
There was also, as I mentioned, an early construction payment during the quarter, and that was to expedite construction of the project. As I mentioned, we expect first lines now coming on in October 2022. In terms of the nickel matte, everything is in place to produce nickel matte. The decision to switch will be determined by prevailing, you know, pricing relativities between the NPI and the nickel matte market. We're looking at that very closely as to when would be an appropriate time to switch on two lines for production of nickel matte. Finally, during the quarter, we also executed a binding definitive agreement for the staged acquisition of 100% of the Siduarsi Contract of Work.
It's a nickel large tonnage limonite nickel cobalt project in West Papua province. It's contract of work, potential to host a large world-class limonite resource, and it has a lot of similarities to the Ramu resource, which is on the other side of the island, but in PNG. That is the world's lowest cost HPAL producer. The drilling that we're currently undertaking there is progressing very well. If we could just move to the next slide, please. You can see here, we're well sort of two-thirds of the way through a significant ore tripling of our production profile. If you look at the top charts there, the green is the nameplate. If you start on the far left there, you can see 30,000 is the nameplate capacity.
10,400 is what we achieved. 10,410 in the blue is what we achieved over and above nameplate for last year. 40,000, in excess of 40,000 tons. With A&I now coming online, you can see what that does to our nickel production. Again, that 66,000 is just nameplate. A&I, we expect to ramp up in excess of nameplate, as I mentioned, during this quarter. Then with O&I now coming on in October. You can see what that will do. That will put us in excess of 100,000 tons on a nameplate basis. Given the historical 30% increase, it's a more than tripling of our current nickel production profile.
I would also add that, you know, that these new lines have a 20% larger nameplate capacity than our existing HNI and RNI operations. With the power, that's expected to deliver a 20% saving on our power costs, which is our second largest cost component. If we could just move to the next slide, please. In summary, you know, another very strong quarter, as I said, pleasingly in excess of $100 million in cash generation. We are progressing very well through our tripling of production. A&I, as I said, all four lines commissioned. Power plant now commissioned. Expect this quarter to see significant ramp up there.
To reiterate, we expect that the power plant will deliver significant cost savings on the cost of power, which is where we're seeing most of our cost increases across our RKEF lines. All of this growth is pretty much locked in, comes as it has historically with a CapEx guarantee. It's not growth that relies on inflated commodity prices. If you look back at the production history, very strong, stable margins. These are low-cost, long-life operations. You know, with the ability, as I mentioned, to produce nickel matte, we have flexibility to be a diversified producer of not just class one but also class two nickel. I'll finish it there and hand over to Q&A.
Thank you very much. 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 speaker phone, please pick up the handset to ask your question. We have a first question from the line of Tim Hoff with Canaccord Genuity. Please go ahead.
Hi, guys. Thanks for the call, and well done on the result today. Just had a couple of quick questions. First one, around limonite sales. How do we think about that going forward? Is that more or less, a continuing basis, we'll expect to see these sorts of levels shipped?
Correct. We, at this point in time, are looking at around 100,000 tons of limonite per month. We'd be looking at targeting around sort of 300,000 tons of limonite per quarter. We continue to make good progress on a haul road between the Hengjaya Mine and IMIP. Once that is complete, then we're targeting a material ramp up in both saprolite and limonite production, somewhere in the order of sort of five million tons of saprolite and three million tons of limonite. For the near term, the current limonite targets are around 300,000 tons of limonite a quarter.
Okay. Excellent. In terms of pricing, that's a mechanism that's linked to the LME, I understand?
Correct.
All right. Is there a-
Sorry, Tim. Saprolite is linked to the LME. Limonite as yet is by negotiation. We believe that will fairly shortly be linked to LME as well.
Okay. Do you get cobalt credits in that limonite?
There is a small credit for cobalt, yeah.
Okay. Perhaps finally, just around the limonite. What do you see happening in the parks at the moment around HPAL capacity? We've seen some pretty aggressive growth coming there. What's coming through in the pipeline in terms of HPAL?
Yeah. HNC, which we're supplying to currently, has fully ramped up to nameplate capacity and is performing very, very well. We've had the opportunity to look at some of the metrics. As I said, look, it's phenomenal that it was built in, you know, 18 months during a global pandemic and, you know, supply constraints. It's performing very well at the moment. That's online ramped up capacity of about 60,000 tons of nickel metal and about 8,000 tons of cobalt. QMB is not far behind that. It's in the process of commissioning at the moment. We expect by sort of end of this year that that would be somewhere near ramped up and probably at nameplate that's similar size to HNC.
There are plans for additional HPAL plants to be built sort of nearby to IMIP. Look, that's sort of something that as part of the MoU that we signed and future HPAL collaboration that you know, we continue to engage in talks with Tsingshan in regards to potential future HPAL collaboration and obviously the acquisition of the Siduarsi contract of work. Given it's a predominantly limonite deposit, that's part of you know, securing resources for potential future HPAL growth.
Okay. Excellent. Perhaps I'll hand it over and I'll ask questions at the end if there's time.
No problem.
Thank you.
Thanks.
Thank you. We have our next question from the line of Adam Baker with Macquarie. Please go ahead.
Hey, guys. Yeah, we've just seen a bit of a slowdown in China over the past quarter. Just wondering, you know, what you guys are seeing from a demand perspective via NPI products and, you know, is China still wanting the additional, you know, NPI products that you're bringing to the market?
Yeah. Look, thanks, Adam. There is certainly you know, last quarter I think was one of the lowest GDP growth rates recorded for a long time in China. Obviously as you know, they continue to chase a zero- COVID strategy. In terms of the market, there is a bit of sluggish demand for stainless steel. Given that, we're part of sort of Tsingshan's integrated stainless steel process, we see no issues in terms of over-demand or sorry, oversupply. In fact, interestingly, if you look at what's happening within IMIP and IWIP, a significant number of lines have been converted to the production of nickel matte.
It's currently around sort of 12-15 lines that have or will be converted. That will significantly reduce NPI output from both IMIP and IWIP. I think it's important to remember that Tsingshan is still far from self-sufficient in terms of supply of NPI for its existing operations in China. While, you know, growth in China at this point in time, you know, as I said, as they're chasing a zero- COVID strategy is a bit muted. I think if you look back at the history, we would expect to see some stimulus coming in and, you know, a pick up again as things hopefully return to more normal activities there.
Okay. Great. Maybe on the cost side, you know, it's good that we've seen TTI coal prices kind of coming back down, but you know, do you guys have any information as to, you know, when the thermal coal prices are gonna subside?
Yeah. Look, like everyone, we sort of can't predict what thermal coal pricing will do. You know, we are closely following the Indonesian coal index. That's where all of our thermal coal is sourced from. As I said, pleasingly, we are seeing a decrease in nickel ore, which is our largest cost component and metallurgical coal. I mean, coming back to China, one of the other interesting elements of the thermal coal price is whether, you know, China may open up again imports of Australian thermal coal. You know, there's still a bit of uncertainty and the market dynamics of thermal coal. I think it's sort of hard to predict where the numbers are headed. Look, I think it's probably safe to say that I don't think thermal coal is gonna stay at these sort of levels for an extended period of time.
Thanks, guys. Maybe just a quick follow-up on Tim's question. Are you constrained by the 300,000 tons of limonite that you can take out per year? Or, you know, is there potential that you can increase that number given you've got, you know, almost three million in stockpiles there?
Yeah. That 300,000 per quarter, we do obviously prioritize saprolite, given the higher margins. You're correct, there is about three million tons of limonite sitting there. Once that haul road comes online, then we'll be able to significantly increase both our limonite and our saprolite production. I mean, at this point in time, we continue to prioritize saprolite. As I said, once that haul road comes on, then we'll be able to significantly ramp up that limonite production. Look, we are exploring potentially other ways to move the limonite. You know, there are other alternatives such as, you know, for example, a slurry pipeline, which is, you know, used on a number of HPAL operations globally. That's something that we may also look at and explore, as a way to increase cost-effectively our limonite production.
Thanks, guys. I'll pass it on.
Thank you. We have next question from the line of Patrick Collier with Credit Suisse. Please go ahead.
Hi. Hi, Justin. Thanks for taking the questions. Just firstly on nickel matte, do you mind reminding us of just any kind of timing and cost considerations when it does come to switching over? Then, secondly, just what you're seeing in the market in terms of the economics of NPI versus mat at the moment and, you know, how far off mat could potentially be?
Yeah. In terms of timing, the CapEx modifications are all complete, so it would really just be a matter of once the decision is made, there is an interim period of about two weeks where we continue to produce nickel, but in an off-spec but saleable product. It's about sort of two weeks until we would start to produce an on-spec low-grade nickel matte from the RKEF lines. In terms of costs, we expect that the costs would be very similar to the production of NPI. That low-grade nickel matte then goes through a converter, and that's a special specialized converter that Tsingshan themselves have built, and that converts it to a high-grade nickel matte.
There is an additional cost to that conversion, but it's certainly sort of in the market, so you know, obviously once we make the decision to move into nickel matte, you know, those costs will become a bit clearer. But that's basically, you know, similar cost base except for a conversion cost added on top of that. Then if you look at the different markets, LME has sort of held up reasonably well. We are seeing a softening in NPI prices predominantly just through sluggish demand for 300 series stainless steel. At this point in time, nickel matte would appear to potentially have better economics, given the disconnect between the LME nickel price and the NPI price or the bifurcation.
Look, that's something that again, we'll sit down, we'll have a look at. We'll have a look at the demand outlook, and you know, the payability for nickel matte in terms of the percentage of LME, and it is linked to LME or can also be linked to SHFE, is quite robust. It's you know sort of getting up in some instances up to sort of high 80%, sort of numbers. You know, something that, as I said, we're looking at very closely.
Okay. Thank you. Secondly, I think in the comments we've got that dollar per ton nickel ore costs increased on lower production, but then, you know, the nickel ore prices themselves were roughly flat. I guess I'm just a little bit confused as to why those nickel ore costs aren't variable with production and why that production denominator would change, you know, given presumably the bulk of the nickel ore cost is the nickel content itself. Are you able to clarify that?
Yeah, sorry, Patrick. I didn't quite understand the question.
I think just in the quarterly, there's a comment about, you know, the lower production due to the power issues driving higher.
Yeah.
Dollar per ton nickel ore costs. I guess just if production is lower, I would assume that nickel ore costs would also be lower and that dollar per ton wouldn't change too much. It seems like there's maybe a fixed component to the nickel ore costs, and just trying to reconcile how that would work.
Yeah. That there is a fixed component. So that nickel ore cost is set on a monthly basis, which is referenced off the LME price for the preceding month. Yeah, that ore cost is very much fixed for the month, but fixed to a reference to the LME price.
Okay. In terms of nickel ore volumes, like if production is lower, then presumably the nickel ore that's consumed is also lower. That's why I'm confused as to why the nickel ore unit costs would go up due to the power outage or power issues. Maybe we can take it offline if I'm not making sense.
Yeah. Yeah. No, no.
Sorry, you go.
No, you're right. No. Look, there is, there's obviously an overhead cost as well, which is factored in. Yeah, there was some cost impact from that power shortage.
Okay. Got it. Just lastly, the Hengjaya realized ore price or ore sales price being $52 a ton, again, investor commentary of $42-$44 a ton as an input cost into the RKEFs. I'm just trying to understand the difference in terms of what you're selling out of Hengjaya versus what you're paying to bring in to the RKEFs and why those would be slightly different.
So-
Ladies and gentlemen, kindly stay connected. We lost line of Mr. Werner. Kindly stay connected while we reconnect his line. Thank you.
Patrick, can you repeat the question? I've actually missed that.
I'm sorry. Patrick, you may now go ahead. Your line was muted. Please go ahead and repeat your question. Thank you.
Okay. Thank you. The question just on the Hengjaya realized price being $52 a ton and just comparing that to the $42-$44 per ton of nickel ore. That's mentioned in terms of the RKEF operations. Really just trying to understand why those two prices would be kind of, I guess, 15%-20% different.
Yeah. I think, Patrick, it's fair to say it's a timing difference, and it's what we've seen all the time in terms of the management of the stockpiles at the IMIP by the team on the ground in the IMIP. It is a timing difference in relation to those stockpiles.
Okay. Should I kinda take the Hengjaya price as a bit of a leading indicator on what might come through the RKEF, then?
It always depends on the amount of stockpiles that the months of stockpiles that are sitting there at each time, and we don't divulge that information.
Okay. Understood. Thank you. I'll leave it there.
Thanks, Patrick.
Sorry, everyone, line dropped out.
Thank you. We have next question from the line of David Coates with Bell Potter Securities. Please go ahead.
Good morning, guys. Congratulations on the result, and thanks for the presentation this morning. Justin and Chris, just quickly following on from that question, is there also particularly on the ore sales between Hengjaya and the cost of the RKEF lines. Is there also a grade differential there that sort of contributes to that as well?
Yeah, Dave, there is a great difference between what we're selling and the grade of ore that's being consumed by the RKEF lines.
Okay, cool. Look, just a couple other quick ones. You referenced power constraints at the IMIP being a driver of the lower production, where it's dropped down below 10,000 tons. Can you just give us a little bit more kinda color, obviously, or background on how those power constraints have emerged? You know, obviously those the assets and power stations been there for a long time. It doesn't seem to have been an issue before. Is it more lines being added before the power station being added or are there local disruptions or what sort of led to that sort of, you know, notion, if you like?
To that situation, yeah. If you look at Angel Nickel, that illustrates it very well. The RKEF lines are able to be built and come online much earlier than the power plants. It's just and these things are always built as a package. You know, whether it's typically, they build them in lots of sort of four RKEF lines with 380 megawatts of power. When they decide to or make the decision to build or fund, it's just a difference in timing between when RKEF lines can be commissioned and when the power plant can be commissioned.
Typically, there's a differential there of sort of up to about six months. That's really all we just experienced there at IMIP, just that lag while new RKEF lines were coming online, but we were waiting for the associated power plants to follow them into production. That's now been resolved. Moving forward, we don't see that being an issue.
Right. Okay. Just out of interest, how many RKEF lines are there now at the IMIP?
There is now 44 in operation, with another eight under construction. Four of those four lines are Oracle. With those eight lines, when they do come into production, that will bring the total to 52, and that will pretty much see IMIP build out for RKEF capacity. As I mentioned, there's two HPAL plants. One's fully ramped up, one's not too far from being ramped up, potentially plans for more HPAL plants. Of those 52 RKEF lines, 10 of them are currently or in the process of producing nickel matte. If we make the decision to produce nickel matte from two of our lines, that would take the total lines of the 52 that are producing nickel matte to about 12 within IMIP. There are also a handful of lines at IWIP that are also producing nickel matte at the moment.
Excellent. Extraordinary. Just on both of those points, a couple points you just raised there. Firstly, you know, you mentioned the two lines that you're looking at getting converted. Previously, I'd understood that once they are converted, you know, that nickel matte is what they would produce. But it sounds like there's sort of a capacity to sort of switch between NPI and nickel matte. How, you know, what sort of flexibility do you guys have, I suppose, once that conversion's been done?
There is flexibility to switch between the two products, although we would run them in a campaign style way. Once we make the decision to switch, it would be for a meaningful volume over a meaningful period of time. It's sort of-
Yeah
Not something that we'd be sort of switching between month to month. We do have the ability if, you know, for whatever reason, we decide that we wanted to switch back to NPI. It's really the only thing that to be aware of when we do change between Nickel Pig Iron and nickel matte, as I said, is just that interim period of about one-two weeks where we produced an off-spec product, which is still sellable.
That is sort of, you know, as you switch between the two products, that's just something to be aware of and that, you know, we factor into when we sort of look at the decision of switching to nickel matte or perhaps at some point in the future, when we have made that switch, potentially switching back if the market conditions and economics indicate that we'd be better going back to producing Nickel Pig Iron for a period of time. There is direct flexibility to move between the two products. It's a reflection of the innovation of Tsingshan in that, you know, they are the first company that has been able to successfully implement this kind of flexibility to produce, you know, a Class one or a Class two product out of rotary kilns and have the ability to switch between the two.
Yeah. Yeah. Just touching on the HPAL plants, which you mentioned under construction there. Look, I imagine it does depend a bit on the market dynamics. You mentioned, you know, the viabilities being higher and, you know, that obviously changes around. But do you have a sort of high level kind of sense or intuitive sense in terms of, you know, perhaps like your, when you're considering your growth options, what sort of returns on capital you might get, you know, in an HPAL project versus the RKEF projects that you know, built up a big portfolio of already?
Yeah. I mean, as you know, and you can look at the historical performance and the acquisition price that we paid for our RKEF, you know, sort of EBITDA, you know, payback of sort of 2.7x-3.2 x. You know, very good return on capital. In terms of the HPAL, I mean, we have had the luxury of looking at some of the metrics, and you know, what we've seen, they appear to be performing, you know, very well. But it is something that, you know, that discussion is sort of we are engaged. It's ongoing.
You know, I would hope that sort of perhaps towards the end of this year or early next year, we might have a bit more color or be able to sort of speak a bit more about what any potential HPAL aspirations may potentially look like. But certainly based on the successful commissioning of the HNC plant and its sort of current performance, you know, it's looking very, very compelling. I think if you look at plants like Ramu, which are reporting sub-$2 a pound OpEx costs, certainly when it works, you know, it's very lucrative. Obviously you know, a very attractive element of HPAL is obviously the significant cobalt credits.
Not just cobalt, there's other byproducts, the chromium, which can also be extracted and even potentially, you know, other others sort of trace elements, manganese. You know, people are looking at potentially taking out the scandium. You know, yeah, when it works, it looks to be compelling.
Excellent. Thanks very much, Justin. Cheers. I'll pass it on.
All right. Thanks, Ed.
Thank you. We have next question from the line of [Chun Wei Mui] with Arkkan Capital. Please go ahead.
Hi there. Quick question on the cost. I remember last quarter in the call and the, I think the coal cost was, you know, accounted for in first in, first out. That's why we didn't see, you know, that magnitude of a coal effect in Q1, but obviously it's going through in Q2. I'm just curious whether the FIFO effect is, you know, all done with in Q3, or should we expect a further, I guess, you know, increase in, you know, EBITDA or decrease in EBITDA per ton in the next quarter?
I'll start with the costs. As I mentioned, nickel ore, met coal, costs are coming down. Thermal coal, we are still seeing elevated costs there. How much longer that will continue, as I said, you know, that's, we're not here to make predictions on thermal coal pricing. I would also add that, you know, a factor in our costs for this quarter has been the power constraint at IMIP, and obviously the fact that we've only been able to run Angel Nickel at sort of 60%-80%.
We expect that now with the power plant online, we will be able to sort of ramp that up significantly to sort of 30% over nameplate and realize a 20% decrease on our power costs. But that's sort of on the cost side. On the EBITDA per ton margin, NPI prices have softened recently. As I said, that's probably a reflection of, you know, the low GDP growth numbers out of China. They're still grappling with a zero-COVID policy and lockdowns, which is having impacts on their economy domestically.
I think, you know, if you look, we sort of make the point that we sit right at the very bottom end of the cost curve. You know, if there is to be any margin pressure, you know, we at the bottom end of the cost curve will sort of should always enjoy a margin that's healthy.
Sorry. I don't think my question was answered. I wasn't asking you to predict, you know, kind of coal price directions, right? What happened between Q1 and Q2 was effectively a, you know, an accounting first in, first out. Therefore, we saw a material increase in coal costs, right? My question is, you know, from an accounting perspective, you know, is the first- in, first- out effect, you know, you know, done with now or is there more, you know, kind of FIFO effect to be flowing through in Q3?
Yeah. Look, I think there's probably still perhaps another month or two of lag there. We've seen part of that sort of come in the June numbers. We saw it has been captured in part, partly in this quarter. Yeah.
Okay. There could still be some flow through in the Q3. Thank you.
Thank you. We have next question from the line of William Morgan with Triple Eight Capital. Please go ahead.
Justin, two questions, one specific one just on energy and another one on strategy. Just with energy, to remind me, you're buying electricity, not buying coal. Have you got complete rise and fall on your electricity prices? That's part A of the question. Secondly, is there-
Excuse me, sir, this is the operator. I'm sorry to interrupt. Would request if you can use your handset while asking the question. Your audio is not coming very clear. Please use the handset and repeat your question again. Thank you.
Thank you for that. Apologies. Strategy question and energy question. On the energy question, you buy electricity, you don't buy thermal coal. Have you got part A of the question, do you have full rise and fall on electricity prices completely correlated to thermal price? Secondly, you've gone upstream with power plants. Can you go further upstream and get coal supply and have a fixed cost for your power longer term?
To answer the energy question, there is an energy pricing formula, which is linked to the thermal coal price. You know, there is visibility there for us in terms of, you know, where, how electricity prices are being charged and that price is consistent across the whole of the industrial parks. To the second question around strategy, look, it's not something that we've considered. You know, I don't know that there would be any significant cost benefits to us trying to acquire any thermal coal mines, particularly given. Well, at this point in time, if you look at thermal coal price, the valuations that any coal miner, you know, would be asking would be significant. Look, coal mining is not something. You know, the name Nickel Industries, we're purely focused on nickel.
Okay.
That's the focus for the company. Yeah.
Right. Next, just a broader strategy question. The supply of nickel from Indonesia now is obviously getting to a point where it is significant. You clearly are trying to chase the value add on doing HPAL and capturing higher value product, but you've got unconstrained competition doing the same thing that you are doing. What's the thinking among your co-owners of these assets with respect to oversupplying nickel?
Yeah. I think if you look at Indonesian supply and, you know, Tsingshan in particular, given they're the largest player, IMIP, as I mentioned, will be built out once these last eight lines come online. Of those 52 lines, 10 of those have already been converted to the production of nickel matte, and that could increase. Over at IWIP, you've currently got about 34 operating lines. That will probably grow to about 52 lines or a similar size as IMIP. I think it's important to again note that the reason Tsingshan is building all of this NPI capacity is it's attempting to become more self-sufficient in NPI for its stainless steel operations back in China.
Even with all this capacity that's coming online in Indonesia, they're still sort of well short of that requirement. Look, we don't see, you know, an oversupply issue. What we probably see is just replacement NPI, as more Indonesian capacity comes on, you'll probably see a reduction in Chinese NPI capacity as higher cost producers, you know, sort of go offline and perhaps move into other businesses.
Look, the ability to convert NPI lines to produce nickel matte, that's also another strategy that Tsingshan has adopted in terms of, you know, if there is any concerns or if there's apparent oversupply, the ability to then divert NPI production into the production of nickel matte, which obviously will take some NPI out of the market and potentially also, you know, feed into a higher margin side of the market, where there may actually be, you know, supply constraints.
Okay. Thank you.
Just to add sort of final comment to that, I think what you'll see now in Indonesia is a real pivot, and certainly the government is encouraging and doing everything it can to foster a pivot into more HPAL development. One of the reasons that's sort of driving that, the government's desire to see more of the HPAL development is obviously in the process of mining, saprolite ore to feed these RKEF lines. A large amount of limonite is sort of discarded and sterilized. You know, that's something that the government is very keen to see that, you know, these limonite resources aren't sort of simply, sort of stripped off the top and, as I said, sterilized.
You know, they are also developed and you know, significant value can be gained from limonite. If you look at sort of limonite resources versus saprolite resources, there's significant amount more of limonite than saprolite, and that's just typical of sort of the ratio that you see in these laterite ore bodies. You typically have much thicker limonite, a much thicker limonite profile and resource tons when compared to the underlying high-grade saprolite ore body.
Okay. Just perhaps one more on supply and demand. Just the sell side generally is now forecasting peak carbon steel production at just over a billion tons and waning from here. Appreciate stainless completely different metrics and drivers, and you've spoken of that in terms of general GDP and consumption. Just, is there anything else that, and then we've obviously got the battery demand coming through for HPAL product, et cetera. Just, is there any other guidance on metrics that you watch that we should be wary of?
No, look, I think, and again, it comes back to, you know, certainly, and looking at Tsingshan's strategy, there certainly is a pivot into the sort of battery metal space. I think, as I said, I think that will play out in the fact that for their NPI capacity, that's been planned. It's been built out. At this point in time, there's no further plans for any more NPI or RKEFs that produce NPI to be built other than what's planned for IMIP and IWIP. The strategy moving forward, I think will very much look at sort of HPAL, you know, intermediate product for the battery market. Tsingshan is sort of listing a battery side of its business on the Hong Kong Exchanges and Clearing. It's in the process of doing that.
It's obviously announced a deal with Eramet on a lithium project in South America. I think if you looked at what's happening within Indonesia with you know companies like BASF committing to battery plants companies like Ford signing MOUs with Vale and Huayou Nickel Cobalt that's very much I think where the next wave of significant growth in nickel and cobalt will come in Indonesia and it will be in that Class one battery suitable or EV material related supply.
If I may, one more question just on ESG. Are you getting much flak or take-up on resistance to invest institutionally from fossil fuel? Or on the other side, what you're doing in terms of mitigating that?
Yeah. We obviously released our maiden sustainability report during the quarter, which, you know, I think was well received. We've obviously benchmarked ourselves on a carbon intensity basis against all of the global nickel producers. You know, we sort of pleasingly sit around the sort of 50th percentile. We've announced during the quarter a further 220 MW peak solar project, which will bring the total now to 420 MW peak. Both of those projects are advancing very well. We potentially are looking at expanding that from 400 MW to a much larger number.
As well as that, we've also been doing quite a bit of work looking at LNG and cleaner sort of renewable forms of energy, as well as we've engaged Hatch to sort of look at a decarbonization study and opportunities that may exist. That's something that we're committed to. That said, we're now producing an annual sustainability report and, you know, on an annual basis, we'll be providing those numbers. Moving forward, we'll probably start, you know, looking at potentially sort of setting some targets. You know, it's a bit premature for that, given the company is still very much in the growth phase.
You know, I think there's, as I think the response to the sustainability report and providing some transparency on sort of the many initiatives that we're undertaking, not just on an environmental, but on a social perspective as well, was well received.
Thank you. No more.
Thank you. We have our next question from the line of David Brennan with Petra Capital. Please go ahead.
Thank you. Just a quick question on the $285 million required to complete the funding of Oracle. Can you give us any insights there on your thoughts how that's gonna be funded?
Chris, do you wanna take this one?
Yeah, no problem. Thanks for the question, David. Look, as you know, we had $525 million to fund, and we've always said that we'll look to do that through a mix of equity, debt and cash flows. We've done our equity raise earlier in the year. As you know, including the placement to Shanghai Decent, we've made another $81.2 million of early construction payments to hopefully result in the early commissioning of Oracle in the start of Q4. The strategy hasn't changed with the remaining $285 million. We'll continue to look to use operating cash flows and debt for the remainder. As you know, our next payment is due in December 31, so we've got a good runway to that payment obligation, David.
No, that's great. Yeah. Just in terms of how the market is for the appetite for the debt that you'd be looking for. Is there good appetite? How are negotiations going?
Yeah, I think it's fair to say that the market's changed since the start of the year. It'd be remiss of me to say otherwise. We are obviously in a different operating environment to where we were in Q1. Everyone can see that globally. Obviously, our bonds are not trading at the par value that they were at the start of the year. It is a more difficult environment, but it's something that's not overly concerning at this stage, to be honest. We've got good engagement, a lot of inbound inquiries on potential financing alternatives. Some attractive, some less so. We'll just continue to work through those.
Great. Thank you.
Thank you. There are no further questions at this time. I'll hand back to Mr. Werner for closing remarks. Over to you, sir.
Thank you. Thanks everyone for your attendance. Look, as I said, pleasingly at first quarter, where we've delivered over $100 million in cash generation from operations. We're well advanced in terms of tripling our production, and we expect at the end of this year to hit that run rate of an annualized 130,000 tons of nickel metal production on an annual basis. It's really business as usual as we've sort of emerged or Tsingshan has emerged through the LME squeeze. I know that sort of created some concerns there.
Again, let me reinforce, you know, that there very much absolutely no impact on our operations as you've seen from the two quarters that this quarter and the previous quarter. It's really more just again more upside, more increase in production. Look, we look forward to you know to the upcoming quarter providing more updates. Thank you everyone again for your attendance and questions today.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.