Ladies and gentlemen, thank you for standing by, and welcome to the Nickel Industries Limited 2021 FY 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. Sir, please go ahead.
Thank you and welcome everyone. Moderator, if you could please move the slide deck to slide two, the highlight slide. Another very strong year for Nickel Industries as we continue to set new records and we're set up for exciting growth profile over the next 12 months. Gross profit for 2021 was $217 million. Continue to see strong conversion of EBITDA to free cash flow, and I'll talk about that a little bit later on. We produced over 40,000 tons of nickel, more than 30% above nameplate capacity. As a result, there was record RKEF EBITDA of $225 million.
Pleasingly, the Hengjaya mine recorded production of 2.5 million wet metric tons, and it also delivered EBITDA of $22 million on a standalone basis. It will continue to increase as a material cash contributor to the Nickel Industries business. Corporately, during the year, we completed the acquisition of an 80% interest in Angel Nickel. We also signed a definitive agreement to acquire another 70% interest in Oracle Nickel. What that will do is that will set us up to more than triple our production profile and our EBITDAs within sort of a 12-month period. Regular repatriation of funds continued throughout the period.
We paid a AUD 0.02 interim and AUD 0.02 final dividend, taking the total to AUD 0.04. That was a 33% increase on the AUD 0.03 that was paid last year. I think we've successfully managed to balance a very strong growth opportunities with returning money to shareholders' pockets. We also completed our maiden bond issuance and followed that up with a tap, a total of $325 million. We still maintain a very strong balance sheet and still very lowly geared. During the year, we were also admitted to the ASX 200.
We signed an MoU to diversify into the production of nickel matte, which will make us unique in terms of diversification and having access to both or exposure to both Class 1 and Class 2 nickel and LME and NPI nickel price markets. We saw obviously continued COVID issues globally. I'm very pleased to report that there was actually, you know, we had no issues or shutdowns or any production-related issues from COVID. We were able to pleasingly deliver Angel Nickel for the first tap six months ahead of schedule, despite, you know, a lot of the supply chain challenges that a lot of companies have experienced.
Moderator, if you could please move to slide three, the financial snapshot. You can see there in all instances a significant increase compared to FY 2020. RKEF sales revenue up almost 25%. Gross profit up 31% to $217 million. It was a very pleasing year given that we were able to deliver higher EBITDA margins despite cost pressures, which came from rising nickel ore prices, rising coal prices, and rising electricity prices. Against that backdrop, we were actually able to increase our EBITDA per ton margins, and it speaks to the robustness of the business and the fact that we sit at the very bottom end of the cost curve.
If we could move to slide four. As I said, we have continued to maintain a very robust balance sheet. Total assets of $1.8 billion, net debt of only $187.1 million. You know, that low gearing does leave us in a good place to you know, potentially take on further value-accretive opportunities as they may arise. I mentioned the successful maiden bond issuance. That was $175 million, 6.5% coupon. We followed that up with a successful $150 million tap issue. We're now establishing ourselves and our credentials in the bond market.
Through the continued good results, we will hopefully sort of start to see some ratings upgrades. If we could move to slide five, please. In terms of production, again, very consistent. We were down slightly on 2020, although we saw a significant increase in EBITDA. The only real driver behind that slight decrease in tons is just grade. We decreased the NPI grades from 14.7% in 2020 to 13.5% in 2021. The reason we do that is by reducing that grade, we actually can improve the payability, which has gone on to obviously higher EBITDA per ton margins.
We saw in the second half of 2021, we saw EBITDA per ton margins average $6,109. You know, we're continuing to see even into the start of beginning of 2022, those EBITDA per ton margins are increasing over and well above the $6,000. If you look at that compared to 2020, we were sitting at EBITDA margins of $4,500. We've increased that to over $6,000 and then in the second half. As I said, we're off to a very strong start in 2022. If we could move to the next slide, please, number six.
I think the headline here says it all, operating consistency, a hallmark of our business, and you can see it there in the graph. Just continued steady, strong production well above nameplate capacity. You know, that just highlights the industrial nature of our business. You know, we see no reason why, you know, this won't continue. If we move to slide seven. You can see here, as I mentioned, the EBITDA per ton margin. Despite the cost pressures that I've mentioned, we've actually seen a significant expansion in the second half of last year. As I mentioned, 2022, we're off to a very strong start. In fact, you know, we had LME nickel prices touching on sort of $25,000 overnight.
If we move to slide eight, the Hengjaya mine. Again, seen a significant improvement from the Hengjaya mine, and that's been a result of the expansion initiatives that we undertook in 2020. We saw record production of almost 2.5 million tons. The Hengjaya mine actually offers a natural hedge against the ore costs, and ore costs are about sort of 35% of our cost base. We consume sort of almost 4 million tons of ore a year. That 2.5 million, as I said, provides a natural hedge. If you look at our December quarter, that was a record. That was 847,000 wet metric tons for just the quarter.
The current run rate is well in excess of about 3 million tons per annum and well above the ramp-up target, which was 2 million tons. Pleasingly in November 2021, we also supplied our first barges of limonite to the HNC HPAL project, which is within IMIP. Those limonite sales will continue this year, and we will look to ramp that up. That will allow us to further improve the cash flow profile of the Hengjaya mine. Typically, limonite has been treated as waste and overburden. We're now being able to monetize that limonite which sits above the saprolite, and it will provide very healthy margins.
If we could just move to slide nine. You can see here the high cash conversion that I spoke about earlier, you know, 99% for the December quarter. The reason for that is we're a beneficiary of our existing operations have a seven-year tax holiday and then a further two years at about 12%. Our new lines, which are just commissioning Angel at a ten-year tax holiday, with a further two years at 12%. You know, I don't think you'd find anywhere else a commodity business that has, you know, these types of tax concessions, this type of cash flow generation, and we have minimal sustaining CapEx.
I keep hitting on the note that, you know, we are an industrial company. We're really not a mining company, and you can see that in the strong EBITDA to free cash flow conversion. If we could just move to slide 10, please. I mentioned growth. We're set to more than triple our current production profile over the next 12 months. It's an exciting 12-month period for us. Angel Nickel, which is already fully paid, as per all of our previous deals, came with a capital cost guarantee. As with HNI and RNI, it was delivered well ahead of the delivery schedule.
We were pleased to report just a couple of weeks ago, commissioning of the first line, and we will commission the remaining three lines over the next sort of 2-3 months. We then, as I mentioned, signed a definitive agreement for Oracle Nickel. Again, it's a 70% interest for $525 million. Comes with a CapEx guarantee. It's actually already well advanced, so we're expecting commissioning in February of next year. Just move to the next slide, please. What does it do for our production profile? It will firmly position us once ANI is fully ramped up and Oracle Nickel comes online around this time next year. Puts us up among the top 10 global nickel producers.
It's a tremendous achievement given that, you know, we've been listed only a little over three years. You can see it puts us above the BHPs, the Anglo Americans, the Eramets and on the heels of the Glencore, Vale and Norilsk. That number there of 86,000, that's actually nameplate capacity. It'll probably look more like 100,000 if you take the current production performance. If we move to slide 12. This just really shows in a chart what that production profile will look like. The blue there is the overperformance. As I said, you know, we'll be significantly above 100,000. You know, this growth path is clearly defined.
In the case of Angel Nickel, it's fully paid for. In the case of Oracle Nickel, you know, there's a clear payment schedule and we have a strong balance sheet and a well-funded to meet those payment commitments for Oracle Nickel. Both ANI and ONI will deliver a 20% increase on our current nameplate capacity for our four lines. We'll also deliver a 20% saving on the power costs. You know, we expect to see, you know, a more than tripling of our current EBITDA profile. What does that look like? If we move to slide 13. The table at the bottom there and you can pick your EBITDA per ton margin.
We've used sort of a range of 5,000-6,000. As I said, we actually averaged over 6,000 for the second half of last year. We're well above 6,000 for the beginning of this year. If we use a conservative number of 6,000, you can see in indicative EBITDA of, you know, close to $800 million U.S. on a consolidated basis. With the overproduction and the increased EBITDA per ton margins, you know, we think that could be up somewhere around U.S. $1 billion. It's a significant step up from where we currently sit today. If we could just move to slide 14. Just to summarize. You know, we think Nickel Industries is very unique.
Nowhere else can you get this kind of exposure to the nickel market through nickel pig iron, but also, as I said, diversification which we're undertaking into nickel matte, which will give us access to LME-based pricing. We have, as I said, a defined growth path. Nowhere else in the market do you see that defined growth path that comes with CapEx guarantees and with production guarantees.
As I said we're on track to become a top ten global nickel producer and we believe there will be plenty more growth opportunities post where we see ourselves in a year's time. The reason we can do that is because of the high cash conversion, the low sustaining CapEx, and the diversified production that we have. It's looking forward to another very strong year this year. You know, as our growth profile continues to build, as I mentioned, you know, approaching EBITDA sort of profile of close to $1 billion. With that ends the presentation, and I'll hand over to questions.
Your first question comes from John Scholes with Macquarie. Please go ahead.
Good morning, all. Just a question on the capacity rates versus the run rates obviously seen at the existing operations already. Should we kind of be modeling the same for Angel and Oracle, you know, the increased NPI grades and set throughputs that'll give us a higher attributable production there than in capacity?
Look, I think that is probably a fair assumption. The nameplate capacity is derived from a NPI grade of 10%. As I said, our NPI grades were about 13.5% for 2021. Hence that's the sort of 35% overperformance above nameplate that we're seeing. I think it probably fair to model a, you know, a 13%, 12, 13% NPI grade for this year.
Excellent. Thanks. Then, for the nickel matte conversion, I mean, it seems like you're gonna start doing two of those lines in this period. What sort of grade-wise can we expect from that matte and, what's the sort of payability assumption versus LME, the LME there?
The grades that will come out of our RKEF line will be around sort of 25% nickel. They will then go through a converter which will take them up to sort of in excess of 75% nickel. In terms of the payability, it is commercial in confidence, but it's a pricing formula that's quite unique. It's not a percentage of the LME, which is typically what you would see. If you look at, say, a Vale, their payability is a percentage of the LME. In this instance, the pricing formula actually delivers a superior payability in a high nickel price environment. And we're talking potential payability in excess of sort of 90%.
Obviously, as we do the conversion, which you've correctly pointed out, we will start to undertake over the next sort of two to three months. Those numbers will come out and people will be able to see that payability. It will vary depending on what the LME nickel price is. As I've stated, it's certainly going to be significantly stronger than what nickel matte has historically captured in terms of percentage of the LME nickel price.
Excellent. If I can just ask one more with Oracle and Angel, is there any tax holiday incentives in those as well?
There is. Angel, we recently announced a 10-year tax holiday with a further two years at 50% of the corporate tax rate in Indonesia, which is sort of around 25%, but coming down to sort of 20%. Oracle Nickel, we will be given the same tax concessions. Angel Nickel has been confirmed. Oracle, as we get closer to commissioning and meeting our commitments in terms of expenditure, will then be granted by the government a similar sized 10-year holiday with a further two years at 50% of the corporate tax rate.
Excellent. Thanks all.
Thank you. Your next question comes from David Coates with Bell Potter Securities. Please go ahead.
Good morning, Justin. Thanks for the presentation this morning. Just on HPAL, you touched on the commissioning there. We saw news recently that Huayou Nickel Cobalt shipped its first nickel production. Can you give us any update on what that means for you guys, apart from just the, presumably, you know, the increased limonite sales to them?
Yeah. I was actually on site about three weeks ago and had a look at the HPAL plant. Extremely impressive. T hey started construction in March of 2020 when COVID first kicked off. They delivered it in November of last year and commissioned the first train. They're currently commissioning the remaining three trains. They're expecting to hit nameplate capacity and be fully ramped up in the second half of this year, which I think is also a tremendous result. For us, as you've touched on obviously means they will need a significant supply of limonite, and we are the closest source of high-grade limonite for that HPAL operation.
Our recent MoU that was signed with Tsingshan, that has collaboration on future HPAL projects. You know, we certainly, you know. That is on the radar, not in the immediate future, but certainly in the second half of next year as the first HPAL plant successfully ramps up. You know, we will start to look closer at what an HPAL opportunity may look like.
you know, certainly given the strong relationship with Tsingshan, the fact that we've actually captured it in an MOU, there's certainly an intention there from both parties to collaborate on the basis of the successful ramp-up and achievement of nameplate capacity from the current HNC HPAL. I will also note there's a second HPAL QMB, which is also coming online at the moment. Both of them appear to be having no major issues thus far.
Excellent. That's great. Thanks, Justin. Just, if I could just ask you, for maybe a quick comment on the NPI market. We've seen the NPI price continue to ratchet up over the last, you know, since the beginning of the year again. How's that, you know, flowing through into, I guess sort of payabilities, but also what are the key drivers behind that at the moment?
Yeah. Key drivers are while we're seeing increased input prices for ore and coal, that is flowing through into increased NPI prices. Chinese NPI producers, their current cost is sitting around, you know, $19,000 a ton, which is where we're sort of seeing today's NPI price. Obviously sitting at the bottom of the cost curve where we do and around sort of $12,000 a ton. That's why we're seeing the significant margins that we're currently capturing and enjoying and that margin expansion. In terms of NPI versus LME, it was actually trading at a premium back in October of last year. It has bifurcated a little bit in the first half of this year.
Still, you know, NPI price is still very strong and sort of sitting close to that 90% payability. Still very attractive. You know, robust stainless steel demand and growth is forecast to continue for this year. We had a nickel deficit last year of, you know, around the sort of 150,000 tons, and that's forecast to remain in deficit for certainly the first half of this year. NPI pricing looks very robust and looks set to continue for at least the first half of this year.
Excellent. Thanks so much, Justin. I'll pass it on.
Yes. Thanks, Ed.
Thank you. Your next question comes from Kate McCutcheon with Citi. Please go ahead.
Hi, Justin. Good timing reporting when nickel's at a 10-year high today. I was just wondering if you've spoken to shareholders ahead of the vote for SDI to take the full placement offer and have any color on whether you think that's gonna be a done deal per se, subject to further approval.
Look, our major shareholders have indicated their support for the Shanghai Decent deal. I think it does a number of things. Obviously the $106 million conditional placement to them, that is sort of, you know, almost 20% of the consideration price that we're paying for Oracle, which is $525 million. I think it demonstrates their commitment and alignment of interests with Nickel Industries and just brings us closer together. You know, the overall feedback is that, you know, this is a positive development, A, for the reason that, you know, instead of taking cash off the table, they're actually.
The consideration will be further shares in Nickel Mines which aligns our interests. But they've been a tremendous shareholder so far and continue to do so. We don't see that changing.
Yeah. Okay. Thanks for that. Secondly, on the mattes, can I just confirm that Tsingshan will incur those conversion or upgrade costs to get to that higher grade?
We will pay a small tolling fee, and they have built the converters. As I said, it's a small fee. We expect that the OpEx costs for the production of nickel matte will basically be in line with the production of nickel pig iron. As will the sort of actual metal volumes as well. What we hopefully will be able to capture is possibly a greater payability, given that it's linked to the LME. You know, at today's point in time, nickel matte, the production would deliver a superior margin. That's not always going to be the case.
You know, I think it's comes back to the earlier point. It's unique to see a business that has that diversification in nickel, where we have exposure not only to Class 2 NPI pricing, but we'll also have exposure to the Class 1 LME nickel price environment.
Yeah. Can I just reconfirm? You're saying very little change from your current NPI costs, but that's essentially all ex conversion to upgrade with the exception of a tolling agreement?
Correct. Correct.
Yeah. Okay. Thanks for clarifying.
Thank you. Your next question comes from Patrick Collier with Credit Suisse. Please go ahead.
Hi, Justin. Thanks for taking the questions. I'm just firstly wondering if you're able to provide any additional details on Angel, just given it's been a month or so since the commissioning there, just in terms of performance relative to nameplate on that one line?
Yeah. The commissioning of the remaining three lines is going well and in the coming weeks we'll be sort of providing updates as those lines come on. The actual production so far, we are waiting for new power capacity to come online, which will happen in the next 1-2 months. I don't expect to see sort of significant output from Angel really until sort of the beginning of April, end of March this year. We will provide certainly, you know, further updates in the quarterly and as those remaining lines commission.
Okay. That's good. Thank you. Just on the nickel matte, I appreciate you touched on it already, but just whether there's any additional detail you can give on how the other lines are going and how many of those eight lines have been converted. Just also whether you know whether Tsingshan is looking to go beyond those eight lines and that potential converter, kind of the capacity there, to go beyond the initial eight lines of nickel matte.
Yeah. Of the 10 lines that are planned to be converted, four are currently operating very well. The remaining six are in the process of undergoing the conversion. In terms of Tsingshan going past the 10 lines, given that the conversion is not particularly capital-intensive, I'd expect that we may see more lines than the 10 that are currently planned for conversion, with that flexibility to produce nickel matte. But again, you know, it's no plans have been made post the 10 that are currently being done.
As I said, given the low capital intensity and the relative ease at which it can be done, you know, there may be further lines that are converted past the 10, you know, in the near term. I guess that'll be a function of, you know, how the LME and nickel pig iron pricing plays out over the course of this year.
Okay, thank you. Just on the number of lines, is it 10 that were planned and how many currently operating?
Yeah, 10 that were planned and four that are currently operating.
Okay, perfect. Thank you.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Your next question comes from David Vernon with Petra Capital. Please go ahead.
Hi, Justin. Hi, guys. Congratulations on the great result. Just a few accounting issues here. Had a look at the non-controlling interest, the big jump of that on your balance sheet. Didn't know what it was, and then I saw note 16. You obviously incorporated 20% of the $700 million for Angel into that. That's fine. Does that mean in 2023 you'll be incorporating 30% of the $750 million, so we can expect a $225 million odd increase, US dollars million, onto the non-controlling interest on the balance sheet? That's the first question.
Sorry. I'll hand over to Chris for that one. Thank you.
Yeah. I'll take that one. Yes, it is Angel, David. For what you can see on the balance sheet now. Can you ask the second question again or the second part of that question?
Well, does that mean in 2023 when you take on Oracle Nickel, we can expect 30% of $750 million, $225 million to be added on, another addition to the minority or non-controlling interest line on the balance sheet?
For Oracle, yes.
For Oracle, yeah. Okay, thanks. Just a second one, also an accounting question just in terms of inventory. The big increase in inventory between 2020 and 2021, and that's due to NPI production raw materials, so about $50 million increase. Even though nickel pig iron production was more or less flat. Is that due to increased tonnages of coal, and why is that?
It's increased nickel ore, increased tonnages of coal. That's correct. I think it's just prudent inventory management by Tsingshan and Nickel Industries at the IMIP.
Okay, that's great. Thanks.
Thank you. Once again, if you wish to ask a question, please press star one on your telephone. There are no further questions at this time. I now hand back to Mr. Werner for closing remarks.
Thank you everyone. As I said, just to reiterate, an exciting year looking forward for Nickel Industries. Production profile set to more than triple. Cash flow set to more than triple. If you look at the EBITDA per ton margin, 2020 versus 2021, we've seen a significant increase. I think things are boding well to see it further increases in 2022. You know, it's an exciting year for Nickel Industries looking forward. Thank you again everyone for your time.
Thank you. Darren, that does conclude our conference for today. Thank you for participating. You may now disconnect.