Company Interview / Through the storm and seeking partners for new nickel

Key points:

Results reflect a significant 71% decline in half-year profitsKing Jr mine sees 50% growth in EBITDA, and HPAL shows stronger marginsNewly acquired nickel portfolio promises long-term operational self-sufficiency

Nickel Industries (ASX: NIC) saw a 71% decline in half-year profits, dropping to $14 million from $49.1 million, primarily due to lower production volumes and higher costs. Justin Werner, MD of Nickel Industries (ASX: NIC) attributes these challenges to delays in receiving sales permits in Indonesia and unseasonably high rainfall.

Despite these setbacks, Justin highlights better performance in the second quarter, with King Jr mine increasing EBITDA by 50% to $40 million. He also notes stronger pro forma EBITDA of $22.6 million and improved margins for their HPAL, which shows promise for upcoming quarters.

Nickel Industries (ASX: NIC) is looking ahead to the opportunities presented by a strategic acquisition of a significant nickel portfolio, which Justin says will ensure operational self-sufficiency for 40-50 years. With that in mind Nickel Industries is seeking strategic partners from China, North America, Europe, Korea, and Japan, aiming for significant growth in the second half of the year.

Full unedited transcript below:

0:11

Well. Nicole Industries posted a 71% decline in half year profits coming in at 14 million. US dollars million, I should say, versus 49.1 million in the previous period. The company attributed the drop to lower production volumes and higher costs. Sales revenue also declined from 930 US million dollars in the period. Okay, so earnings before interest and tax came in at 132 million US down $10 million on the PCP interim dividend, though being paid of two and a half cents per share. So let's get the detail on that result with Nicole Industries MD Justin Werner. He's joining me now for more. Hi, Justin. Thanks so much for joining us. So, um, just reading through that result, it seems poor, you know, um, What? What happened?

1:04

Yeah. No, thanks. Today we had a challenging first six months of this year, um, and some extraordinary events that were unfortunately out of our control. Um, that started with, uh, in Indonesia at the beginning of every year. Um, you apply for a quota of sales of nickel that, uh, that you can make. There was some delays this year, and that was brought about through greater scrutiny being placed on, on, on bad mining practices, um, which meant that we didn't receive our, uh, permit to actually sell or until the end of February. Um, pleasingly, though, we were amongst the first 40. Um, so in the first group to, uh, to, to to receive that permit. Um, and then it was exacerbated further by we obviously just recently had an election in, uh, in Indonesia, um, around the same time. So the first quarter of this year, um, it was tough because of that. Um, what that meant was we had to draw down on lower grade, higher

2:04

cost, or that we had stockpiled at our at our industrial park. Um, which saw an increase in costs and then moving into the second quarter. Um, we had unseasonably high rainfall, um, you know, almost double sort of what we would expect to see with that high rainfall. It meant that we had to, uh, continue to, to draw down on, on these lower grade stocks. But, um, pleasingly, we seen an improvement across some segments of the business. Um, our King Jr mine, uh, increased about 50% EBITDA from 26 million. Um, in the first half of 2023 to 40 million, or almost 40 million. Um, in the first half of 2024, that continues to grow. And that first half result was despite significant weather event. Um, and so we're looking forward to a very strong second half from our I mean, remembering that, uh, you know, we delivered $42 million in one quarter from the mine, Um, at the end

3:04

of, uh, at the end of 23 and our hnc h, pal. Um, whilst we only have a 10% interest, um, pro forma EBITDA for the first six months was, was 22.6 million. Um, average margins were about $5,500 a tonne. And they're currently sitting at about $7,000 a tonne. To put that into perspective against what our nickel pig iron business makes margins, there are currently around sort of 1500 to $1700 a tonne. So there's a significant margin differentials at the horsepower level. And with our ANC pal now tracking well to come on line, um, uh, towards the second half of next year, um, we think we're well positioned. And I think the fact that we've gone through a very challenging quarter, um, we've still been able to pay a very robust dividend, and we're looking forward to a strong second half. Given that the wet season is now over, we're on track for record all sales in, uh, in

4:04

August. And we're seeing strengthening Nicole Pegeen and a strengthening Nicole Price. So we're optimistic of of a strong second half. Yeah. Because that is the sort of elephant in the room Nicole. Prices have been coming under such a lot of pressure. But does that Nicole Pig Iron Market respond in tandem. You know just to just to sort of draw the line between the two.

4:30

There is no direct link between Nicole Pegeen and the LM Nicole Price. So Nicole pig iron is is very China centric. Um, it can only be used in, in stainless steel LME nickel prices. The price that's paid for class one nickel cathode pure pure nickel, um, and everything else in between. Intermediaries uh, mostly paid as a percentage of that LME nickel price. Um, so there is no, uh, correlation between the two other than to say that historically they have tracked in a band where they've moved sort of between or nickel pig iron has moved between discount of 10% up to premium of 10%. But we we have seen more of a widening of that more recently. Um, but what's I mean, what's what's interesting in in the Nickel pig Iron Market, for the first time, we're seeing European stainless steel buyers actually purchase nickel pig iron, um, as opposed to purchasing, purchasing scrap because of the cost

5:29

advantage we've seen now in Indonesia. Uh, Jindal, who is, uh, India's largest stainless steel producer, they are now setting up some stainless steel operations in Indonesia where they'll make, um,

5:42

uh, slab and then send it over to India to, uh, to to hot and cold roll it. Um, and we are starting to see some growth in stainless, which bodes well for nickel pig iron in, in India, which has always promised to be a significant market, has never got there. But, uh, we might finally start to see that, uh, you know, it's maturing and deliver and delivering what I think everyone has As expected that it that the potential that it has. Yeah. So a tough start to the year you know when you got weather working against you along with everything else. It does make the going really tough. But you haven't stayed still in terms of acquisitions. So I haven't read all 38 pages of the detail when it comes to that acquisition of the nickel portfolio that you released to market just last week. So give us a short hint, Justin, what's the plan here?

6:34

Yeah. So look, I think I mean, the the other point that I'd make is we, we, we were able to make robust EBITDA in a backdrop of a number of global nickel producers have obviously gone out of business or put their operations on on care and maintenance. And and I'm sure everyone's familiar what's, what's happened in, uh, in Western Australia? Um, we, we see the opportunity in Indonesia is really once in a, in a lifetime opportunity, given the tremendous amounts of, of nickel resources that are there. So we're pleased to announce the acquisition of a world class nickel portfolio. Already over 2 million tons of contained nickel metal through a local partner that we've had a long standing relationship with over the past 15 years. And if you look at the value that we've paid per nickel metal tonne in the ground, um, it comes out at around $43. Um, you compare that to, again, you know, ego's acquisition of of western areas was $900,

7:34

while the acquisition of Mincor was $2,100 a ton. Um, there's just nowhere else globally where you can acquire nickel in the ground at such a cheap price. So for us, it was it was a strategic opportunity. And and what it also means is it means that our operations will be fully self-sufficient for the next 40 to 50 years. All right. So, um, just in the interest of time, Justin, what can investors look forward to on that front or or what would potentially be the next catalyst to drive the share price higher

8:06

So I think Next catalyst. Um, strong performance out of our mind for the for the for the second half. Um continued progress updates on our ANC. Powell. And we are running a strategic partnering process looking for

8:24

investors. China. So North America Europe Korea Japan and and we've we've had very strong interest um, an update as to where we are with those potential strategic, um, investors. And then we are now looking at taking the the mine ramp up from 9 million tonnes a year, up to 22 million tonnes a year. So, um, you know, delivering, uh, EBITDA of 40 million a quarter at 9 million tonnes, we're about to double that. Um, so, you know, significant growth there off a very low capital base. Um, the whole roads are all built. The infrastructure is all there. It's really just, uh, that sort of ramp up is just deploying more equipment. Um so it's not particularly capital intensive. Intensive at all.