Nickel Mines Ltd
ASX:NIC
Earnings Call Analysis
Q3-2023 Analysis
Nickel Mines Ltd
The company celebrated a record quarter, showcasing a tremendous surge in EBITDA and nickel production primarily facilitated by the full integration of Oracle Nickel operations. This leap in performance was highlighted by a record-setting RKEF nickel metal production tallying up to 33,852 tonnes. Consequently, this drove substantial EBITDA growth from operations to USD 120.7 million. A sizeable portion of this, attributed from HNC operations, not only indicates effective asset utilization but also reveals production rates significantly exceeding standard capacity thresholds, implying robust operational excellence.
Financial resilience took a notable turn for the better as the company's cash balance soared to USD 827.6 million, following a significant placement by UT. This robust capital foundation, coupled with anticipated continuous strong results, positions the company favorably for funding upcoming venture commitments. The company is also set to make a decisive financial commitment towards the ENC HPAL project, a development that aims to redefine nickel productivity by producing not one but three key Class 1 nickel products - a strategic move to capitalize on emerging market opportunities.
With the ENC HPAL project likened to a carbon copy of the successful HNC operations and projected to equally surpass its 60,000 tonnes per annum nameplate capacity, the company's outlook is resoundingly optimistic. This forward thrust is underpinned by a full funding structure for NIC's 55% stake in the ENC HPAL project, amounting to USD 2.3 billion. This includes a robust payment strategy and favorable tax incentives, solidifying the company's escalating growth trajectory, and making it a front-runner in the global nickel industry.
Looking to maintain a steady financial course, the company outlines a detailed forecast for covering the required cash flow from existing operations over the next eight quarters at USD 552 million, translating to USD 69 million per quarter. Such financial clarity, together with a dynamic payment schedule, allows the company to chart a confident course towards achieving optimal funding levels for projects like ENC HPAL while still delivering shareholder value. A strategic partnership with an engineering giant, UT, further compounds financial fortitude, steering the company towards new horizons of operational productivity and profitability.
The company's strategic moves such as acquiring a significant portion of HNC HPAL have positioned it to briskly diversify into Class 1 nickel production, aiming for alliances with top-tier players in the electric vehicle (EV) and battery market. Their entry into this elite market segment is marked by interest from large global enterprises, showcasing their proven track record, transparency, and sustainability, which are critical pillars for capturing growth in the evolving EV sphere.
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Thank you. Could I please ask that we turn to Page 2 of the slide presentation deck. Thank you, everyone, and welcome to the Nickel Industries September quarterly results. Again, pleased to announce a record quarter in terms of EBITDA and nickel production. Could I please ask that we turn to the next slide. As I said, record RKEF nickel metal production of 33,852 tonnes. And this was the first quarter where we saw a full contribution from our Oracle Nickel operations.
That helped us to deliver record EBITDA from operations of USD 120.7 million, which also included 1,410 tonnes. And this is NIC attributable from our HNC operations. That 1,410 tonnes represents in excess of 70,000 tonnes of nickel metal production from HNC. So it's operating well above capacity, and this is our first quarter where we've been able to capture and that is just 2 months of MHP production. We've already seen strong interest in terms of buyers who are looking to purchase that MHP for us and I'll talk about that a little bit later on. RKEF EBITDA was USD 97.6 million. That was a 117% increase on the June quarter despite a slightly softening NPI price. And that higher EBITDA was primarily driven by lower coal prices, lower nickel ore and electricity prices. We saw a very strong improvement in EBITDA per tonne margins, up 86% from 1,533 tonnes to 2,849 tonnes (sic) [ $1,533 to $2,849 per tonne ]. ANI and ONI continue to deliver the lion's share of our EBITDA and have very strong margins, as you can see, $3,247 and $3,502 a tonne, respectively, from ANI and ONI. And I think that justifies our decision to move into the integrated ANI and ONI operations where we had a significant cost benefit from the integrated or from the power that we generate and also the fact that they are newer generation RKEF lines as compared to HNI and RNI.
Pleasingly, we also reported a record Hengjaya Mine production, 3.6 million wet metric tonnes, a 33% increase on the June quarter. And also record Hengjaya Mine EBITDA of USD 23 million, almost -- or 94% higher than the June quarter of USD 12 million, predominantly being driven by a significant increase in saprolite sales, which went from about 227,000 tonnes in the June quarter to about 1 million tonnes in the September quarter. We were able to sell more saprolite via the jetty because of the opening of the haul road, and we're now hauling all limonite down that haul road rate. So in summary, it's been a very, very strong quarter.
If we could please move to Page 3 of the presentation. All of the results are summarized here. Again, on a 100% basis, 33,852 tonnes of nickel, that's in excess of 120,000 tonnes of nickel on an annualized basis, easily makes us the largest listed nickel producer on the ASX. And then when you look at the numbers below us, we have BHP on about 83,000, IGO on about 36,000. And then below that, look, the rest really aren't worth mentioning when you compare it to the sale of 120,000. We have also seen from a number of companies, including Glencore recent downgrades to the expected nickel output. On the other hand, we're seeing continued ramp-up and very strong results. We moved to an additional 10% of Oracle Nickel, and so we're now also capturing an additional 10% of ONI that is sitting at 80%.
As I said, record Hengjaya Mine production, and we expect to see that continue into the final quarter of this year. We are still focused on optimizing costs. NPI pricing is remaining relatively stable. And so we expect to see a continued strong results through to the end of this year. In terms of the cash balance following the AUD 943 million placement by UT, and you can see that cash of USD 827.6 million. So the company is extremely well capitalized, but not only that is also generating significant EBITDA. If we could just move to Page 4, please. You can see here quarter-on-quarter, the significant increase in production, looking back at September of '22, we were at 20,000 and now September of '23, where we're almost at 34,000. I'll also mention that this is the first quarter where we've seen only 2 months of contribution of MHP from HNC. And so we look forward to reporting over the coming quarters, further MHP from our HNC operations.
If we just move to Slide 5, please, Page 5. Hengjaya Mine production saw a record quarter predominantly driven by the opening of the haul road during the quarter. Saprolite production was up 46%, limonite production up 28.9%, and EBITDA was up 92.5%. We expect to see a continued ramp-up in the sales of limonite, and we are actually currently experiencing quite a strong nickel ore pricing environment. And so the timing of the haul road has really allowed us to capitalize on that strong nickel price environment that we're currently seeing at the moment. If we could just move to Page 6, please. I've mentioned the haul road. You can see the chart there on the right. Last year, for the full year, we did about 3.5 million tonnes. That delivered its EBITDA of USD 54 million. We're now basically tripling that to a targeted run rate of about 10 million to 11 million tonnes of ore per year, which will be 6.5 million tonnes of limonite, 3.5 million tonnes of saprolite. I'll leave you to make your own assumptions there. But assuming that margins remain the same. And in fact, we've seen stronger margins this quarter. You can reasonably expect a doubling in that annualized EBITDA. And in fact, this quarter's EBITDA of $23.1 million is almost half of the full year quarter of the full year result of USD 54 million, which was delivered in 2022.
Move to Page 7, please. Pleased to announce during the quarter a positive final investment decision for the ENC HPAL project. That was off the back of a detailed feasibility study and also an independent review from a Tier 1, very experienced consultant, have identified no red flags. ENC, will basically be a carbon copy of HNC. And as you can see from this quarter, HNC is actually already operating significantly above its nameplate capacity of 60,000, it's actually well in excess of 70,000 tonnes per annum. It comes again with a CapEx guarantee of USD 2.3 billion. NIC will own 55%. There's a time frame guarantee of 2 years and a 15-year tax holiday with a further additional 2 years at 50% of the Indonesian tax rate, which brings that number down to about 11%.
Importantly, during the quarter with the completion of the funding to UT at $1.10 a share, which is about a 30% or more than a 30% premium to today's price. And with the recently announced USD 400 million loan facilities from BNI. That means that NIC's share of the ENC HPAL project is fully funded. We also, during the course of that positive FID announcement, released to the market a payment schedule. And so that payment of USD 1.265 billion is actually spread out over the next 2 years. The final point that I would make on ENC, work has already commenced. And so we look forward to providing further updates to the market. But it will be the first HPAL globally that will produce 3 of the key Class 1 nickel products, and that's MHP, nickel sulfate and nickel cathode. And I think we've already seen within our RKEF operations, that product flexibility to move between different markets where we see margin opportunities has paid off very well. And so we're obviously excited about now moving forward with the ENC HPAL project.
If we could just move to Slide 8. On the previous page where there was a chart which showed the capital intensity for ENC and it is one of the lowest capital intensive HPAL projects in Indonesia and the only one with a CapEx guarantee. In fact, the only expo project globally with a CapEx guarantee. If you look at Slide 8, looking at the chart here over on the far left there, you can see all of the projects that NIC has brought online over the past few years. The average capital intensity for the 120,000-plus nickel units that we're now producing sits at around USD 19,650 a tonne. That's the broken green line there. Over on the right there, you can see a number of our peers also are in the battery or nickel markets. You can see the quantum of the CapEx blowouts that is occurring across the market.
The other thing that you can also quite clearly see there is the capital intensity is significantly higher than ours against the chart there on the left, and in fact, one of the more recent scoping studies that was announced on a nickel equivalent basis, you're looking at a capital intensity of -- in excess of $120,000 a tonne. We have projects there that announced their first numbers in 2008. We're now sitting here in 2023. Nothing has been built yet, and numbers are still being revised up. So again, we have a nameplate guarantee, but also importantly, we have a time frame guarantee. Moving to Slide 9. I'll hand over to Chris for this one just to give a bit of a background on the funding for the ENC project over the next 2 years and how we view that.
Yes, Thanks very much, Justin. Thank you, everyone. Just on this page, we thought we'd set out a very high-level illustrative overview of how we see the next 2 years cash flow. We've had a lot of questions obviously around how we intend to fund our 55% of $2.3 billion. As Justin mentioned earlier, we've closed the United Tractors transaction recently. And we obviously have also secured the BNI loan facilities of $400 million. What we've tried to do here is just set out the larger items. So as you can see, the funding required totals to just over $2 billion. This is over the next 2 years. That includes our April '24 bonds, the repayment of the -- or the maturity of those April '24 bonds so in 6 months' time, debt servicing over the next 2 years, including amortization of the October '28 bonds.
We've included dividends there. And as you can see in the footnote, we've assumed the current AUD 0.02 per share per half year, and that is purely illustrative purposes only. There's no guarantee that we will be at that level or below or above. You can see our dividend policy in our ASX release on -- in July 2021. How we're looking to fund that $2 billion. We've obviously got our current cash, attributable cash on the balance sheet, which you can see there at $800 million, just over $800 million. We've got interest on the attributable cash. That's an assumed number over the next 2 years. Our BNI loan facilities of $400 million and then we've assumed a bond refinancing in April 2024 of the $245 million. Again, that's an assumption just as a base case, and there's no guarantee that we will actually pursue a refinancing, it will depend on market conditions at the time.
Where that leaves us and where I'm really handing over to investors and analysts to make your own assumptions is the required cash flow from our existing operations. We've now got 12 RKEF lines operating at steady-state production. We've got the Hengjaya Mine, and we've got the HNC interest. That required cash flow from existing operations over the next 8 quarters is $550 million -- USD 552 million, which equates to $69 million a quarter. So from our existing operations on the right-hand side there, it's -- we believe we are fully funded and comfortably funded for the ENC project, but it's really up to you to make your own assumptions. Justin?
Thanks, Chris. If I could just ask to move to Slide 10. Delighted during the quarter to complete the placement with UT Tractors (sic) [ United Tractors ] at $1.10, as I mentioned, 30% plus premium to today's price. They've appointed Mr. Muliady Sutio as a nonexecutive director to the company. We're obviously delighted to have UT. We view them as one of the top blue-chip engineering partners that we could have. And they also through their interest through Astra and then ultimately back to Jardine, that is a company with very long deep roots into Indonesia and Southeast Asia. They're a long-term value investor. They saw obviously significant value in the company, hence, the willingness to pay the premium that they had. And we look forward to a long and fruitful relationship with them. That placement, combined with the BNI loan, obviously, as Chris has just touched on, effectively means that we're fully funded for our 55% interest in the ENC HPAL project. During the quarter, we completed the acquisition of 10% of the HNC HPAL,and we've seen what that's delivered in just 2 months in terms of 1,410 tonnes of nickel in MHP. That has allowed us to go up and already start marketing to global Tier 1 EV and battery makers, and we've had a very strong response, not just to offtake of HNC product, but also to offtake and even possible small participation in the ENC project. We are running a process, and we already have in excess of 20 of the top Tier 1 global EV and battery makers showing significant interest. These include Europeans, North Americans. I think the penny is timely dropped. Everyone has realized that the only real place if you want, nickel of any scale is out of Indonesia.
And these HPALs, the HNC HPAL is one of the lowest carbon intensive HPALs globally, 8 tonnes of carbon per tonne of nickel. And with a road map to becoming carbon zero, we will be looking to replicate that with the ENC HPAL, and I'll talk about the solar project that was also signed post the quarter. We also acquired an additional 10% of Oracle Nickel. That was at a price that wasn't marked up. So we're paying -- we paid the same price that we paid when we originally started the ONI transaction. So again, another very strong value-accretive deal for the project that's generating margins in excess of $3,000 a tonne. And I think reflective of the very strong relationship with Shanghai Decent and also the fact that the majority of the consideration for the HNC HPAL was taken as NIC shares rather than just trying to take cash off the table.
Moving to Slide 11. Chris touched on the USD 400 million loan facility with BNI. They're one of Indonesia's leading banks. It's a 5-year senior term loan facility split across 2 tranches, $200 million, which is secured against Angel Nickel. Tranche 2, which is USD 150 million, which is unsecured and then a revolving or a working capital facility of USD 50 million. Combined with the placement funds, this brings our balance sheet to excess of USD 1 billion. And with the strong ongoing cash flows from our existing operations, as Chris touched on, we believe leave us comfortably positioned to fund our share of the ENC acquisition payments over the next 2 years. On an ESG front, again, a lot of good progress was made. We've once again been shortlisted for a Green Proper rating. Again, it will most likely be only us and Baowu, the only 2 to receive a Green Proper rating across all of the mining operations in Indonesia.
MSCI recently awarded us a BBB rating, which is the highest ESG ratings given to an Indonesian-based metals and mining company. S&P Global upgraded us from the 56th percentile to the 69th percentile. And TrenAsia is a domestic award by an independent group of industry bodies and experts. And we won the TrenAsia-ESG award for excellence in the nickel sector. Moving through to Slide 12. I mentioned we have signed a binding operational lease agreement for a 200-megawatt peak plus 20 megawatt hour battery energy storage system solar project within the IMIP. Indonesia's current and storage capacity is only 269 megawatt peaks. So we're almost doubling that. So this is the largest solar project to be undertaken within Indonesia. It underscores our commitment to pursuing and looking at renewable forms of energy and reducing our carbon footprint. It's very attractive to NIC because we are not required to fund any of the capital to build the solar project.
We're simply entering into a 25-year agreement at a fixed price with no inflation escalations. That price is currently very competitive with coal-fired power prices today. And I think importantly, removes a significant amount of the volatility that we have seen in the electricity market over the last 1 to 2 years. This supplements and builds really on our existing solar project, which is 450 kilowatt plus, which has been in operation at the Hengjaya Mine for almost 2 years. That's been extremely successful. And that has reduced our diesel consumption by approximately 31 million liters over the projected 25-year project life for that solar project. So like HNC, ENC is striving to be one of the lowest carbon intensive nickel producers globally.
But not only that, it will be the only diversified HPAL that can produce 3 of the Class 1 nickel products and we expect similar to HNC, it will generate very strong margins and it will sit in the first quartile for OpEx costs. So in summary, another very strong quarter with record nickel metal production and that has been building over the last few quarters. That's translated into very strong EBITDA numbers, 117% increase on June in our RKEF numbers, a 93% increase in EBITDA for our mine numbers. ENC, I can't underscore how transformative that is for the company. And we're obviously delighted that, that is now fully funded. As I said, progress is already underway, and we look forward to providing further updates in upcoming quarterly reports.
And then I think finally, as I said, we're seeing very strong interest from global Tier 1 EV and battery makers, we have had a number of site visits from some of the largest players globally. And given NIC's strong track record, the fact that we're Western listed, the transparency, the sustainability records, we think positions us extremely well as we diversify our business into Class 1 to be able to partner with, hopefully some of the best and well-known names in the EV and battery market. So it's an exciting time for the company moving forward. With that, I will hand over to Q&A.
[Operator Instructions] Your first question comes from Daniel Roden from Jefferies.
Congratulations on the quarter. I just wanted to dive into the ongoing illegal mining activity in -- and investigations in Indonesia, which are threatening nickel laterite suppliers through the IMIP. While you mine your own nickel and the openings that Hengjaya haul road is extracting real tonnes. I just wanted to confirm the structure of the offtake agreements and both IMIPs and your own exposure to any potential and essential coal and nickel laterite supply. From memory, you sell your nickel ore to Tsingshan's IMIP and you received a blended allocation from a blended stockpile. Is that correct?
Yes. So the illegal mining issue is being addressed by the Indonesian government, and I think that's a very strong positive. We have seen small amounts of supply come out of the market. Important to remember that these are legal, and they're not large scale. If you look at Hengjaya Mine, where that's the third largest supplier to the IMIP. We have seen, as I said, a small amount taken out of the market. That's resulted in increases in ore pricing. We expect that to normalize. Obviously, given the very strong margins that are being generated by nickel mines across the archipelago there are a number that are under development that are also coming online. For our particular ore, we are now supplying directly into our RKEF operations. And in the future, we will look to supply directly into our HPAL operations. One of the reasons for that is that the Hengjaya Mine has become a real show piece for sustainable and responsible mining. Those Tier 1 EV and battery names that I've mentioned have obviously taken a very strong interest in the upstream sources of ore. And it gives them great comfort to know that the majority of the ore for our operations is coming from our mine operations. We are working on securing additional resources. We have the Siduarsi project, which we're looking forward to announcing a maiden JORC resource in the coming weeks. We also are working on other new mine acquisitions, which are getting very close. So we will look to grow that resource base and that production output. But short answer to the question is there's been no supply disruptions in terms of shortages of ore to operations, and we don't expect that there will be moving forward.
Yes, perfect. And I just wanted to ask as well on -- I guess there's been a lot of noise obviously around Indonesian and the U.S. IRA accreditation process. What conversations are you seeing going on, I guess, around this IMIP's involvement in that and I guess there's the crux of the question there what flow-through benefits would you be expecting for the HPAL offtakes if that IRA funding accreditation was to pursue?
Yes. Without giving too much away, I can say we've been in directly involved in those discussions at both the U.S. and the Indonesian level. It's safe to say that the U.S. is looking very, very, very hard at a free trade agreement with Indonesia. The reason for that is, is I think they're under the realization that the nickel supply is not going to come from North America. In fact, there's not really many jurisdictions that it is going to come from. Hence, that's why there is some very active dialogue going on at the moment. We would obviously see any free trade agreement between Indonesia and America as a very strong positive, not just for us, but I think a strong positive in terms of an endorsement of the nickel industry in Indonesia and how that is evolving with continued foreign investment and with that continued foreign investment, obviously, comes a significant improvement in practices.
Yes, awesome. And just last one for me. Can you just remind us what the Excelsior Nickel's timing guarantee process would be? I think there's obviously been a demonstrated pathway the -- for construction being on or ahead of time, but just in the event that, that was to be delayed, what is, I guess, the process around to the timing guarantee and fee structure?
Yes. So there is a lease payable if for whatever reason, Tsingshan doesn't meet the nameplate or the timing guarantee. I think, though, if you look at the track record, everything has been delivered well ahead of schedule. I think even if you look at HNC, that was built during the COVID pandemic, again, in less than 2 years. We, I think, importantly, have secured the same team that built the HNC HPAL, who are now building the ENC HPAL. So it's really a continuation of that same skilled team. It is just nearly rolling on to another project. And I think we've seen through the rollout of RKEF, their ability to be able just to continuously applicate these projects. And in fact, not just replicate, replicate but also improve. So as I said, work has actually already started it -- Tsingshan wasn't sitting on their hands waiting for us to reach a positive FID, they'd already started and they were going ahead with or without us. We're obviously lucky to be given the opportunity to participate and to be able to demonstrate that we could fund our interest which we have.
Your next question comes from Cameron Taylor from Bank of America.
Justin and Chris, just curious when we can expect cash costs and realized price details for HNC? Just given that E&C is going to be a carbon copy, are we expecting shareholders to have enough information on operating costs and profitability before the vote next month?
We will have an independent expert's report, which would form part of that shareholder vote. And so that will obviously have expected margins and costs, and a lot of that will be based off HNC. In terms of reporting, I'll hand over to Chris on that in terms of reporting of HNC.
Yes, for sure. Thanks, Justin. As we noted in the quarterly, we're still working through this with KPMG and our team here internally. One of the constraints we've got Cameron is as a 10% shareholder, we -- our 2 larger shareholders or our 2 larger partners in HNC are both obviously public companies. So we're working through with them as well what we can and can't release. And we obviously can't go ahead of any schedule that they are willing to disclose.
Yes, that makes sense. That's what I expected. Just with the Hengjaya Mine, you've omitted tonnes sold for saprolite and limonite despite having increased your production. Is there any underlying reason you've omitted those figures rather than just changing your reporting?
Yes, it's primarily the reason is it's for commercial reasons or commercial sensitivity, and it's really around both our sales, our sales into the HPALs. But more importantly, Justin's alluded to the fact that we are pursuing other resource opportunities, resource acquisition opportunities, and we don't want any of our quarterly disclosure to get in the way of any of our negotiations there.
Okay. Fair enough. And just one last one. I know I've asked this in the past, but obviously, you're flexible. Are you still looking at converting some of your Angel lines to nickel matte. I've seen that obviously, you have a strong margin on -- at Hengjaya over Ranger, but are you expecting to move those lines to matte for Angel or are you still undecided at this stage?
We are still looking at pursuing a nickel matter converter. And so yes look, that is certainly still on the radar. We've paid the option. I think we sort of bid off the larger one first, which was ENC. But yes, we have paid an option for nickel matte converter, and we are still working towards looking to execute that reserve.
Your next question comes from Adam Baker from Macquarie.
Maybe just following up on the Hengjaya Mine ore sales, maybe asking it a different way now that you have got the haul road open, are you comfortable with getting to that 10 million tonnes per annum of sales rate? And also, what about the barging? Is that now ceased? Or could you get that 3.5 million tonne per annum of barging ongoing and potentially get closer to that 15 million tonne per annum run rate?
Yes. We -- so last year, we did 3.5 million tonnes, and that was all through barging and that was a mix of saprolite and limonite. This quarter, we switched purely to all of the saprolite being barged and that would -- that was what allowed us to deliver 1 million tonnes of saprolite and we've now moved to all of the limonite being moved down the haul road. So that's sort of how we see the mix about 3.5 staying through the jetty as saprolite, the remaining 6.5 million as limonite, which will be taken down the haul road. That's still in the process of ramping up. We're sort of currently at around sort of 60 to 70 trucks. We're looking to get that up to around sort of 120 trucks so new trucks are coming and being commissioned, they are all new drivers and things as we speak. So that ramp-up will continue over this quarter. And we expect by the end of this year or early next year that we should be at that 10 million tonne sales rate.
And just on the ENC project, if my memory serves correct, there was a possibility to reduce attributable ownership below that 55%. Are you guys still happy to maintain 55% or bringing in another partner onboard? Is that a -- is that still a profitability?
Look, for the right strategic partner, we would consider possibly reducing that and that process and those discussions are ongoing at the moment. So as I said, pleasingly, we've had a very strong response. And so I think over the coming months, we'll work through firstly offtake. And then secondly, if any sort of strategic interest is going to be sold down.
Your next question comes from Kate McCutcheon from Citi.
So just to clarify, you're asking us to come up with our own cash flow assumptions, but you've reduced disclosures for the mine. In terms of grade costs and sales, and it was 20% of your EBITDA this quarter. Is that temporary while you're working through your other projects? And then secondly, on disclosures, Chris, did I hear correctly that we need to wait for clarity on how HNC will be accounted through the P&L and cash flow?
Yes. On the second one, Kate, that's correct. We will be giving more information over the course of the next coming months. On the first one, it is most likely a temporary situation. But if it is not, well then you will need to make your own assumptions.
Okay. And then for HNI, RNI and ANI, the revenue minus the cash cost times tonnes sold. There's about a $15 million delta there. Is there some CapEx that's being spent at those operations? Or what's the difference there between reported EBITDA?
Sorry, can you just do the question again, Kate? Sorry.
So if I take reported revenue for those assets and take away cash cost times tonnes sold, that's a bit of a delta between reported EBITDA I'm wondering if there's some capital in there...
There is a little bit of CapEx in there. There is a little bit of CapEx, but that's not our CapEx. That's -- there's Oracle construction CapEx, which Shanghai Decent fully funds, that's in the cash flow waterfall. I'm going to have to do that cal, I'm not going to try to do it on the fly there for you, Kate. I'm going to do that cal and just check a reck for you after this call.
Excellent. I will circle back.
Yes, no worries.
And then on the matte, it looks like all those sales this quarter were low grades. Is it dependent on pricing, whether you pay to convert that to high grade? Or should we assume that's all low grade not going forwards and therefore, lower pricing versus Class 1? How do we think about that?
Justin, do you want that one?
Yes. So yes, moving forward, we will be selling low grade nickel matte. We -- the reason for that is that there has been an increase in the total costs to go to high grade. One of the other things that we've had to consider in terms of the move to lower grade nickel matte is ensuring that we maintain our tax holidays. And so by selling lower grade nickel matte, that ensures that we are also in compliance with the conditions under which HNI has secured its tax holidays. That is why we are looking at and we paid an option to secure our own converters, which is something that we'll continue to work on over this quarter.
Your next question comes from David Coates from Bell Potter Securities.
Congratulations on a great quarter. A couple of questions from me. Mostly following on from ones that have been asked now. The HPAL margins out of the HNC funnel and ENC. You mentioned the independent expert report, but can you give us a sense of where they've sat kind of relative to your RKEF margins this quarter? That's my first question.
Yes. Look, firstly, we've only really got 2 months of production data for this quarter. So we don't have a full quarter, unfortunately. So I think over the next quarter will allow us to build a better picture of what those margins are. But I think safe to say -- and when we did the -- when we originally looked into the opportunity, we were seeing RKEF margins of sort of $3,000 to $5,000 a tonne. Whereas for HPAL, we're seeing margins of sort of $7,000 to $10,000 a ton.
Right. And then another follow-up on the inflation reduction act funding, and like it sounds like you guys are quite up to speed with that. One of the restrictions around that appear to be around level of Chinese ownership. Do you have a sense of how that may or may not be negotiated around if the IMIP and your operations have become eligible?
Yes, we had some dialogue with a very, very, very senior person on the American side, who is leading this from a government perspective. We talked him through them ENC transaction, and they were very comfortable with that level of ownership.
Okay. All right. And finally, another follow-up. You mentioned all the questions asked about a partner in the ENC and you said you maybe for the right partner. What does that right partner kind of look like, if you can give us a -- is that an OEM? Or like what attributes are you looking for in there to be the right partner?
Yes. Look, we have a diversified group of interested parties from -- yes, from OEMs to some of the world's largest EV manufacturers. Some of the world's largest battery makers, even groups that are building and some of the world's largest giga factories, traders. So look, I think as with all these things, we're still running a process, and we're still waiting for submissions in terms of pricing and tenure and then possible participants at a project level. I mean, one of the things that a potential partner of the sort of style what we're looking at could bring, which we would find attractive is project financing and/or access to lines of credit that would be larger and cheaper than what we're potentially currently accessing. So there's a number of different things that will be taken into consideration, but that's sort of one of the many things that we'll weigh out.
There are no further questions at this time. I will now hand back to Mr. Werner for closing remarks.
Thank you, everyone, for your time again today. Well, just to reiterate, it's a very strong quarter, really been built off the back of the RKEF capacity that we've built over the last few years, but excited that we are now diversifying the business into that Class 1 nickel space. And to reiterate, that's where we see superior margins, lower carbon intensity, and I think importantly, a diversified customer base and new opportunity to really partner with a Tier 1 global partner. So thank you, everyone, again, for your attendance at today's call. And as always, we look forward to providing further updates throughout the quarter and look forward to another strong quarter to round out the year. So thank you, everyone.