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Thank you for standing by. And welcome to the Nickel Mines December Quarter Results Webcast. [Operator Instructions] There will be a presentation followed by a question-and-answer session. [Operator Instructions]I would now like to hand the conference over to Justin Werner, Managing Director. Please go ahead.
Thank you, and welcome, everybody, to Nickel Mines' December '21 quarter results call. Before we get into the presentation, I am currently on site. So if we do experience any technical issues, which I hope we won't, Cam Peacock is on the line to step in for me. With that, presenter, if you could just turn to Page 2.Pleased to report for the December '21 quarter, our strongest quarter in terms of cash flow generation for 2021, continued consistent production of greater than 10,000 tonnes of nickel metal. Margins maintained above $6,000 a tonne. As I mentioned, record strong underlying cash generation from operations of $67.8 million. Pleasingly, we had a breakout quarter for the Hengjaya Mine, recorded production of 847,260 wet metric tons with a record EBITDA of $8 million and the mine continues to increase as a material cash flow contributor.We just announced today and I attended the first half of NPI on the 25th of January for the first line of Hengjaya Nickel, a tremendous result delivered well ahead of schedule with the remaining 3 lines to commission over the next 60 to 90 days. We also, during the quarter, announced material tax concessions of 10 years of 0 tax, a significant improvement on the 7 years that we currently have for our HNI and RNI operations. And again, speaks to the significant commitment and support from the Indonesian government in terms of the significant investment that Nickel Mines and its partner, Shanghai Decent continue to make in the Indonesian nickel environment.We also during the quarter signed a definitive agreement to acquire a 70% interest in the Oracle Nickel Project, a further 4 RKEF lines back in the IMIP, and they were actually already under construction and well progressed. An MOU was signed during the quarter, which includes Future Energy, along with HPAL collaborations in the future and we'll be providing more updates on that in terms of existing HPAL and also some of the nickel met operations at the end of the call. A MOU was also signed with SESNA for a 200-megawatt peak Solar Project and that's really the first project in that new Future Energy collaboration and direction that, that Nickel Mines is taking. Finally, also pleased to declare a AUD 0.02 per share final dividend.If we could move to Page 3, please. Just a summary of the numbers. As I mentioned, over 10,000 tonnes, again, a small 26 tonne difference with the September quarter. Realized NPI price, again, improved significantly, up to $18,545 from the $16,701 that was realized in September. Again, as I mentioned, strongest cash generation from operations for 2021 of $67.8 million. And you can see that Hengjaya Mine production there, a 46.3% increase on the September quarter. So, that's a fantastic result.If we could move to Page 4, please. Again, here, you can see in the green and the blue bars, consistent production. Prices did increase or cost did increase over the quarter, driven predominantly by power costs. Although pleasingly, we saw a decline in December from November of about $403 per tonne and we saw that sort of peak metallurgical coal costs of $459 in October, reduced to about $313 a tonne in December. But I think what this really demonstrates is that we've been able to maintain strong margins throughout the -- throughout the cycle and it's the EBITDA margin as the tonne has been maintained.If we move to Page 5, this is just the Hengjaya, Ranger Nickel operation summary. You'll see there that the NPI grades have decreased, which has resulted in a higher payability. Pleasingly, whilst grades have decreased, we've still been able to maintain basically the same production profile well over 10,000 tonnes. If we could please move to Page 6. Here, you can see the strong revenues and EBITDA. Our second half is a record second half and we expect our full year results for 2021 to be a significant improvement on the $200 million-odd EBITDA that we recorded in 2020 and look forward to releasing the full year accounts in the coming weeks.Moving to Page 7, please. As I said earlier, what this demonstrates is that we've been able to maintain strong margins throughout the cost cycle. And you can see there, as I also mentioned, the second half of the year was a record in terms of EBITDA and reflective of the industrial nature of the company's operations. If we move to Slide 8, please, on pricing. As I mentioned, the September quarter pricing was $18,545, that was up 11% from the $16,701 in September. If you look at the chart there, the blue is the LME nickel price, the red is what we would pay and then the green is the Chinese NPI price.If you look at October to November, NPI pricing was actually trading at a premium. It has come off a little bit. But as of today, NPI pricing is sitting around $19,000 LME, close to $23,000, still sitting above 80% payability versus LME. Our pricing for the quarter was dragged down a bit by the $17,000 price you can see there in December, but that has picked up with the recent December contract signed at close to $18,000 a tonne. And as I mentioned, NPI pricing today is sitting at close to $19,000 a tonne.The other key point I'd make is that during the December quarter, 63% of our NPI sales were within IMIP. For 2022, to date, 100% of our NPI sales have been made within IMIP, and that's reflective of the strong ramping up of stainless steel production within IMIP. If we could just move to Page 9, please. A summary of the Hengjaya Mine. As I mentioned, fantastic result, up 46% to 847,000. Limonite sales also commenced. We sold 98,000 tonnes of limonite and we'll provide further details in the next quarter in terms of limonite sales.If we could move to Page 10, please, the cash flow waterfall. During the quarter, $25.8 million was retained by Nickel Mines as dividends, $6.5 million was paid out to Shanghai Decent. With the consolidation of Oracle Nickel, sorry, of Angel Nickel, you can see the $11.5 million of cash that was there on acquisition and then the construction expense of $42.7 million for the quarter. Opening cash for the quarter was $120.8 million and closing cash was $137.9 million.If we could move to Page 11, please. Very pleased and excited obviously, to announce the first NPI tap from Angel Nickel. Very happy to be on site to meet with the Angel Nickel team and the Chairman of IWIP, who have done an exceptional job. What ANI does when it comes online is it brings our attributable nameplate production capacity to close to 53,000 tonnes. That puts us just on the heels of BHP. And as I said, we've also confirmed material tax concessions of 0 corporate tax for 10 years, which frees up a significant amount of free cash flow that we can reinvest into future growth and also pay out a dividend, which we've just also announced.If you could just turn to Page 12, please. So, on the corporate front, I mentioned the MOU, multifaceted, securing sort of a framework for future collaboration between Nickel Mines and Shanghai Decent and the relationship continues to get stronger. Our focus on Future Energy, which is reducing carbon emissions and also looking at pivoting towards more electric vehicle style products. From that MOU, we immediately converted into a binding agreement for acquisition of the Oracle Nickel Project and other 4 RKEF lines. What that will do is take our attributable nameplate production capacity to about 78,000 tonnes.In reality, that will probably be more like 100,000 tonnes per annum. And that sort of cements us up amongst the top 10, it makes us a globally significant nickel producer. The Independent Expert's Report, again, similar to the Angel Nickel Report for $750 million consideration or 100% return to valuation of sort of $1.5 billion. As a result, once again, overwhelming shareholder approval of basically 100% of the AGM that was held on the 25th of January.I've touched on the Angel Nickel Project commissioning and we look forward to the remaining lines commissioning over the next 60 to 90 days. We've also been busy and focused on acquiring new nickel resources, as they increase in value as evidenced by the Hengjaya Mine. We signed a CSPA for Tablasufa Super Nickel Project, 5,000-hectare operation production license in West Papua. And that nicely complements the existing MOU that we had for the Siduarsi Contract of Work, which we're currently progressing into a binding definitive agreement.An MOU was also signed for 200-megawatt peak Solar Project within IMIP. The provider of SESNA, they actually already -- they are completing a 450-kilowatt peak project at the Hengjaya Mine. So, there's already a good relationship. They are a local, a local Indonesian party. No capital required from nickel mines. And compared to today's coal pricing, the pricing that could be delivered from solar could be some sort of 20% cheaper. One of the other benefits is, it will be a fixed price contract over 20 years, would remove any volatility and doesn't have any inflation escalator there. And then finally, a AUD 0.02 per share final dividend, record date of 3rd of February, payment date of 10th of February.So in summary, again, another very busy quarter, very strong end to the year. Happy to announce a 33% increase in the dividend versus 2020. But whilst continue to grow the company very ambitiously and quickly through sort of responsibly -- through responsible funding of the company. The first half of ANI and with the ONI transaction, that will more than triple mix current nickel metal production by 2023. And remembering that both Angel and Oracle Nickel have 20% larger capacity and will have a 20% cost advantage when compared to our existing 4 lines, HNI and RNI.The tax announcement that I've mentioned, again, just speaks to the commitment of the Indonesian government. And when you look at what's happening in Indonesia, it's very exciting. There was a recent announcement of the Kaltara Project, a green industrial park in Northeast Kalimantan, which Tsingshan will be participating in. That already has received investment commitments of $132 billion.Just quickly touching on the nickel market. Stocks fell 220,000 tonnes last year, equal to almost 8% of the total market with analysts reporting a deficit of about 130,000 to 160,000 tonnes depending on who you read. That's expected to continue into the first half of 2022. Average LME nickel price rose from $13,800 in 2020 to $18,874 last year. Year-to-date, it's already $22,229 for 2022. So, we're looking forward to this coming year where in a year's time, we should be set to triple our nickel metal production. As I said, that will generate significant EBITDA margins. And we look forward to continued growth with Shanghai Decent.Finally, I'd just like to welcome during the quarter, we announced the appointment of our new CFO, Chris Sheppard, who brings a lot of experience and energy to the Board, and we welcome him onto the Nickel Mines team and also thank Peter Nightingale for his many years of service to the company as a Founder.With that, I'll hand over to Q&A.
[Operator Instructions] The first question today comes from Jack Gabb from BofA.
I guess first question is just on your limonite and also on the road. Can you give us a bit of an update as to how that road is progressing to the IMIP? And then I guess more broadly, as you're looking to add limonite resources both around the IMIP and elsewhere, just what's the longer-term goal here in terms of the amount of resources you need, which I guess relates to then how much HPAL capacity you're potentially looking to get exposure to as well? That's the first question.
Yes. Look, thanks, Jack. So obviously, last December quarter, delivered about 98,000 tonnes of limonite, that is set to continue into 2022. There has been a bit of an issue with geotechnical issue at the HPAL plant in their stockpile. So at the moment, for January, we're just waiting to restart limonite deliveries, but we expect that to restart soon. And we'll be targeting around sort of 100,000 tonnes of limonite per month delivered to the HPAL plant. They have successfully commissioned their first line. I'm actually going out there to visit the HPAL plant tomorrow. And so my understanding is that its commissioning is progressing well.In terms of the haul road, about 60% of the haul road is currently being built. We're in the process of finalizing environmental approval for the remaining 40% and just completing the land acquisition. And so we're hopeful that, that haul road, certainly coming online this year, and that will allow us to materially increase our production from the Hengjaya Mine of both saprolite and limonite somewhere in the order of probably 5 million tonnes of saprolite and sort of 3 million tonnes of limonite once that haul road comes online and that's the initial numbers.In terms of new resource acquisition, look, the acquisition or the MOU for the Contract of Work in Papua, Siduarsi is interesting. It's geologically different to the other areas of Indonesia; Halmahera and Sulawesi, the geology is more akin to Papua New Guinea given that it's part of the same island. Obviously, in Papua New Guinea, we have the Ramu HPAL, which is probably one of the world's more successful HPAL power plants and last quarter had costs of less than $2 per pound. So, we are looking to build the resource base.We actually this year have an exploration budget approved for further drilling of the Hengjaya Mine. We'll look in the second half to make an updated resource announcement. I mean, we're currently sitting on about 1.3 million tonnes of contained nickel in the ground. We'll look to significantly grow that at least sort of 5 to 6-fold given obviously the importance of the supply of nickel to RKEF and HPAL operations. So to answer your question, obviously, the more resources we can secure, the better position that puts us into secure more RKEF and HPAL in the future.
And then second question is just on the balance sheet and I guess the pending payments that are coming for Oracle. I guess just curious when we think about your net cash position, I guess some of the cash is tied down in the various subsidiaries, how much of it is actually available to meet the upcoming payment obligations?
Look, thanks, Jack, it's probably a good opportunity for me to introduce it to Chris, he's on the line. So, Chris, I'll throw this question over to you.
Mr. Werner, just to let you know, Chris has accidentally disconnected and is rejoining us shortly.
Okay. No problems. Yes, look, Jack, we have -- you would have seen in the cash flow waterfall, obviously, at the end of the quarter, $137 million in the Group. The Oracle transaction has been structured in such a way that most of the significant payments are back ended to the end of 2022 and also even into early 2023. So, we have a lot of flexibility in terms of how we fund the Oracle acquisition.We've made sort of $30 million of payments to date with the strong RKEF generation from our existing operations and obviously, Angel Nickel now commissioning early and coming online, and that will be contributing cash flow as well. As said, we have significant flexibility and we sort of haven't made a decision on that point in time, given that, as I said, the major large payments don't really come until the back end of this year.
And then just last question for me is the NPI grade dropped a little bit in the quarter. Was that just a result of what's coming through from the mine, from the various mines at the moment or anything else?
Yes, look, that, that was just to, to improve the realized prices. So, the lower the NPI grade losses is counterintuitive, we actually do receive better payability. And so that was just an attempt at improving the payability and obviously looking to maintain that same EBITDA margin that we did for the previous quarter.
The next question comes from Kate McCutcheon from Citi.
The cost increases that we saw come through, do you have a sense for how much of that is transient versus structural change? I mean you still booked a great EBITDA with a higher prices, but interested in how we should think about costs at HNI, RNI going forward?
Yes. So, the main driver continues -- of cost increases continues to be power costs. That was up sort of $0.075 to $0.10, driven predominantly by thermal coal. Metallurgical coal, as I mentioned, that peaked in about October-November, and that has come down significantly. Hence, we saw the sort of $400 a tonne decrease in the December costs versus the November costs. But I think, again, what we've demonstrated is that we've been able to get through this sort of cycle and maintain very, very strong margins.And when you look at what's driving the Chinese NPI price, we have a significant advantage with the cost of the ore that we use. And so as a result of Chinese NPI producer currently, their production cost is about $19,000 a tonne. You compare that to the sort of $12,000 that we are recording. Look, we don't make -- or we're not trying to make any future predictions on what coal will do. I'm sure the analysts have their own decks and own views on that. But as I said, I think what we've been able to achieve, given the cost pressures is just the highlights the robustness of the business and the fact that we sit at the very bottom end cost curve.
And kind of following on from Jack's question, when can we expect the market update on how you're going to fund ONI in terms of debt equity?
Yes, look, as I said, we have sufficient cash on hand at the moment and we continue to generate monthly significant cash. So, that's -- we have flexibility and so that's something at the appropriate time that we will update. But coming back to the earlier point, the large payments aren't due until the end of this year. And with the strong cash flow generation and obviously, Angel coming online, we'll see how that performs and the cash generation there. There's no immediate need for us to go and do anything.
The next question comes from David Coates from Bell Potter Securities.
So, a couple for me. Let's see, you've talked a little bit about the costs. One aspect I just wanted to go into a little bit more was the Indonesian coal export ban. Is that having an impact on the price you're paying for local coal? Or are you really sort of still holding to I guess international market rates?
Yes, we've yet to see an impact from that given that it was sort of really a very short ban of about a month. So, yet to see any impact from that.
But it's likely there might be some low cost kind of flow through from that, from that to end. Is that right?
Potentially, although it obviously is in place for very long. And so I don't think we'll see it -- and remember that, that ban was more designed for domestic SOEs, particularly PLM, as the electrical utility for Indonesia.
Just a quick one on limonite sales, you could touch on it. You still, we should be seeing -- you will be booking limonite sales in the -- for the March quarter this year? And what kind of -- I guess, what was the approximate rate do you think that will be for '20 -- for calendar '22?
Sorry, Coates, can you just repeat that?
Sorry, you'll be booking limonite sales from the current quarter and that is about 100,000 tonnes a month.
Yes, that's correct. In terms of the pricing, it is sort of commercial in confidence, but it is a double-digit number. And the cost is very small. So, there is a very healthy margin. And given that the cost of mining the limonite is already expensed in the saprolite costs. As said, it's a very nice little margin for us and we'll provide more detail on the limonite sales in the March quarter.
And one final question. I'm not sure how much on this, but do you the guide at all on the ramp-up schedule with Angel obviously great, fantastic result that it's coming pretty much a quarter ahead of even accelerated expectations, but can you us any thoughts on when we might see the full -- first full quarter of production out of Angel?
Yes. So, the next sort of 60 to 90 days, we'll be bringing on the remaining 3 lines. The power plant, we're still targeting to be finished by September. And so as a result, what that will mean is, given the already significant number of lines in operation and limited power is that we'll probably be running at about 60% of capacity up until the point that 60% of nameplate up until the point that the power comes online in September.And so then moving forward from about October of this year, we'd expect to be sort of at 100% of nameplate. As you know, Tsingshan typically tends to beat nameplate. But I think that's the safe number to use. So, sort of next 60 to 90 days to bring everything online, run -- call it 90 days looking at running at about 60% of nameplate capacity and then we'll ramp up to 100% at around sort of October this year.
The next question comes from Dylan Kelly from Ord Minnett.
Two questions from me. Just the first one, apologies if we have to go back over this again. I just want to understand the payability uplift that you get when the NPI grades come down. I understand it's slightly counterintuitive. But if we're going from about, let's call it, 13.5% in the mid or 12.5% or 12.7%, what's that payoff or how should we be thinking about things in terms of the payability lift at the back end of the realizations jumping? And how do we think about that going forward? Is this just a short-term program just to see if the plants can run at this? Or is this something that we should be running forward?
Yes. So the NPI pricing that we quote is sort of 8% to 12% and we obviously produce significantly higher than that. We have, in some instances, produced up to 15%. Once you start to exceed that 12% grade, you do start to attract penalty. The reason for that is that above 12% grade, that's actually above the grade of 300 series stainless steel, 300 series stainless is about 12% nickel, which means as a result, stainless steel producers have to blend down the nickel grade in the stainless, either using iron ore, obviously quite expensive or using a lower grade nickel pig iron.And so as the nickel pig iron grades increase, that discount that you receive actually increases as well to the point where it can be as high as a couple of hundred dollars off the NPI price. The trade-off there is that obviously, if you produce a higher NPI grade, that results in more net nickel tonnes produced. And so it's really the trade-off between are we going for more nickel tonnes at a lower margin, or are we going for lower nickel tonnes at a higher margin, which you can achieve by producing a lower grade NPI, which attracts a lower discount.
Okay. That's well explained. I think I might come back offline and just try to work through some of the moving parts on the various benchmarks because it seems quite intricate. That's fine. Just we've discussed a little bit about the new -- the 2 new deposits in West Papua. I just wanted to know if there's -- is it too early to be thinking about here? Is this being simply like a DSO operation feeding back into the various plants in parts of Indonesia? Or should we be like it was any indication about Tsingshan generating a bit of a beachhead in that part of, that part of West Papua for downstream processing?
Yes, look, it's a good question. And I think West Papua the potential as an emerging nickel processing province. It is quite well endowed with nickel laterite resources, not at the same grade as you see, in Sulawesi and Halmahera. But in terms of -- and particularly the quality of limonite, there are very high cobalt grades. Again, coming back to Ramu, less than $2 per pound, proven operating HPAL plant that's been operating very successfully.The other thing is, obviously, with the increase in LME nickel price and the increase in oil prices, the acquisition of nickel projects is -- or nickel project values have increased. The acquisitions that we made in Papua quite opportunistic, very, very good value. And so yes, to answer your question, certainly, it is potentially an area that we are focused on with Tsingshan as an emerging province where we can get a foothold cheaply on significant resources.
Any problems trying to mobilize in that part of the world to try to get rigs on the ground and pro forma resource update? Could you just walk us through the time line for that?
Now, look, pleasingly, our -- the Siduarsi Contract of Work, which we have announced an MOU, we've already completed 32 holes of drilling. In fact, we've just -- as part of the due diligence, we've just increased to 2 drill rigs now. And we've had very good local support. So, absolutely no issues. And I think that's a result of people are seeing the significant benefits that this type of investment and development can bring just returning from IWIP, that now is sort of a workforce of 31,000 and source, that labor is predominantly all local from the surrounding communities.And just to give you an anecdotal evidence, we went up there -- I went up there with some environmental consultants who were staying on to do a -- to go to a dive resort up there and the guy said, look, I'm going to apologize. We can't offer you any meals. We can't offer you that because basically, all our staff have left to go and work at IWIP. And so that's the sort of opportunities that it's bringing.
The next question comes from Hayden Bairstow from Macquarie.
Just a couple for me. Just on the chart on price realization. Just keen to understand what NPI grade you're actually going to be targeting from now on? And will that mean that we'll get this sort of ongoing slight discount versus the average NPI price going forward? Or if you tighten up the grade, that it more or less should start to look pretty similar.
Yes. I think the target is moving forward for about that 12% to 13% grade. It makes sense as we did in the December quarter of 2020 when costs were very low to increase and we were producing at sort of close to 16%. In that sort of environment, it's more beneficial to produce a higher grade. In this environment where you do have some cost pressures, decreasing the grade to improve the payability delivers a better result. And so we'll look sort of moving forward at sort of 12% to 13%.There's obviously still -- coal prices are still elevated. Where they'll move to -- for 2022, we don't really know. We're not sort of trying to make predictions, but that will be the focus in terms of our NPI grade for at least this quarter and moving forward. I would add, just as an update to people, obviously, Tsingshan announced the successful sale of nickel met from the first 2 RKEF lines. We are still in very close communication with Tsingshan as to when might be the appropriate time for us to transition to converting 2 lines to the production of nickel met. And that's something that we'll update as and when it occurs.
So that 12.5% or 12% to 13% setting that, I guess, with 160 run rate on the NPI volumes is sort of 20,000 tonnes of nickel for both those plants and similar for all the other mines? Is that how we think about it going forward?
Yes. So it is, although obviously, ANI has a 20% greater nameplate production capacity and we will have a 20% cost improvement on the power costs. So, you will see a slightly lower cost with obviously that increased 20% of nameplate capacity.
[Operator Instructions] The next question comes from Patrick Collier from Credit Suisse.
Justin, just firstly, are you able to give an indication of cost performance to date, just given you mentioned December was a bit better? What you've seen in January so far?
Ye, look, we -- it's -- even though we are at the end of January, we sort of had a pull together all of the detailed cost. So, unfortunately, too early to -- we probably we won't have those numbers probably till early February. But as I said, pleasingly, we did see a sort of $400 a tonne decline in December. And we don't have visibility on the January costs yet. So, I can't make any comment as to how they're looking.
And just secondly, on Angel. I mean if I look at HNI and RNI, they are quite quick to come down to steady-state costs post commissioning. Should we expect similar cost performance at Angel as it's commissioned over the course of the year?
Yes, yes, although remembering that it will probably only go to about 60% of nameplate capacity given the power constraint until the captive plant comes online in around sort of September.
And that 60%, I mean, is, there a large fixed component that could push costs up, while it is at 60% or is it mostly variable?
No, mostly variable.
And then just lastly, given the 10-year tax holiday at Oracle, sorry, at Angel, should we expect similar at Oracle just given that those 2 projects are quite similar in scale?
Yes, absolutely. So no reason why that wouldn't be the case.
The next question comes from [ Kiran Bahala ] from [ Bawa Holdings ].
Just wanted to get an idea as to the strategic direction that the company will be going into? Now Hengjaya and Ranger, they are, from what I understand, an integrated mining tonne processing operation, whereas Oracle, it seems that it will be just purely refining and processing operation and the other one in West Papua would probably only be a mining operation. Are there any plans to expand the scope for the other 2, the one in Sulawesi and in West Papua?
Yes. So, the Hengjaya Mine provides a very good hedge for our ore costs at our current Hengjaya and Ranger Nickel. So, about 75% of their ore needs is filled from the Hengjaya Mine. We're in the process of ramping that up to the point where it will obviously be in excess of that. I mentioned that we are looking at new project acquisitions. And so I think it would certainly be beneficial if we were to be able to identify more resources of a significant size that could feed into Oracle Nickel similar to the Hengjaya Mine for HNI and RNI. And so to answer your question, we are looking into that and we are assessing resources for that very reason.In terms of West Papua, our intention, the view or sort of how we've approached to this, we would -- we do see it as a potential emerging product. Whether it starts out initially as a small DSO operation, I think given that the size and scale of the limonite and the characteristics, we see it as being potentially an emerging area for the development of significant limonite resources, which obviously lends itself to HPAL plants and the production of mixed hydroxide nickel and cobalt sulfate.
Thank you. Mr. Werner, at this time, we're showing no further questions. I'll hand back to you for any closing remarks.
I want to thank you, everyone, for your attendance on the call today and all of the questions. And look, as I said, again, and we look forward to 2022, another big year with production set to triple. And so you look at the strong EBITDA for 2021, that's going to go significantly over this year and then into next year. And not just that, there's obviously other developments in terms of resource acquisition and potential movement into sort of EV battery-related nickel production. And so we look forward to another strong and exciting year in 2022. Thank you, everyone.