Nickel Industries Limited (NICMF) Management on Q2 2022 Results - Earnings Call Transcript | Seeking Alpha

2022-07-29 22:11:14 By : Ms. Angela Ding

Nickel Industries Limited (OTCPK:NICMF) Q2 2022 Earnings Conference Call July 27, 2022 9:00 PM ET

Justin Werner - Managing Director

Weifeng Huang - Non-Executive Director

Timothy Hoff - Canaccord Genuity

Patrick Collier - Credit Suisse

David Coates - Bell Potter Securities

David Brennan - Petra Capital

Thank you for standing by and welcome to the Nickel Industries Limited June Quarter Results Webcast.

All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator instructions] I would now like to hand the conference over to Mr. Justin Werner, Managing Director. Please go ahead.

Thank you very much and welcome to the Nickel Industries June quarter results call. Moderator, if I could please ask you to move to Slide 3 to kick it off another record quarter what was particularly pleasing is record EBITDA from operations in excess of $100 million as we see the continued ramp up of Angel Nickel with all four RKEF funds now in operation.

We had record nickel metal production in the quarter of 15,567 tons, an increase of almost 40% on the March quarter. Record RKEF revenue of $315 million, which translated into record RKEF EBITDA of $84.9 million. Once again, the Hengjaya Mine continues to go from strength to strength with production of 1.3 million wet metric tons as we recommence sales of limonite with more than 0.5 million tons of limonite sold during the quarter. That translated into a record Hengjaya Mine EBITDA review at $7.4 million. As I said, that continues to go from strength to strength.

As I opened this resulted in record underlying cash generation of in excess of $100 million and that's our first quarter where we've achieved that result of the excess of a $100 million. We also completed a further 20% interest in the Oracle nickel project plus made early construction payment of $81.2 million, that was to facilitate an expected accelerated October 2022 commissioning of the Oracle Nickel project which is four more RKEF lines under construction at IMIP and that's progressing very, very well.

All four of our Angel Nickel RKEF lines are now successfully commissioned with the recent announcement of the power plant. Now coming online, we expect to see that production ramp up significantly and start to hit somewhere in the order of sort of 130% of nameplate capacity, which is the historical achievement for all of our existing RKEF lines. And then finally, on a corporate note, there was a change of company name to Nickel Industries Limited.

If we could just move to the next slide, please. Just in terms of the summary table, you can see the number of records that were achieved during the quarter. I've highlighted most of those numbers on the previous slide, but, just a rehash 40% increase in nickel metal production.

We had record realized NPI price 19,943, significant increase in up to $315 million. There was slight contraction in EBITDA per tonne margin and that sort of has been driven by a bit of a lag in cost coming through particularly in thermal coal. Pleasingly what we're seeing is nickel oil and metallurgical coal, we're starting to see a down trend in those costs.

Whereas thermal coal does remain suddenly high, but if you look, that margin is still significant, still very large and still much larger than the margin that we achieved at the same June quarter last year. So margins are still very, very strong. I mentioned the Hengjaya Mine, very pleasing result, and again more than $100 million underlying cash generation from operations.

Moderator, if we could go to the next slide, please. From the operating performance summary here, you can see Angel Nickel really kicking in there in June -- in the June quarter, significant increase. March we produced 1,077 tons. June, that was excess of 389 and then as I said for the next quarter, we expect to see the ramp up to name plate and in excess up to around sort of 130% and based on history, we expect that ramp up to be fairly seamless and to be achieved over the course of this quarter.

Operator, if we could just move to the next slide please. I mentioned the EBITDA per ton margin. There was some contraction this quarter and look, you're not going to set records every quarter. We've come off a very large EBITDA per ton margin which was a record.

As I mentioned in terms of the result compared to this time last year, you can see there still some $635 per ton above the margins at the same point this year and I should add that, that margin and cost was somewhat impacted by a power shortage within IMIP for HNI and RNI and also the ANI running at sort of 60% to 80% of capacity. With those power problems now solved, we would expect to see that contribute to an increase in the OpEx costs. Both of those power issues have now been resolved.

As I said pleasingly, nickel oil costs and met costs are decreasing and thermal coal whilst it remains quite high. As I said, I think for those reasons in terms of the power, we expect costs to have hit their peak.

If we could just move to the next slide please, the Hengjaya Mine, I won't go into too much detail there other than what I stated earlier, the $18.4 million EBITDA, its significant record that's a doubling of the $8.9 million in the March quarter and was boosted particularly by a significant increase in the price of the nickel oil that was received.

In the March quarter, we averaged $40, in the June quarter, we averaged $52 and also the sale of limonite and you can see the average price received there, close to close to $15 of wet metric ton and we expect to see continued strong production from the mine moving forward. In terms of production, the saprolite production is well in excess of the targeted sort of three million wet metric tons per annum.

If we could just move to the next slide, please. EBITDA cash flow conversion, again remains unchanged. You can see there 99%. That's not the profile of a mining company. Hence the change in name to Nickel Industries to reflect the industrial nature of the business.

If we could just move to the next slide please. On the corporate front, as I mentioned, change of company name occurred and we're now Nickel Industries, which think better reflects the nature of the business and the nickel line production and other production opportunities that we have. Angel Nickel was granted a commercial sales license and that allowed us to commence commercial sales and by the end of the June quarter, we sold in excess 6,000 tons for revenue of $132.9 million.

All four Angel RKEF lines commissioned during the quarter and produced 6,389 tons of nickel for the June quarter. Once we're running at 130% of name plate, we expect that number to be sort of in around sort of 11,000 to 12,000 tons on a quarterly basis. Pleasingly the power plant is now commissioned well ahead of schedule and we expect, as I said that to contribute to ANI operating in excess of sort of 30% of the nameplate capacity.

Ownership in Oracle Nickel was increased to 30%, that was completed by replacement of 108.1 million shares to Shanghai Decent at a $1.37 per share and that satisfied $106 million consideration of the Angel Nickel purchase price. There was also, as I mentioned, an early construction payment during the quarter, and that was to expedite construction of the project and as I mentioned, we expect first lines now coming on in October, 2022.

In terms of the nickel matte, everything is in place to produce nickel matte. The decision to switch will be determined by prevailing, pricing relativities between the NPI and the nickel matte market and we're looking at that very closely as to when would be an appropriate time to switch on two lines for production of nickel matte.

Finally, during the quarter, we also executed a binding definitive agreement for the staged acquisition of a 100% of the CDAC contract of work. It's a Nickel large tonnage limonite nickel cobalt project in West Province. Its contract of work potential to host a large world-class limonite resource and it has a lot of similarities to the Ramu resource, which is on the other side of the island, but in PNG and that is the world's lowest cost HPL producer and so the drilling that we're currently undertaking there is progressing very well.

If we could just move to the next slide please. You can see here, we're well sort of two thirds of the way through a significant or tripling of our production profile. If you look at the top charts there, the green is the name plate. If you start on the far left there, you can see 30,000 is the name plate capacity, 10,400 is what we achieved 10,410 in the blue is what we achieved over and above nameplate for last year, so 40,000 in excess, 40,000 tons.

With ANIs now coming online, you can see what that does to our Nickel production and again, that 66,000 is just nameplate. ANI, we expect to ramp up in excessive nameplate, as I mentioned during this quarter, and then with ANI now coming on in October, you can see what that will do that will put us in excess of a 100,000 tons on a nameplate basis and given the historical 30% increase, it's a more than tripling of our current nickel production profile.

I would also add that these new lines have a 20% larger nameplate capacity than our existing HNI and RNI operations. And with the power that's expected to deliver a 20% saving on our power costs, which is our second largest cost component.

If we could just move to the next slide, please. So in summary, another very strong quarter as I said, pleasingly in excess of US $100 million in cash generation. We are progressing very well through our tripling of production. ANI as I said, all four lines commissioned power plant now commissioned expect this quarter to see significant ramp up there.

To reiterate, we expect that the power plant will deliver significant cost savings on the cost of power, which is where we're seeing most of our cost increases across our RKEF lines. All of this growth is pretty much locked in, comes as it has historically with a CapEx guarantee. It's not growth that relies on inflated commodity prices. And if you look back at the production history, very strong stable margins. There is a low cost, long life operations and so, with the ability, as I mentioned to produce nickel matte, we have flexibility to be a diversified producer of not just class one, but also class two nickel.

I'll finish it there and hand over to Q&A.

[Operator instructions] We have our first question from the line of Timothy Hoff with Canaccord Genuity. Please go ahead.

Hi guys. Thanks for the color and well done on the result today. Just had a couple of quick questions. First one around limonite sales. How do we think about that going forward? Is that more or less a continuing basis we'll expect to see these sorts of levels shipped?

Correct. We, at this point in time looking at around 100,000 tons of limonite for the month. So we'd be looking at targeting around sort of 300,000 tons of limonite per quarter. We continue to make good progress on a whole road between the Hengjaya Mine and IMIP. Once that is complete, then we'd be -- then we're targeting a material ramp up in both saprolite and limonite production somewhere in the order of sort of $5 million tons of saprolite and three million tons of limonite, but for the near term, the current limonite targets are around 300,000 tons of limonite a quarter.

Okay, excellent. And in terms of the pricing, that's a mechanism that's linked to the [indiscernible], I understand.

Sorry, Tim. Saprolite is linked to the LME. Limonite is yet by negotiation, but we believe that will fairly shortly be linked to LME as well.

Okay. And do you get cobalt credits in that limonite.

There is a small credit for, for cobalt. Yeah.

Okay. And then perhaps finally, just around the limonite, what do you see happening in the parks at the moment around power capacity, which is pretty aggressive growth coming there is what's coming through in the pipeline in terms of power.

Yeah. So H&C [ph] which we were supplying to currently as fully ramped up to nameplate capacity and is performing very, very well. We've had the opportunity to look at some of the metrics and as I said, look, it's phenomenal that it was built in 18 months during a global pandemic and supply constraints and it's performing very well at the moment.

So that's online, ramped up capacity of about 60,000 tons of nickel metal and about 8,000 tons of cobalt. Q&B is not far behind that. It's in the process of commissioning at the moment. And so we expect, so by sort of end of this year that would be somewhere near ramped up and probably name plate that's similar size to H&C.

And then there are plans for additional power plants to be built sort of nearby to IMIP, but that's sort of something that as part of the MOU that we signed and future collaboration that we continue to engage in talks with Jinqiao [ph] in regards to potential future valve collaboration and obviously the acquisition of the contract [ph] of work. Given it's predominantly limonite deposit. That's part of securing resources for potential future valve growth.

Okay, excellent. Perhaps I'll hand it over and I'll ask question at the end if there is time.

Thank you. We have our next question from the line of Adam Baker with Macquarie. Please go ahead.

Hey guys yeah, we've just seen a bit of a slowdown in China over the past quarter. Just wondering, what you guys are seeing from a demand perspective, the NPI product, and if there is still, is China still wanting the additional NPI products that you're bringing to the market?

Yeah, look, thanks Adam. There is certainly, last quarter I think was one of the lowest GDP growth rates recorded for a long time in China. Obviously as you know, they continue to chase a zero COVID strategy. In terms of the market, there is a bit of sluggish demand for stainless steel, but given that we're part of [indiscernible] integrated stainless steel process, which we see no issues in terms of over demand; sorry, oversupply.

And in fact, interestingly, if you look at what's happening within IMIP and IWIP, a significant number of lines have been converted to the production of nickel matte that's currently around sort of 12 to 15 lines that have or will be converted. So that will significantly reduce NPI output from both IMIP and IWIP, but I think it's important to remember that it's still far from self-sufficient in terms of supply of NPI for its existing operations in China.

So while growth in China at this point in time, as I said as they're chasing a zero COVID strategy is a bit muted. I think if you look back at the history, we would expect to see some stimulus coming in and pick up again as things hopefully return to more normal activities.

Great. And maybe on the cost side, it's good that we've seen PTI coal prices kind of coming back down, but, when do you guys have any information as to when the thermal coal prices are going to subside?

Yeah. Like everyone, we can't predict what thermal coal pricing will do, but we are closely following the Indonesian coal index. That's where all of our thermal coal is sourced from. As I said, pleasingly we are seeing a decrease in nickel ore, which is our largest cost component and metallurgical coal.

One of the other coming back to China, one of the other interesting elements of the thermal coal prices is whether, China may open up again imports of Australian thermal coal. So, there's still a bit of uncertainty and the market dynamics of thermal coal. I think it's sort of hard to predict where those numbers are headed. But look, I think it's probably safe to say that I don't think thermal coal is going to stay at these sort of levels for an extended period of time.

Thanks guys. Maybe just a quick follow up on Tim's question, are you constrained by the 300,000 tons of limonite that you can take out per year or is there potential that you can increase that number given you've got almost three million in stock piles there?

Yeah. So that 300,000 per quarter, we do obviously prioritize saprolite given the higher margins and so you correct, there is about three million tons of limonite sitting there. Once that whole comes online, then we'll be able to significantly increase both our limonite and our saprolite production.

So, at this point in time, we continue to prioritize saprolite, but once that, as I said, once that whole road comes on, then we'll be able to significantly ramp up that limonite production, and look, we have, we are exploring potentially other ways to move the limonite and there are other alternatives such as, for example, a slurry pipeline which is used in a number of valve operations globally. That's something that we may also look at and explore as a way to increase cost effectively our limonite production.

Thanks guys. I'll pass it on.

Thank you. We have next question from the line of Patrick Collier with Credit Suisse. Please go ahead.

Hi, Justin. Thanks for taking questions. Just firstly, on nickel matte, do you mind reminding us of just any timing and cost considerations when it does come to switching over? And then secondly, just what you're seeing in the market in terms of the economics of NPI first matte at the moment, and how far off you matte could potentially be?

Yeah. In terms of timing the CapEx modifications are all complex. So it would really just be a matter of once the decision is made. There is an interim period of about two weeks where we produce -- we continue to produce nickel, but in an off spec, but saleable product. So it's about sort of two weeks until we would start to produce an on spec low grade nickel map from the RKEF lines.

In terms of costs, we expect that the costs would be very similar to the production of NPI. That low grade nickel matte then goes through a converter and that's a specialized converter that CHS and themselves are built and that converts it to a high grade nickel matte. There is an additional cost to that conversion, but it's certainly sort of in the market and so obviously once we make the decision to move into nickel matte, those costs will become a bit clearer, but that's basically, similar cost base except for a conversion cost added on top of that.

And then if you look at the different markets, LME has sort of held up reasonably well. We are seeing a softening in NBI prices predominantly just through sluggish demand for 300 series stainless steel. So at this point in time, nickel matte would appear to potentially have better economics given the disconnect between the LME nickel price and the NPI price or the bifurcation.

And so, look, that's something that again, we'll sit down, we'll have a look at -- we'll have a look at the demand outlook and the pay abilities for nickel matte in terms of a percentage of LME and it is linked to LME or can also be linked to [indiscernible]. It's quite robust, it's, sort of getting up in some instances up to sort of high 80% sort of numbers. So something that as we said, we're looking at very closely.

Okay. Thank you. And then secondly, I think in the comments, we've got that dollar per ton nickel oil cost increase in lower production, but then the nickel oil prices themselves were roughly flat, I guess I'm just a little bit confused as to why those nickel oil costs aren't variable with production and why that production denominator would change, given presumably the bulk of the nickel oil cost is the nickel content itself. Are you able to clarify that?

Yeah. Sorry, Patrick, I didn't quite understand the question.

I think just in the quarterly, there's a comment about, the lower production due to the power issues driving higher dollar per ton nickel oil cost, but I guess just if production is lower, I would assume that nickel oil costs would also be lower and that, dollar per ton wouldn't change too much, but it seems like there's maybe a fixed component to the nickel cost and just trying to reconcile how that would work.

Yeah. That there is a fixed component. So that nickel oil cost is set on a monthly basis which is referenced off the LME price for the proceeding month. And so yeah, that oil cost is very much fixed for the month, but fixed to a reference to the LME price.

Okay. But in terms of nickel oil volumes, like if production is lower and presumably the nickel oil that's consumed is also lower. So, that's where I'm confused to why the nickel oil unit cost would go up due to the power outage or power issues. But maybe we can take it offline if I'm not making sense. Yeah,

No, no. You're right. No look, there's obviously there's an overhead cost as well, which is factored in but yeah, there was some cost impact from that power shortage.

Okay. Got it. And then just lastly the Hengjaya realized oil price oil sales price being $52 a ton, again investor commentary of $42 to $44 a ton as an input cost into the RKF. I am just trying to understand the difference in terms of what you're selling out of Hengjaya, what you're paying to bring in to RKF and why those would be slightly different?

Patrick, can you repeat the question? I actually missed that.

I'm sorry. Patrick, you may now go ahead. You line was muted. Please go ahead and repeat your question. Thank you.

Okay. Thank you. So question just on the Hengjaya realized price being $52 a ton, and just comparing that to the $42 to $44 per ton of nickel oil that's mentioned in terms of the RKEF operations and really just trying to understand why those two prices would be, I guess, 15% to 20% different.

Yeah. I, think it's fair to say it's a timing difference and it's what we've seen all the time in terms of the management of the stockpiles at the IMIP by the team on the ground in the IMIP. So it is a timing difference in relation to those stock piles.

Okay. So should I kind of take the Hengjaya price as a bit of a leading indicator on what might come through the RKEF then?

It always depends on the amount of stockpiles that the months of stockpiles that are sitting there at each time, and we don't divulge that information.

Okay. And understood. Thank you. I'll leave it there.

Thank you. We have next question from the line of David Coates with Bell Potter Securities. Please go ahead.

Oh, good morning guys. Congratulations of development. Thanks for the presentation this morning. Justin and Chris, just quickly following on from that question is there also on the oil sales between Hengjaya and the cost of the outlines, is there also a great differential where that sort of contributes to that as well?

Yeah, Dave, there is a great difference between what we're selling and the creative ore that's been consumed by the RKF lines.

Okay, cool. Well just couple other quick ones. You referenced power constraints at the IMIP cleaning a drive of the oil production where it's dropped down below 10,000 tones. You just give a bit more kind of color obviously, or background on how those power constraints have emerged, obviously the assets of power station's been there for a long time, it doesn't seem to be an issue before, is it more lines being added before the power station being added or are there local disruptions or what sort of led to that load shedding and if you like?

To that situation, if you look at Angel Nickel that illustrates it very well. The RKEF lines are able to be built and come online much earlier than the power plants. And so it's just -- and these things are always built as a package. So, whether it's typically they build them in lots of sort of four RKEF lines with 380 megawatts of power.

When they decide to or make the decision to build or fund, it's just a difference in timing between when RKEF lines can be commissioned and when the power plant can be commissioned and to degree, there's a differential there of sort of up to about six months and so that's really all we just -- we experienced there at IMIP just that lag whilst new RKEF lines were coming online, but we were waiting for the associated power plants to follow them into production, and that's now been resolved. So moving forward, we don't see that being an issue.

Right. Okay. And just out of interest, how many RFEF lines are there now at the IMIP?

There is now 44 in operation with another eight under construction. Four of those eight lines are Oracle and with those eight lines, when they do come into production, that will bring the total to 52 and that will pretty much see IMIP built out for RKEF capacity.

As I mentioned, there is 2H power plants one's fully ramped up. One's not too far from being ramped up, potentially plans from for more plants. All of those 52 RKEF lines, 10 of them currently, or in the process of producing nickel matte. If we make the decision to produce nickel matte from two of our lines, that would take the total lines number to 52 that are producing nickel matte to about 12 within IMIP. There are also a handful of lines at IWIP that are also producing nickel matte at the moment.

Excellent. Extraordinary, and just on both those points, couple points, just rose. Firstly, you mentioned the two lines that you're getting converted. Previously, I'd understood that once I converted, that was nickel matte is what they would produce, but it sounds like there's -- a capacity to sort of switch between NPI and nickel matte. What sort of flexibility you guys have, I suppose once that conversion's been done.

There is flexibility to switch between the two products, although we would run them in a campaign style way. So once we make the decision to switch, it would be for a meaningful volume over a meaningful period of time. So it's sort of, yeah, not something that we'd be sort of switching between month to month, but we do have the ability, if for whatever reason we decide that we wanted to switch back to NPI.

Again, it's really the only thing that to be aware of when we do change between nickel line and nickel matte. As I said, is just that interim period of about one, two weeks where we produce an off spec product, which is still saleable. But that is sort of as you switch between the two products, that's just something to be aware of and that, we factor into when we look at the decision of switching to nickel matte, or perhaps at some point in the future when we have made that switch, potentially switching back, if the market conditions and economics indicate that we'd be better going back to producing nickel PI and for a period of time.

But there is correct flexibility to move between the -- between the two products. And again, it's a reflection of the innovation of Ching Sand [ph] in that they are the first company that has been able to successfully implement this kind of flexibility to produce, a class one or a class two product out of [indiscernible] and have the ability to switch between the two.

Yeah. And just touching on the HVAC plants, which you mentioned under construction there, and look, I imagine it does depend a bit on the market dynamics. You mentioned, now the playability being higher and that obviously changes around, but are you getting a -- you have a sort of high level kind of sense, intuitive sense in terms of perhaps like your, when you're considering your growth options what sort of returns on capital you might get in power project versus the RKF projects that you've now got up a big portfolio already.

Yeah. As you know, and you can look at the historical performance and the acquisition price that we paid for our RKF EBITDA, payback of sort of 2.7 to 3.2 times. So, very good return on capital. In terms of the power, we have had the luxury of looking at some of the metrics and what we've seen, they appear to be performing very, very well. But it is something that that discussion is sort of, we are engaged, it's ongoing and so, I would hope that sort of perhaps towards the end of this year or early next year, we might have a bit more color or be able to sort of speak a bit more about what any potential H valve aspirations may potentially look like.

But certainly based on the successful commissioning of the HNC plant and it's sort of current performance it's looking very, very compelling. And I think if you look at, plants like Ramu, which are reporting, sub $2 a pound OpEx costs, certainly when it works, it's very lucrative and obviously a very attractive element of H valve is obviously the significant cobalt credits and not just cobalt, there's other byproducts, the cranium which can also be extracted and even potentially, other sort of trace elements, manganese, people looking at the potentially taking out the scandium. So, yeah. Yeah. When it works, it looks to be compelling.

Excellent. Thanks very much, Justin cheer. I'll pass it on.

Thank you. We have next question from the line of [indiscernible]. Please go ahead.

Hi there. So quick question on the cost. So I remember last quarter in the call and I think the cold cost was accounted for in first and first out. So that's why we didn't see that material of a co effect in Q1, but obviously it's going through in Q2. So I'm just curious whether FIFO effect is all done with in Q3 or should we expect a further I guess increase in EBITDA or decrease in EBITDA per ton in the next quarter?

I think on the -- I'll start with the cost, as I mentioned, nickel ore matte coal costs are coming down. Thermal coal, we are still seeing elevated costs there. How much longer that will continue. As I said, we're not here to make predictions on thermal coal pricing, but I would also add that a factor in our cost for this quarter has been the power constraint at IMIP. And obviously the fact that we've only been able to Angel Nickel at sort of 60% to 80% and we expect that now with the power plan online, we will be able to sort of ramp that up significantly to sort of 30% over main plate and realize that 20% decrease on our power costs.

And so that's sort of on the cost side, on the EBITDA per ton margin, NPI prices have softened recently, and as I said, that's probably a reflection of, the low GDP growth numbers out of China. There's still grappling with a zero COVID policy and, and lockdowns, which is having impacts on their economy domestically, but I think, if you look, we sort of make the point that we still right at the very better bottom end of the cost curve. So, if there is to be any margin pressure, we, at the bottom end of the cost curve, we'll sort of should always enjoy a margin that's healthy.

Sorry. So I don't think my question was answered. So, I wasn't asking you to predict kind of coal price directions right. But what happened between Q1 and Q2 was effectively, accounting first in, first out and so therefore we saw material increase in cold costs, right. So my question is, from an accounting perspective, is the first in, first out effect done with now, or is there more, FIFO effect to be flown through in Q3?

Yeah, look, I think there's probably still perhaps another month or two of lag there, but we've seen part of that sort of come in the June numbers. So has been captured partly in this quarter.

Okay. So there could still be some volunteering there. Thank you.

Thank you. We have next question from the line of William Morgan with 888 Capital [ph]. Please go ahead,

Justin, two questions, one on specific ones on energy and then another one on strategy. Just with energy. So you are buying electricity, not buying coal. If you got complete rise for the electricity prices, that's part A of the question, and secondly, is there…

Excuse me, sir, this is the operator. I'm sorry to interrupt. Would request if we can use the handset while asking the question. Your audio is not coming very clear. Please use the handset and repeat your question again. Thank you.

Thank you for that, apologies. Strategy question and energy question. On the energy question, you buy electricity, you don't buy thermal coal. Have you got part A of the question? Do you have full rise for electricity process, completely correlated to thermal price? Secondly, we've gone upstream with power plants. Can you go further upstream and get coal supply and have a fixed cost for your power longer term?

So I'll answer the energy question, there is an energy pricing formula, which is linked to the thermal coal price. So, there is visibility there for us in terms of where -- how electricity prices are being charged and that price is consistent across the whole of the industrial parks.

So the second question around strategy look, it's not something that we've considered. I don’t know that there would be any significant cost benefits to us trying to acquire any thermal coal minds particularly given well, at this point in time, if you look at thermal coal price the valuations that any coal mine, would be asking would be significant and look, coal mining is not something, or the name Nickel Industries we are purely focused on nickel. Okay, and that's the focus for the company. Yeah.

Then next, just a broader strategy question the supply for nickel from Indonesia now is obviously getting to a point where you start is significant. You clearly, you're trying to chase a value add on going age power and capturing higher value product, but you've got unconstrained competition doing the same thing that you are doing. What's the thinking amongst your co-owners of these assets with respect to oversupplying nickel?

Yeah. So I think if you look at Indonesian supply and Ching Sand in particular, given there're the largest player, IMIP, as I mentioned will be built out once these last eight lines come online. Of those 52 lines, 12 of those have already been, or 10 of those have already been converted to the production of nickel matte and that could increase.

Over at IWIP, you've currently got about 34 operating lines that will probably grow to about 52 lines or a similar sizes as IMIP. I think it's important to again, note that the reason Ching Sand is building all of this NPI capacity is it's attempting to becoming more self-sufficient in NPI for its stainless steel operations back in China, even with all this capacity that's coming online in Indonesia. There's still sort of well short of that of that requirement.

So look, we don't see, an oversupply issue. What we probably see is just replacement NPI. As more Indonesian capacity comes on, you'll probably see a reduction in Chinese as NPI capacity as higher cost producers go offline and perhaps move into other businesses.

And look the ability to convert NPI lines to produce nickel matte, that's also another strategy that Jing Sand has adopted in terms of if there is any concerns or if there's apparent oversupply, the ability to then divert NPI production into the production of nickel matte, which obviously will take some NPI out of the market and potentially also feed into a higher margin side of the market where there may actually be supply constraints.

And sorry, just to add sort of final comment to that. I think what you'll see now in Indonesia is a real pivot and certainly the government is encouraging and doing everything it can to foster a pivot into more H valve development and one of the reasons that's sort of driving that the government's desire to see more of the H valve development is obviously in the process of mining saprolite or to feed these RKEF lines, a large amount of limonite is sort of discarded and sterilized.

And so, that's something that the government is very keen to see that these limonite resources aren't sort of simply stripped off the top and as I said, sterilized. They are also developed and significant value can be gained from limonite and if you look at sort of limonite resources versus saprolite resources, there's significant amount more of limonite than saprolite and that's just typical of the ratio that you see in these laterite oil bodies. You typically have much thicker limonite, a much thicker limonite profile and resource tons when compared to the underlying high grade saprolite ore body.

Okay. Just in terms one more on supply and demand, just the sell side, generally now forecasting peak carbon steel production of just over a billion tons and waiting from here. Appreciate stainless completely different metrics and drivers. And you've spoken of that in terms of general GDP and consumption. Just, is there anything else and we obviously got the battery demand coming through for power product, etcetera, just is there any other guidance on metrics that you watch that we should be wary of?

No, look, I think, and again, it comes back to certainly and looking at Ching Sand strategy, there certainly is a pivot into the sort of battery metal space and I think, as I said, I think that will play out in the fact that for their NPI capacity that's been planned, it's been built out at this point in time, there's no further plans for anymore NPI or RKEF that produce NPI to be built other than what's planned for IMIP and IWIP.

And so the strategy moving forward, I think will very much look at sort of H valve, intermediate product for the battery market. Ching Sand is listing a battery side of its business on the Hong Kong exchange. It's in the process of doing that. It's obviously announced to deal with AME on a lithium project in South America.

So I think, and if you looked at what's happening within Indonesia with companies like BASF committing to battery plants, companies like Ford signing MOUs with Valet and Hawaii Nickel Cobalt, that's very much I think, where the next wave of significant growth in nickel and cobalt will come in Indonesia, and it will be in that class one battery suitable or EV material related supply,

If I may, one more question just on ESG, you're getting much flat or take up on resistance to invest institutionally from fossil fuel or on the other side, what you're doing in terms of mitigating that?

Yeah, we obviously released our maiden sustainability report during the quarter which, think was well, received. We've obviously benchmarked ourselves on a carbon intensity basis against all of the global nickel producers and blazingly sit around that sort of 50th percentile.

We've announced, and we announced during the quarter a further 220 megawatt peak solar project, which will bring the total now to 420 megawatt peak. Both of those projects are advancing very well. We potentially are looking at expanding that from 400 megawatt to a much larger number as well as that, we've also been doing quite a bit of work looking at LNG and cleaner sort of renewable forms of energy, as well as we've engaged hatch to sort of look at a decarbonization study and opportunities that may exist.

So that's something that we're committed to said there. There's now producing an annual sustainability report and on an annual basis, we'll be providing those numbers and moving forward, we'll probably start at looking at potentially sort of setting some targets. It's a bit premature for that, given the company still very much in the growth phase, but, I think there's as said, I think the response to the sustainability report and providing some transparency on sort of the many initiatives that we're undertaking, not just on an environmental, but on a social perspective as well was well received.

Thank you. We have next question from the line of David Brennan with Petra Capital. Please go ahead.

Thank you. Just a quick question on the $285 million required to complete the funding of Oracle. Can you give us any insights there on your thoughts, how that's going to be funded?

Yeah. Dave, happy. Chris, do you want to take this one?

Yeah, no problem. Thanks for the question, David. Look, as you know, we had $525 million to fund and we've always said that we'll look to do that through a mix of equity, debt and cash flows. We've done our equity raise earlier in the year. As you know, on to including the placement Shanghai.

We've made another $81 million of $81.2 million of early construction payments to hopefully result in the early commissioning of Oracle in at the start of Q4. And then the strategy hasn't changed with the remaining $285 million. We'll continue to look to use operating cash flows and debt for the remainder. So as you know our next payment is due in 31 December. So we've got a good runway to that payment obligation, David.

That's great. Yeah. And just in terms of how the market is for the appetite for the debt that you'd be looking for, is a good appetite. How are negotiations going?

Yeah, I think it's fair to say that the market's changed since the start of the year, and it'd be remiss me to say otherwise. We are obviously in a different operating environment to where we were in Q1. Everyone can see that globally, and obviously our bonds are not trading at the par value that they were at the start of the year.

So, it is a more difficult environment, but it's something that not overly concerning at this stage, to be honest. We've got good engagement, a lot of inbound inquiries on potential financing alternatives, some attractive, some less so, and we'll just continue to work through those.

Thank you. There are no further questions at this time. I'll hand back to Mr. Warner for closing remarks. Over to you, sir.

Thank you. Thanks everyone for your attendance and look, as I said, it pleasingly at first quarter where we've delivered over $100 million in cash generations from operations, where well advanced in terms of tripling our production and so we expect at the end of this year to, hit that run rate of an annualized, 100,000 to 130,000 tons of nickel metal production on an annual basis and so it's really business, as usual as we've sort of come emerged or Ching Sand has emerged through the LME squeeze.

I know that that sort of created some concerns there, but again, let me reinforce, that very much absolutely no impact on our operations as you've seen from the two quarters that this quarter and the previous quarter. And it's really more, just, again, more upside, more increase in production. And so look, we look forward to the upcoming quarter providing more updates and thank you everyone again for your attendance and questions today.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

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