Does MD Justin Werner know something we don’t?

On the 6th April Nickel Industries advised that Justin Werner made on-market purchases of 2.1 million shares for $1.9 million, average price 90 cps per share. The last share purchase advice for the MD was on 8th October 2021. Justin Werner now holds 31.9 million shares or just over 1% of the company.

Today, Nickel Industries announced it will release its quarterly activities report on the 27th April. This might be one to watch!

MARCH QUARTER RESULTS WEBCAST DETAILS

Nickel Industries Limited will release its Quarterly Activities Report on Thursday, 27 April 2023. Managing Director Justin Werner will lead a webcast to discuss the results that morning.

• Time: 11.00am AEST

• Date: Thursday, 27 April 2023

• Webcast link (watch only): https://webcast.openbriefing.com/nic-qtr1-270423/

 • Teleconference Registration link (for Q&A participation): https://registrations.events/direct/OCP61179

 For further information please contact:

Cameron Peacock

Investor Relations and Business Development [email protected]

+61 439 908 732

Disc: Held IRL (4%), SM (8.3%)

News from Nickel Industries is coming in thick and fast this morning! NIC just released another Announcement: Transition to nickel matte and continued ramp-up of ANI underpins strong December quarter.

Two key points caught my attention, firstly it was sad to read two construction workers had lost their lives on site. The incident is being investigated. As a shareholder it was sad to hear this news.

However, particularly pleasing news for the future of NIC is the HNI margins improved from ~US$2,000/t in the September quarter to US$5,950/t in the December quarter, validating the Company’s decision to diversify HNI’s production into nickel matte for supply into the EV battery supply chain. This will be a game changer for Nickel Industries.

Full Announcement

Transition to nickel matte and continued ramp-up of ANI underpins strong December quarter

▪ Record nickel metal production of 23,072 tonnes (100% basis), including maiden nickel matte. ▪ Strong RKEF margins driven by improved contract pricing and broadly lower costs.

▪ Record mine production with significant increase in limonite sales to IMIP HPAL projects.

▪ December quarter Group EBITDA from operations of US$106.1M1.

▪ Current growth projects remain ahead of schedule and on budget.

▪ We regret to inform that two construction contractors at ONI were fatally injured in the quarter. Nickel Industries Limited (“Nickel Industries” or “the Company”) provides a preliminary update of its

December quarter operational and financial performance.

RKEF production

December quarter highlights included:

▪ continued ramp-up of the Angel Nickel Project (“ANI”) to over 130% of nameplate capacity, with the full benefits of the project’s power plant contributing to a material reduction in operating cash costs;

▪ transition of Hengjaya Nickel Project’s (“HNI”) production from NPI to higher margin nickel matte production; and

▪ commissioning of the Oracle Nickel Project’s (“ONI”) first two RKEF lines.

Nickel metal production levels increased 13.8% from the September quarter to 23,072 tonnes (100% basis), which included HNI producing 4,743 tonnes of high grade nickel matte. EBITDA margins improved significantly from US$2,261/t in the September quarter to US$4,146/t1, due to improved contract pricing and lower cash operating costs. Lower operating costs were driven by ANI’s power plant running at full capacity, decreasing the operation’s power costs. Particularly pleasing was the contribution of HNI, with margins improving from ~US$2,000/t in the September quarter to US$5,950/t in the December quarter, validating the Company’s decision to diversify HNI’s production into nickel matte for supply into the EV battery supply chain.

As a result, EBITDA from RKEF operations (on a 100% basis) for the December quarter was US$90.0M2, which surpassed the Company’s previous quarterly record of US$84.9M (posted in the June quarter of 2022) and represents a significant improvement on the September quarter of US$45.3M.

ONI incident

The Company also sadly advises of the unfortunate death of two construction contractors working at ONI in December 2022. An investigation is ongoing into the event, as well as how safety measures can be improved across our operations. Management is working closely with the ONI and IMIP teams, as well as the Indonesian authorities on the investigation and implementation of safety measures. The Board and management of Nickel Industries offers their deepest condolences to the families of the deceased. The Company is focused on supporting the family of the employees and workers at ONI.

Nickel Industries will provide further updates as they become available.

Mine production

During the December quarter, Hengjaya Mine delivered a record performance with 2,707,858 wmt of ore mined, comprising ~2,020,027 wmt of limonite and ~687,831 wmt of saprolite.

The Hengjaya Mine received a ‘GREEN PROPER’ rating from the Indonesia Ministry of Environment and Forestry, the only mining company from Central Sulawesi to achieve this rank, and one of only two nickel mining companies in Indonesia which have earnt this rank (the other being Vale), a reflection of Hengjaya Mine’s commitment to ESG.

EBITDA from Hengjaya Mine (on a 100% basis) for the December quarter was US$16.1M1. The strong result was driven by increased sales of both saprolite and limonite ore.

Combined with the strong performance from its RKEF operations, Group EBITDA from operations for the December quarter is US$106.1M. In addition, as at 31 December 2022, the Company had a Group cash balance of approximately US$144.2M.

Commenting on the Company’s December quarter operating and financial performance, Managing Director Justin Werner said:

“This quarter was marked by the unfortunate fatality of two contractors during the construction of ONI for which we offer our deepest condolences to the families of the deceased. Our team is working closely with our partners to ensure improved safety measures for both our employees and contractors across all our operations.

From an operating perspective, our indicated December numbers are ahead of market expectations. We have achieved record nickel production and strong growth quarter on quarter. Several important milestones have been delivered including first NPI at Oracle and first nickel matte sales at Hengjaya. Our combination of scale and access to both the Class 1 and Class 2 nickel markets will continue to deliver diversification and value.”

Disc: Held IRL and SM

It seems the AFR article today was spot on! Nickel Industries has just announced a trading halt for a capital raising. Just when the share price was starting to build some momentum!

1. Reason for trading halt – the trading halt is requested pending an announcement by the Company in relation to a proposed material acquisition and capital raising.
2. Duration of the trading halt – the Company anticipates that the trading halt will remain in place until the earlier of such time as it makes an announcement to the market in relation to the outcome of the capital raising, and the commencement of trading on Friday, 20 January 2023.
3. Termination of the trading halt – the Company anticipates that the trading halt will cease upon it announcing the outcome of the capital raising.

Disc: Held IRL and SM.

According to the AFR today Nickel Industries is on the hunt for more nickel assets in Indonesia. Again, they are looking to acquire more of Tsingshan’s assets, which also happens to be Nickel Industries largest shareholder.

It’s an unusual symbiotic relationship between Nickel Industries and Tsingshan, and one that put Nickel Industries into a tailspin after Xiang Guangda, chairman of Tsingshan Holding Group, shorted the Nickel price before the price skyrocketed when the Russian - Ukrainian war broke out. I still don’t understand how Xiang Guangda dodged a bullet on this, but it caused the LME metals exchange to back date trades and halt trading for several days while they sorted the mess out. it also caused Nickel Industries to back peddle on their capital raising while Tsingshan stepped in by increasing its share of Nickel Industries instead….Just don’t ask too many questions!

Alan Kohler rightly questioned the CEO of Nickel Industries about this unusual relationship with Tsingshan over a year ago in a Eureka Report CEO interview. Allan’s question was along the lines of “Why don’t Tsingshan do this themselves, they seem like they have enough money to do it all alone?”. This remains a valid question for me today.

Whether it is in sickness or in health, or whether it is for better or for worse, these ‘Strange Bedfellows’ are about to further bunk down into a tie up of financial arrangements and mutual trade dependencies in this unusual Chino-Indonesian-Aussie relationship. As a Nickel Industies shareholder lets hope we can all remain very good friends…and til death do us part!

Disc: Held IRL and SM.

Cheers

Rick

For those without AFR subscriptions, I’ve copied the article below:

Nickel Industries readies equity deal to re-stock M&A kitty

Indonesian miner Nickel Industries was drumming up interest in a sizeable equity raising after market on Tuesday, which investors reckon would help bankroll a planned acquisition of new assets.

Brokers Bank of America and Bell Potter were understood to be lining up some early support, helping get investors interested in a $200 million-odd placement that could launch as early as this week.

Sources said Nickel Industries would plough the proceeds into a couple of nickel assets owned by its largest shareholder, Shanghai Decent Group’s parent Tsingshan, a juggernaut in global stainless-steel production and is also the world’s largest nickel producer.

Sources said the potential deal came after the brokers also took analysts, traders, nickel miners and battery manufacturers through Tsingshan’s Morowali Industrial Park, where Nickel Industries owns stakes in several rotary kiln-electric furnace lines via Hengjaya, Ranger and Oracle projects. Tsingshan owns 18.4 per cent of Nickel Industries’ shares.

The ASX-listed Nickel Industries has previously stated its desire to add exposure to two parts of the value chain: operations in high-pressure acid leach (HPAL), a process used to extract nickel from laterite ore, or more limonite feed that can go into HPAL process and would tee in well with its nickel laterite operation Hengjaya.

STRATEGIC COOPERATION AGREEMENT SIGNED WITH QMB NEW ENERGY MATERIALS

• Nickel Industries to supply 5-7 million wet metric tonnes per annum (‘wmtpa’) of limonite ore over the next 20 years.

• QMB to build, subject to necessary approvals, a concentrator plant within the Hengjaya Mine (‘HM’) area to supply the ore via pipeline to its newly commissioned High Pressure Acid Leach (‘HPAL’) plant within the Indonesia Morowali Industrial Park (‘IMIP’).

• Both parties to explore in good faith the opportunity for NIC to take an equity participation in the QMB HPAL plant, which is owned by some of the largest battery producers and recyclers in Asia.

Nickel Industries Limited (‘Nickel Industries’ or ‘the Company’) is pleased to announce that it has signed a long-term strategic cooperation agreement with PT QMB New Energy Materials (‘QMB’). Subject to the necessary approvals, QMB would build a concentrator plant within the HM area that will supply via pipeline, for a period of 20 years, approximately 5-7 million wmtpa of limonite ore (1.1% - 1.3% grade) from the HM mine to QMB’s newly commissioned HPAL plant within the IMIP.

Furthermore, both parties have agreed to explore in good faith the opportunity for Nickel Industries to have equity participation in the QMB HPAL that, if executed, would result in the Company producing ‘Class I’ nickel and cobalt for the growing electric vehicle battery supply chain in the form of high-purity, battery-grade mixed hydroxide precipitate (‘MHP’), nickel sulfate and cobalt sulfate.

The strategic cooperation agreement is subject to further definitive agreements to be reached by both parties which will contain further details, including the sale price for limonite ore.

About QMB

QMB is a new energy material company which is focussed on the development and sale of battery grade nickel chemicals and associated products, its current shareholders are some of the largest battery producers and recyclers in China and consists of GEM (63%), Tsingshan Group (10%), Brunp Recycling (a subsidiary of CATL) (10%), ECOPRO (South Korea) 9% and Hanwa (Japan) (8%).

QMB has recently commenced commissioning a 73,000 tonnes per annum HPAL plant within the IMIP and will require approximately 10 million wmtpa of limonite ore to achieve full capacity.

Commenting on the signing of the strategic cooperation agreement, Managing Director Justin Werner said:

“We are pleased to announce the signing of a long-term strategic cooperation agreement with QMB, a leading global new energy material company. The long-term supply agreement to the QMB HPAL plant highlights the tremendous strategic value of the world-class Hengjaya Mine resources, both limonite and saprolite. It follows our recently updated JORC resource of 3.7 million tonnes of contained nickel metal, which places the Hengjaya Mine among the top 10 nickel resources globally.

The monetisation of our limonite ore, which until recently was stockpiled as overburden, represents significant value creation by the Hengjaya Mine for our shareholders. Should definitive agreements be executed with QMB, at the current limonite market price which is approximately US$15 per wmt for 1.20% Ni grade, the Company will potentially receive additional revenue of more than US$1.5 billion over the next 20 years.

Further, as the company strives to extract greater value from the limonite resource at the Hengjaya Mine, we look forward to further exploring with QMB possible equity participation by Nickel Industries in the QMB HPAL plant, which would further diversify the company into a meaningful supplier of nickel and cobalt for the new energy revolution.”

Disc: Held IRL and Strawman

Nickel Industries has just released its 1H22 Results. At first glance it doesn’t look too shabby, but the market reaction will all depend on what the analysts were expecting. I’ll come back to this one later.

HALF YEAR REPORTS AND DIVIDEND DECLARATION

Disc: Held Strawman (8.6%) and IRL (4%)

Nickel Industries has just raised US$225 million to increase its ownership interest in Oracle to 70% and meet its payment obligations to Shanghai Decent for the transaction (See announcement below)

When all 12 RKEF lines are fully operational pruducing approximately 100kt of attributable nickel, Nickel Industies will be amongst the top-10 global producers and arguably the largest listed pure- play nickel exposure globally.

Looking at NIC financial position the new debt will raise NIC’s overall debt to approx US$600M or a net debt to equity (including cash reserves) of 35%, which is still reasonable.

10% seems like an expensive source of debt over the next 3 years and there is bit riding on the Nickel price remaining buoyant and energy prices levelling out. However NIC should start generating a huge amount of cash from 2024 when all RKEF lines are working to full capacity (see analyst forecasts in the chart below).

Source: Simply Wall Street

From 2024 Nickel Mines forecasts a shortfall in Nickel supply as the demand is driven by higher usage in renewable energy industries.

BMO conference presentation

By 2040 almost as much nickel will be used in batteries as in stainless steel, increasing from 7% to 41% of total nickel used.

BMO conference presentation

Disc: held IRL and SM

US$225 million debt capital raised for the Oracle Nickel Project acquisition

Nickel Industries Limited (the “Company”) is pleased to announce the execution of binding agreements for the issuance of US$225 million of senior secured notes (the “Notes”) at an interest rate of 10.0%, maturing August 2025. Proceeds from the Notes will, along with the Company’s cash reserves and future earnings from existing operations, be applied towards the remaining payment obligations for the Oracle Nickel Project (“Oracle Nickel”).

Oracle Nickel comprises four rotary kiln electric furnace (“RKEF”) lines with a nameplate production capacity of 36,000 tonnes of equivalent contained nickel in nickel pig iron and a dedicated 380MW power plant within the Indonesia Morowali Industrial Park (“IMIP”) in Central Sulawesi, Indonesia.

The first RKEF line at Oracle Nickel is expected to commence commissioning in October 2022, well ahead on the contracted February 2023 project delivery date. Oracle Nickel, like the Angel Nickel Project (“Angel Nickel”), is expected to transform the Company’s nickel production profile, resulting in a combined nameplate capacity in excess of 100,000 tonnes (of nickel in NPI), as illustrated below.

As with Angel Nickel, NPI production from Oracle Nickel’s RKEF lines will run at less than 100% of the 36,000 tonnes of nickel metal production nameplate capacity per annum during its commissioning phase, depending on power availability whilst construction of Oracle Nickel’s dedicated power plant is completed. Importantly, by having its own power source, Oracle Nickel’s 4 RKEF lines are expected to benefit from a saving of approximately 20% on electricity charges.

The completion of the issuance of the Notes, expected during August 2022, leaves the Company well positioned to complete the acquisition and ramp-up of Oracle Nickel. BofA Securities is acting as Placement Agent for the Notes issuance. Key details of the Notes are as folllows:

Commenting on the issuance, Nickel Industries’ Managing Director Justin Werner said:

“The issuance of the Notes will position the Company to increase its ownership interest in Oracle to 70% and meet its payment obligations to Shanghai Decent for the transaction. The early commissioning of the Angel RKEF lines (more than 6 months ahead of schedule) and now the Oracle RKEF lines (expected to commence commissioning in October) has allowed us to significantly bring forward nickel production. Once again, we commend our trusted partner and largest shareholder, Shanghai Decent, for this remarkable achievement.

The Company will soon have 12 RKEF lines in operation and approximately 100kt of attributable nickel production, placing us comfortably amongst the top-10 global producers and arguably the largest listed pure- play nickel exposure globally.”

Once again NIC has finalised another major milestone 6 months ahead of schedule. The new power station at Angel Nickel will increase nickel production from 80% to 130% of Nameplate. This will not only increase production, bit reduce costs.

What I’ve found so far is that if Nickel Industries promises something they deliver on it, and ahead of schedule!

ANGEL NICKEL POWER PLANT COMMENCES COMMISSIONING

The Directors of Nickel Industries Limited (‘Nickel Industries’ or ‘the Company’) are pleased to announce that the Company’s 80%-owned Angel Nickel Project (‘Angel Nickel’ or ‘the Project’) has commenced commissioning of its 380MW power plant within the Indonesia Weda Bay Industrial Park (‘IWIP’) on Halmahera Island.

The commissioning of the Angel Nickel power plant is ahead of schedule and follows the early commissioning of the Project’s 4 RKEF lines between January to May this year, well ahead of the contracted delivery month of October 2022.

Angel Nickel has been operating at approximately 80% of nameplate capacity, restricted by power availability within the IWIP electricity grid, however with its own power source coming online, production levels at the Project are expected to increase to approximately 130% of nameplate capacity, in line with the historical outperformance above nameplate capacity of the Company’s established Hengjaya and Ranger RKEF projects.

Additionally, by having its own power source, Angel Nickel’s 4 RKEF lines are expected to benefit from a saving of approximately 20% on electricity charges, which currently account for approximately 25% of total operating cash costs.

Commenting on the early commissioning of Angel Nickel’s power plant, Nickel Industries’ Managing Director Justin Werner said:

“The early commissioning of the Angel RKEF lines more than 6 months ahead of schedule allowed us to significantly bring forward nickel production. With Angel’s power plant now commissioned this should allow us to ramp up to approximately 130% of name plate capacity, which will greatly increase nickel metal production and assist to materially decrease Angel operating costs.”

Nickel Industries took a 8.6% hit yesterday (14/06/22) on one of the worst ASX trading days in years (down 3.8%). It traded as low as $1.035 during the day. The drop in the share price was fuelled by a weakness in base metals, with Nickel down almost 5% to US$25,838 per metric tonne.

I don’t think the fall in the nickel price is alarming given it is finally starting to stabilise at a more sustainable level following the Nickel short squeeze when the Nickel price spiked to US$100,000 per MT. Prior to the short squeeze spike, Nickel was trading at US$24.590 per MT about 5% lower than the current price. At this point in time the Nickel price chart is still trending up (bottom left, top right).

5-year Nickel price US$/MT - Trading Economics, 14/06/22.

Nickel is expected to trade at 28691.50 USD/MT by the end of this quarter, according to Trading Economics global macro models and analysts expectations. “Looking forward, we estimate it to trade at 33718.56 in 12 months time.”

I think high energy prices are also hurting Nickel Industries at the moment.

When all Nickel Industries RKEF lines are fully operational, they will be in the top 10 world nickel producers, producing more nickel than BHP and just behind Glencore.

https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02526865-2A1376589?access_token=83ff96335c2d45a094df02a206a39ff4

I am bullish on the future of Nickel Industries as they step up nickel production. EBITDA is expected to triple in the next 12 months.

Margins will also improve if the Nickel price increases and energy prices start to stabilise. Nickel Industries is aiming at reducing power costs by 20% by owning their ‘own’ power. During May this year Nickel Industries signed an agreement with Quantum Power Asia Pty Ltd for the implementation of a 220 MWp solar project to be located within the Company’s 80% owned Hengjaya Mine area. https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02522271-2A1374275?access_token=83ff96335c2d45a094df02a206a39ff4

Disc: accumulating IRL

In their second announcement today (16/5/22) Nickel Mines has advised that the fourth and final RKEF line at its Angel Nickel Project (ANI) has been commissioned well ahead of schedule (originally due October delivery).

To reach full capacity (typically 30% above Nameplate, or the design capacity) they first need to complete building their power station, due in August. Until then Nickel will be produced according to the power available, so far 4000 tonnes have been produced at ANI. In the meantime they are stockpiling the ore ready for processing.

To date Nickel Mines has a faultless track record of completing projects ahead of schedule which hopefully will also ramp up Nickel production ahead of schedule.

Disc: Held

ANGEL NICKEL’S FOURTH RKEF LINE COMMENCES COMMISSIONING

The Directors of Nickel Mines Limited (‘Nickel Mines’ or ‘the Company’) are pleased to advise that the Company’s 80%-owned Angel Nickel Project (‘ANI’ or ‘the Project’) within the Indonesia Weda Bay Industrial Park (‘IWIP’) on Halmahera Island, has now commenced commissioning of its fourth and final RKEF line.

With the Project’s Indonesian operating entity PT Angel Nickel Industry now in receipt of its Izin Usaha Industri (‘IUI’ or ‘Industrial Business Licence’) the Company looks forward to the Project completing its first commercial sales later this month, with contracts for the export of NPI in May now having been signed. The Project has already produced over 4,000 tonnes of nickel metal (in NPI), with all lines continuing to ramp-up production levels in line with expectations.

As previously advised, during its commissioning phase, NPI production from ANI’s RKEF lines will run at less than 100% of the 36,000 tonnes of nickel metal production nameplate capacity per annum depending on power availability. ANI’s designated power plant remains on track to commence commissioning in August after which time the Company expects production levels across all 4 RKEF lines to rapidly ramp- up to above the nameplate capacity – historically the Company’s RKEF lines have operated in excess of 30% above nameplate capacity.

Commenting on the commencement of commissioning of ANI’s fourth RKEF line, Nickel Mines’ Managing Director Justin Werner said:

“To now have all four RKEF lines operating by mid-May, well ahead of their scheduled October delivery, is a remarkable achievement by our operations team on the ground in Weda Bay. ANI represents our first project within the IWIP and an important platform in our rapid growth story. As production levels continue to progressively build we now look forward to the commissioning of the ANI power plant in August, which will further increase monthly production levels across our RKEF operations.”

Acquisition of the Siduarsi Nickel-Cobalt Project

“The Directors of Nickel Mines Limited (‘Nickel Mines’ or ‘the Company’) are pleased to announce that the Company has signed a binding definitive agreement (‘Definitive Agreement’) for the staged acquisition of a 100% interest in the Siduarsi Nickel-Cobalt project (‘Siduarsi’) in Papua province, Indonesia. This follows on from the binding Memorandum of Agreement (‘MoA’) signed in September 2021 (refer ASX announcement on 2 September 2021, ‘MoA Signed for Siduarsi Nickel-Cobalt Project’).“

I haven’t looked into the details for this yet and what it might mean for Nickel Mines.

Disc: Held IRL and SM

Despite recent fears by some that Tsingshan would sell down shares in Nickel Mines, Tsingshan’s investment subsidiary, Shanghai Decent, has just received a share based payment of 108,122,223 ordinary shares in NIC at A$1.37 per share in exchange for a further 10% interest by Nickel Mines in the Oracle Nickel project. This brings Nickel Mines total interest to 30% (See ASX announcement below)

In reality this is just a paper shuffle where the ownership of the Oracle Nickel assets have been transferred from direct ownership by Shanghai Decent to indirect ownership by Shanghai Decent through Nickel Mines. This increase in ownership by NIC was meant to be funded by the NIC capital raise which was withdrawn in March following the Nickel short squeeze debacle.

The increasing interest in Nickel Mines by Tsingshan has me curious, and Alan Kohler asked this question in an interview with CEO Justin Werner on 31 March 2022 (Eureka Report CEO interviews).

Alan Kohler asked: “Why doesn’t Tsingshan buy Nickel Mines? I mean, maybe they can’t afford it now, is that the problem?”

Justin Werner responded: “[Laughs] Look, it’s an interesting question as to why they do this and if you looked across the broader industrial park, Tsingshan has numerous partners across all of the industrial parks and each of those partners sort of brings something to the mix. They have some Chinese industrial companies that are also investors in the park and they bring offtake of the stainless steel. They have a Japanese trading house who brings access to cheap debt. I think it’s important, we’re invested in their nickel pig iron business which is an input into stainless steel and their ultimate business is stainless steel, they’re all about the production of stainless steel units.

Where we’re unique, is we’re the sort of front-facing western capital markets vehicle. Tsingshan is a private company, majority held by the chairman, he owns about 74 per cent of the company. They move extremely quickly, they’re very agile, they’re the best at what they do and so this is the first time that western investors have had the opportunity to invest in the incredible growth in nickel production that these guys have pioneered within Indonesia. We have a predominantly institutional register, the big global funds, the Blackrocks, the Baillie Giffords, Invescos, Fidelity's, very good support from local domestic funds, Tribecas and those guys.

It’s a relationship that works very well. We have, actually, the vice-chairman sits on the board of Nickel Mines, so there’s a very good alignment there and as I said, we’re unique in that we’re that sort of western-facing capital markets vehicle that is able to fund and be involved in the tremendous growth that Tsingshan is undertaking in terms of nickel production.”

To me it is unclear whether Tsingshan’s increasing interest in Nickel Mines is a good or bad thing, but there is one thing for sure, Nickel Mines as a company is well and truly in bed with Tsingshan on several fronts.

The market isn’t enthusiastic about the news today with shares down 3.8%. I think there could be some confusion by the market. The transaction isn’t dilutive and in reality makes no difference to shareholders or the future performance of the business.

Disc: Held

OWNERSHIP INTEREST IN ORACLE NICKEL INCREASED TO 30%

The Directors of Nickel Mines Limited (‘Nickel Mines’ or ‘the Company’) are pleased to advise that the Company has completed the acquisition of a further 20% interest in Oracle Nickel (‘ONI’ or ‘the Project’) and now holds a 30% interest in the Project.

The Company secured its increased interest in ONI after issuing its collaboration partner and largest shareholder, Shanghai Decent, 108,122,223 ordinary shares in the Company at A$1.37 per share, with this share-based payment satisfying the US$106 million payment required for the Company to secure a 30% interest in the Project.

The issuance of shares to Shanghai Decent represents the completion of the non-underwritten “Conditional Placement” that formed part of the Company’s equity capital raising announced on 9 February 2022.

The Conditional Placement to Shanghai Decent was subject to Shareholder approval which was received at the Company’s Extraordinary General Meeting on 3 May 2022 and Foreign Investment Review Board (‘FIRB’) approval which was received on 27 April 2022.

As a result of this share issuance Shanghai Decent now holds a 21.15% equity interest in the Company.

Managing Director Justin Werner commented:

‘”The preference of Shanghai Decent to take 20% of the ONI consideration (US$106m of the US$525m consideration for 70%) as Nickel Mines shares rather than cash underscores the intrinsic current and future value that Shanghai Decent sees in Nickel Mines. The issue of shares was overwhelmingly supported by our shareholders and further strengthens the very strong and interlinked relationship that we have.”

ANGEL NICKEL RECEIVES ‘IUI’ COMMERCIAL SALES LICENCE

The Directors of Nickel Mines Limited (‘Nickel Mines’ or ‘the Company’) are pleased to advise that its 80% owned Angel Nickel Project (‘Angel Nickel’ or ‘ANI’) has now received its Izin Usaha Industri (‘IUI’ or ‘Industrial Business Licence’) enabling it to commence commercial sales. The IUI has been issued to the Project’s Indonesian operating entity PT Angel Nickel Industry and first sales from ANI will occur later this month.

As at the end of April ANI had produced 2,975 tonnes of nickel metal (in NPI) with three of the Project’s four lines having entered commissioning. All producing lines are continuing to ramp-up production levels in line with expectations, with all production to date having been stockpiled awaiting the receipt of the IUI licence. The Project’s fourth line is scheduled to commence commissioning by mid-May.

Commenting on the issuance of the IUI, Nickel Mines’ Managing Director said:

“We are delighted to have now received this Industrial Business Licence that will enable ANI to complete its first commercial sales of NPI later this month. We have been stockpiling NPI since late January, and the recording of the first sales from ANI will mark another important milestone for the Project; importantly the Project will begin to make a significant contribution to the Company’s financial performance in the current quarter.”

Disc: Held

The headline says it all. Another great quarter!

MARGIN EXPANSION DRIVES RECORD $81.7M EBITDA FROM OPERATIONS

 RKEF quarterly production of 11,166 tonnes of nickel metal (100% basis) (December quarter: 10,087 tonnes)

Production includes 1,077 tonnes of production from the Angel Nickel project NIC attributable nickel production was 8,933 tonnes of nickel metal

 10,089 nickel metal tonnes sold (100% basis) (December quarter: 10,087 tonnes)

 RKEF quarterly sales of US$195.4M (100% basis) (December quarter: US$187.1M)

 Record RKEF quarterly EBITDA of US$72.8M (100% basis) (December quarter: US$60.8M)

 RKEF quarterly EBITDA margin of US$7,386/t Ni sold (December quarter: US$6,028/t)

 Underlying cash generation from operations of US$81.3M (100% basis) (December quarter: US$67.8M)

 RKEF March quarter cash costs:

– Hengjaya Nickel: US$12,023/tonne Ni (December quarter: US$12,418)

– Ranger Nickel: US$11,916/tonne Ni (December quarter: US$12,277)

 Hengjaya Mine nickel ore production of 1,073,525 wmt (December quarter: 1,121,260 wmt)

 Record Hengjaya Mine EBITDA of US$8.9M (December quarter: US$8.0M)

 Cash + receivables + inventory at quarter end of US$431.8M (December quarter: US$333.4M)

 Completion of the acquisition of a 10% interest in the Oracle Nickel Project

 Three Angel Nickel RKEF lines commissioned during the quarter

 Material corporate tax concessions confirmed for Angel Nickel and Oracle Nickel

 Payment of a A$0.02 per share final dividend

Nickel Mine’s ASX announcement below seems rather insignificant in the scheme of things, FIRB approving Shanghai Decent’s application to increase its ownership in Nickel Mines by up to an additional 3.3%, or up to 22% of the company.

However, I think this is very significant. It demonstrates that Tsingshan is not only continuing to hold its shares in Nickel Mines following the ‘Big Nickel Short’ debacle, it has stepped in with the cash needed to develop the Oracle Nickel Project through its investment subsidiary Shanghai Decent. The Oracle Nickel Project was intended to be funded by the NIC capital raising proposed in February and later cancelled in March following the Tsingshan nickel short squeeze.

This gives me some confidence that Tsingshan does not intend to sell down Nickel Mines shares as some brokers had feared following the short squeeze, which sent the NIC share price tumbling 30% from its high of $1.65 in anticipation of the worst.

I’m still don’t understand why Nickel Mines is struggling to get market support with the EV tailwinds behind the nickel prices, and with Nickel Mines set to triple production within 12 months.

Full ASX Announcement:

FIRB APPROVAL RECEIVED FOR PLACEMENT TO SHANGHAI DECENT

The Directors of Nickel Mines Limited (‘Nickel Mines’ or ‘the Company’) are pleased to advise that Australia’s Foreign Investment Review Board (‘FIRB’) has issued a “No objection notification” to Shanghai Decent’s application to increase its ownership in the Nickel Mines to up to 22%.

As advised by the Treasury of the Australian Government:

“The Assistant Treasurer has decided under section 75(2) of the Foreign Acquisitions and Takeovers Act 1975 (the Act) that the Commonwealth has no objection to the following actions:

The acquisition by Decent Investment International Private Limited of up to an additional 3.33 per cent interest in Nickel Mines Limited (thereby increasing the interests it holds together with associates to up to 22 per cent) through their participation in Nickel Mines Limited’s equity capital raising as announced to the ASX on 9 February 2022.”

As announced on 9 February 2022, Nickel Mines launched an equity capital raising to fund the acquisition of its initial 30% interest in the Oracle Nickel Project, including a US$106 million non-underwritten placement to Shanghai Decent (or its nominee). In addition to the FIRB approval (now-received), the proposed placement requires shareholder approval, with an Extraordinary General Meeting scheduled for Tuesday, 3 May 2022.

If shareholders approve the proposed issuance of shares, the Company intends to promptly issue Shanghai Decent (or its nominee) 108,122,223 shares (representing ~US$106 million at A$1.37 per share). As a result, the Company’s equity interest in Oracle Nickel will increase from 10% to 30% and Shanghai Decent’s equity interest in the Company will increase to 21.15%.

Non-executive Director Weifeng Huang has continued topping up his holding of Nickel Mines shares adding a further 275,000 shares at an average price of $1.29 per share, totalling $355,208, through on-market purchases on the 22nd and 23rd of March.

Since 21st December Weifeng Huang has purchased $2.14 million in Nickel mine shares.

Weifeng Huang receives just over $47,000 USD as a Non-executive Director on the Nickel Mines board and before his latest on-market purchases was the 24th largest shareholder owning 0.13% of the company. He has certainly been the most active insider buyer shares in NIC this year.

ASX announcement: https://cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02502297-2A1364547?access_token=83ff96335c2d45a094df02a206a39ff4

Disc: shares held

Today Nickel Mines announced some more positive news: ORACLE NICKEL TAX CONCESSIONS, CONSTRUCTION AND ANGEL COMMISSIONING UPDATE

Summary below:

Tax Concessions

The Minister of Finance of the Republic of Indonesia has granted Nickel Mines tax concessions for the Oracle Nickel RKEF project that is currently under construction within the Indonesia Morowali Industrial Park, as follows:

• a Corporate Income Tax Reduction of 100% for a period of ten (10) tax years, starting from the tax year in which commercial production is achieved; and
• a Corporate Income Tax Reduction of 50% of payable income tax for a period of two (2) tax years, starting from the end of the initial ten-year period; and
• exemption from withholding and tax collection by third parties on sales proceeds that would normally be remitted to the Indonesian Revenue Department for a period of ten (10) tax years, also commencing from the tax year in which commercial production is achieved.

Oracle Nickel Construction Update

The Company is pleased to provide an update on progress of its Oracle Nickel project, which is currently under construction within the IMIP. Excellent progress is being made across the project workstreams with all earthworks and plant footings complete and erection of the first rotary dryers having commenced.

Cumulative completion of the RKEF lines is estimated at:

Construction works – 60% Installation – 20%

Cumulative completion of the 380MW power plant is estimated at:

Construction works – 30% Installation – 10%

 Oracle Nickel remains on track to tap first NPI on or before the end of February 2023.

Disc: Held IRL and SM

Today Nickel Mines released an announcement declaring on-market purchases by Non-executive Director Weifeng Huang of 295,000 shares, totalling $393,450 ($1.33 per share) on the 9th and 10th March. It is important to note that these on-market purchases followed the Tsingshan margin call on Monday.

Since 21st December Weifeng Huang has purchased on market shares totalling $1.78 million at prices from $1.33 to $1.52 per share.

The tenure for Weifeng Huang as a Non-executive Director on the NIC board is US$47,300.

It’s interesting times. I hope the reasons given by NIC for the shock withdrawal of the SPP after the moneys have been received turn out to be truthful. It could be another interesting day of trading ahead!

WITHDRAWAL OF SHARE PURCHASE PLAN

 Nickel Mines Limited (‘the Company’) advises that given market conditions the Share Purchase Plan (‘SPP’), as detailed in the Letter to Eligible Shareholders sent on 16 February 2022, has been withdrawn effective immediately. All application monies will be refunded in full on or around 16 March 2022.

Applicants are encouraged to register their bank details with Computershare to enable a refund via BPay at the following link: https://www-au.computershare.com/Investor/

 Managing Director Justin Werner commented:“The purpose of the SPP was to allow shareholders to participate in the capital raising announced on 9 February 2022 on the same terms as participants in the Institutional Placement and the Conditional Placement to Shanghai Decent (or its nominee). The targeted amount to be raised in the SPP was approximately A$18M. Applications have far exceeded this, with applications received totalling approximately A$57M. However, given market volatility and the retraction in the Company’s share price in recent days the Board of Directors have agreed that it is in the best interests of shareholders to cancel the SPP effective immediately and return all applications in full. The proceeds of the SPP are not required for the acquisition of the 70% equity interest in the Oracle Nickel Project.”

James Mickleboro from The Motley Fool shared a note from Bell Potter, who are very bullish on Nickel Mines, in this article Is the Nickel Mines (ASX:NIC) share price chaos a buying opportunity?

“According to a note out of Bell Potter, its analysts believe investors should use this recent volatility to their advantage.

This morning the broker has reiterated its buy rating and $1.76 price target on the company’s shares.

Based on the current Nickel Mines share price, this implies a potential upside of almost 25% over the next 12 months. This increases to more than 29% if you include the 4.3% dividend yield.

It concludes: “We view NIC’s steep price drop as an acquisition opportunity. We continue to forecast aggressive EPSgrowth of 82% and 85% for FY22 and FY23.”

Bell Potter isn’t concerned by the margin call issues for Tsingshan:

“It believes it is likely that “Tsingshan will close out its short position, supported by physical delivery, without compromising its long-term financial viability.”

Tsingshan has annual revenue of US$56 billion. It is regarded as the world’s lowest-cost stainless steel producer.”

Disc: Held IRL and SM

In response to the ASX price enquire today, Nickel Mines released an ASX announcement acknowledging “recent press speculation regarding a short position in LME nickel held by Tsingshan group and the implications this had had on global nickel markets.”

Nickel Mines said: “following discussions today with personnel of Tsingshan and its affiliate Shanghai Decent (‘Tsingshan’):

• the Company’s operations at the Hengjaya Nickel and Ranger Nickel projects are unaffected, as is commissioning at the Angel Nickel project and construction at the Oracle Nickel project.

• Tsingshan have firmly assured the Company that they have no intention of selling any shares that it holds in the Company.

• there has been no change in Tsingshan’s irrevocable undertaking to purchase all of the nickel pig iron produced by the Company’s RKEF operations.

• there has been no impact on Tsingshan’s intention to receive Nickel Mines shares in the Conditional Placement as detailed on 9 February 2022 as part consideration for the Company acquiring a 70% interest in the Oracle Nickel Project.

• Tsingshan remains the world’s largest stainless steel and nickel producer with its operations generating revenues of 352B RMB (US$~$56B) in 2021. Tsingshan’s operations remain robust and unaffected with the Group having strong confidence in its ability to manage its current market position.”

At the recommencement of trading at approx 3pm today the share price opened at $1.29 and quickly climbed to $1.43 before closing at $1.405.

if the Nickel Mines response is a true and accurate account of the situation with Tsingshan group, Nickel mines is possibly a buy. I can’t help to be a bit suspicious about it…where there’s smoke there’s most likely a fire! I intend to hold NIC for now and wait for more clarification and news, or for the smoke to dissipate.

Cheers

Rick

Disc: shares held IRL and SM

ASX announcement

The securities of Nickel Mines Limited (‘NIC’) will be placed in trading halt at the request of NIC, pending it releasing an announcement. Unless ASX decides otherwise, the securities will remain in trading halt until the earlier of the commencement of normal trading on Friday, 11 March 2022 or when the announcement is released to the market.

Nickel Mines has been been granted material corporate tax relief for its Angel Nickel RKEF project by the Indonesian Ministry of Finance.

This adds to the the Company’s existing Hengjaya Nickel and Ranger Nickel RKEF projects (both 2-line RKEF projects) are currently benefitting from 7-year, 100% corporate tax relief.

Nickel Mines needs to satisfy minimum investment requirements (which are below the intended investment) to be eligible for:

1. a Corporate Income Tax Reduction of 100% for a period of ten (10) tax years, starting from the tax year in which commercial production is achieved; and

2. a Corporate Income Tax Reduction of 50% of payable income tax for a period of two (2) tax years, starting from the end of the initial ten-year period; and

3. exemption from withholding and tax collection by third parties on sales proceeds that would normally be remitted to the Indonesian Revenue Department for a period of ten (10) tax years, also commencing from the tax year in which commercial production is achieved.

Managing Director Justin Werner said: ‘The tax relief Angel Nickel will enjoy over the next decade will further enhance the already exceptionally strong cashflows and profitability of our assets, translating into tangible benefits for the Company’s ongoing operations, future growth prospects and potential distributions to its shareholders.’

I think the ongoing tax concessions demonstrate the value the Indonesian Government places on Nickel Mines investments in the country and this is great news for investors.

Full Announcement: ANGEL NICKEL SECURES MATERIAL TAX CONCESSIONS

The Directors of Nickel Mines Limited (‘Nickel Mines’ or ‘the Company’) are pleased to advise that the Angel Nickel RKEF project’s Indonesian operating entity, PT Angel Nickel Industry (‘Angel Nickel’ or ‘ANI’) has been granted material corporate tax relief for its RKEF project that is approaching maiden commissioning within the Indonesia Weda Bay Industrial Park (‘IWIP’).

Angel Nickel is an Indonesian domiciled PMA1 company with an RKEF project that comprises 4 RKEF lines and a 380MW power plant, in which the Company holds an 80% interest via Angel Capital Private Limited, a Singaporean domiciled company.

Notice of the tax relief was communicated to the Company by official decree from the Minister of Finance of the Republic of Indonesia after the Ministry of Investment/Investment Coordination Committee conducted a study to assess whether Angel Nickel “complies with the standards and requirements for tax relief set out in Article 3 of Minister of Finance Decree No. 130/PMK.010/2020 on Granting of Corporate Income Tax Relief Facilities.”.

Having satisfied these requirements, the following tax concessions have been granted:

1. a Corporate Income Tax Reduction of 100% for a period of ten (10) tax years, starting from the tax year in which commercial production is achieved; and

2. a Corporate Income Tax Reduction of 50% of payable income tax for a period of two (2) tax years, starting from the end of the initial ten-year period; and

3. exemption from withholding and tax collection by third parties on sales proceeds that would normally be remitted to the Indonesian Revenue Department for a period of ten (10) tax years, also commencing from the tax year in which commercial production is achieved.

The Company’s existing Hengjaya Nickel and Ranger Nickel RKEF projects (both 2-line RKEF projects) are currently benefitting from 7-year, 100% corporate tax relief. The increased tenor of the tax free period (10 years) applicable to Angel Nickel is attributed to its materially larger scale and “planned investment value”. It should be noted that these concessions may be revoked, amended or adjusted, if any of six conditions are not met, the most important condition being the satisfaction of a minimum investment realisation of not less than Rp100 billion, which ANI’s proposed investment comfortably exceeds.

Commenting on the granting of this tax relief for the Angel Nickel Project, Managing Director Justin Werner said:

“We are again delighted to have been granted these material tax concessions by the Indonesian Ministry of Finance, with these concessions being recognition of the significant level of investment Nickel Mines and Shanghai Decent continue to make into establishing world class, down-stream processing assets in Indonesia. These tax concessions also speak to the ongoing commitment from the Indonesian government to fostering and supporting the development of vertically-integrated downstream mineral processing facilities, which has already resulted in the value of Iron and Steel exports rising from less than US$1.5 billion in 2013 to more than US$12 billion as at the end of 2021.

The tax relief Angel Nickel will enjoy over the next decade will further enhance the already exceptionally strong cashflows and profitability of our assets, translating into tangible benefits for the Company’s ongoing operations, future growth prospects and potential distributions to its shareholders. With these concessions now confirmed we look forward to the upcoming commissioning of Angel’s RKEF lines, scheduled to commence later this quarter.”

Nickel Mines is one of Bell Potters Top Stock Picks for 2022. This is what Bell Potter says about NIC:

“NIC has grown to become the largest nickel producer on the ASX and built a track record of ahead-of-schedule project delivery, achieving steady state production above nameplate and returning capital to shareholders. In CY22, NIC’s 80%-owned Angel nickel project is on track for first production in the March quarter and we forecast this to drive earnings growth of 60%. In CY23, the recently announced acquisition of a 70% interest in the Oracle Nickel project is forecast to drive earnings growth of 95%. Combined with NIC trading on undemanding valuation multiples for such aggressive growth, it is one of our Top Picks for 1HCY22.”

Buy, Price Target $1.74/sh

Disc: Shares Held IRL & SM

Nickel Mines announced pre-market open that the first Nickel Pig Iron (‘NPI’) production from its 80% owned Angel Nickel Project (‘ANI’) within the Indonesia Weda Bay Industrial Park (‘IWIP’) is now expected in the first quarter of 2022, well ahead of the October 2022 contractual delivery date for the commencement of commissioning.

The revised commissioning timetable is expected to see the first of four ANI RKEF lines commissioning in March 2022 with the other three RKEF lines to be commissioned progressively over the following 60 to 90 days, resulting in all four RKEF lines producing NPI by June 2022.

The ANI power plant is scheduled to commence commissioning by the end of September 2022, ahead of the October 2022 contractual delivery date, with the ANI project utilising power from the existing IWIP electricity grid in the interim. During this period NPI production from ANI’s RKEF lines will run at less than 100% of the 36,000 tonnes of nickel metal production nameplate capacity per annum depending on power availability. Full NPI production capacity is expected to be achieved around one month after the commissioning of the ANI power plant.

As with the Company’s existing HNI and RNI projects, ANI will require the issuance of an Industrial Business Licence (Izin Usaha Industri) (‘IUI’) to commence commercial sales of NPI. Any NPI produced ahead of the IUI issuance will be stockpiled (as was the case with initial HNI and RNI sales) however it is presently anticipated ANI’s IUI will be in place to allow first commercial sales to be recorded in Q2 2022.

Commenting on the revised ANI commissioning schedule Nickel Mines’ Managing Director Justin Werner said:

“We are delighted with the progress that has been made in recent months at ANI. The ability of Shanghai Decent to exceed expectations with regard to its construction timeframes never ceases to amaze and we applaud our partner for their professionalism, diligence and commitment to delivering this project.

The result of this fast-tracked commissioning is increased attributable nickel production and the bringing forward of valuable cash flows at a time when NPI prices are trading near record highs. The delivery of ANI will be truly transformative for the Company, more than doubling our attributable nameplate production capacity and firmly entrenching us as one of the largest pure-play nickel producers globally.”

The surprise news should give the share price a nice boost today!

Disc: Shares held IRL & Strawman

Nickel price 

The Nickel price is trading at $19,373 USD/MT nearing a 5 year high of $19,661 on 25 February (See Trading Economics Chart below)

What is driving the price?

Quoted from Trading Economics:

'Nickel futures rose to above $19,200 USD/MT for the first time since February 25th, buoyed by strong demand, particularly from stainless steel, amid tight supply.

Chinese stainless steel futures have been breaking all-time highs while demand for electric vehicle batteries is expected to increase in the coming years.

Meanwhile, China's nickel cathode output fell 4.4% year-on-year to 79,400 tonnes in January-June, adding output in the second half was expected to reach 88,000 tonnes.

Production at Vale’s northeast Ontario operation halted when unionized workers went on strike on June 1 increasing extra charges consumers pay on top of nickel prices on the London Metal Exchange, as stockpiles of the metal dwindle.'

What is the forecast?

Nickel is expected to trade at $19,870 USD/MT by the end of this quarter, according to Trading Economics global macro models and analysts expectations. Looking forward, we estimate it to trade at $22,518 in 12 months time.

Disc: Held

Director, Mark Lochtenberg receives only $37,600 as a NIC Board member but bought 3 million shares on the market @ $1.11 on the 27th & 28th April. That's a huge vote of confidence from an insider!

Today Nickel Mines traded at $1.00, down 33% from a high of $1.50 in March. 

NIC is a significant low cost global producer of Nickel Pig Iron used in the production of stainless steel and now diversifying into nickel matte for the EV market.

I think NIC is good value now:

• Current PE = 14
• Forecast E (2023) = 10c (AUD)*
• Valuation (2023) = PE X E =$1.40

I think this is a very conservative valuation given NIC earnings are forecast to grow at 25% per year over the next 3 years and trade on a PE of 14 (PEG = 0.6).

NIC could be a good play into the EV market as they diversify into nickel matte production. 

On the 3 May 2021 NIC announced they ‘signed a MoU with its collaboration partner, Shanghai Decent Investment (Group) Co., Ltd (‘Shanghai Decent’), for two of its four 80% owned Rotary Kiln Electric Furnace (‘RKEF’) lines to undergo the necessary modifications to allow them to produce a nickel matte product suitable for sale into the electric vehicle battery market.

Managing Director Justin Werner said:“We are delighted that Nickel Mines has been given this opportunity to participate in this exciting transition into the EV battery supply chain, a development that further reflects and enhances our relationship with Tsingshan and our standing in the global nickel market. Our future ability to sell nickel matte into the EV battery supply chain provides a diversification of not only Nickel Mines’ 

ASX announcement

*Simply Wall Street data
Disc: added shares today