In a market that has seen few winners in recent years, Australia’s Nickel Industries (ASX: NIC) continues to strengthen its position.NIC has been operating in Indonesia for over 15 years and went public in 2018 with an A$200 million ($125 million) initial public offering. Since then, the company has rapidly expanded to become one of the world’s largest nickel producers, backed by its Chinese partner, Tsingshan subsidiary Shanghai Decent.The company holds an 80% interest in the Hengjaya, Ranger, and Oracle rotary kiln electric furnace (RKEF) projects at the Indonesia Morowali Industrial Park (IMIP), the Angel RKEF project at the Indonesia Weda Bay Industrial Park, an 80% stake in the Hengjaya mine, a 10% interest in the Huayue Nickel-Cobalt (HNC) high-pressure acid leach (HPAL) project, and a 44% stake in the Excelsior Nickel-Cobalt (ENC) HPAL project, which is currently under construction.In the December quarter, NIC reported earnings before interest, tax, depreciation and amortization (EBITDA) of $72.4 million, which was impacted by a $20 million foreign exchange loss and limited sales of nickel ore in December after the company reached its 2024 quota.“We made good money,” NIC Managing Director Justin Werner told MINING.com. “If you actually take out the FX loss of $20 million, plus the limited nickel ore sales in December, we probably lost another $20 million there. It easily could have been over $100 million.”NIC shares fell to an 11-month low following the release of the December quarterly report, which Werner attributed to market sentiment and weak nickel prices. “There’s probably people waiting to see what will happen with the US and China,” he said.Exciting yearWerner suggested investors may also be sitting on the sidelines ahead of the release of the company’s full-year financial results later this month.“For us, this is an exciting year, because we have ENC commissioning, which allows us to produce nickel cathode, nickel and cobalt sulphate and mixed hydroxide precipitate, and for all of those currently, the margins are very strong,” he said. NIC’s 10% interest in the HNC HPAL project generated US$14.7 million in EBITDA for the quarter, setting a positive precedent for ENC, which is expected to come online in the second half of the year.At Hengjaya, after reaching its quota of 9 million tonnes (Mt) of ore ahead of the 2024 deadline, NIC is applying to increase its quota to 19Mt. The Hengjaya mine generated unaudited EBITDA of US$72 million in the December half of 2024.“We’re effectively doubling mine output again and we hope to achieve the approval for that in the second half of this year,” Werner said. “They’re positive EBITDA catalysts that we should realize in the second half of this year, so we’re quite excited about what’s coming up this year. Importantly, both of those are fully funded and both of them are making very, very strong margins.”Next development securedIn September 2024, NIC acquired three mining licenses that made up the Sampala project for $63.2 million, most of which is payable next year.Sampala, located 36.9km from NIC’s RKEF and HPAL operations at IMIP, has an exploration target of 350-700Mt at 0.9-1.1% nickel, in addition to its 187Mt resource.“A billion tonnes at 1% is close to 10Mt of contained nickel metal, which is two times the global nickel market consumption, so it’s huge,” Werner said. “Applying our margins for 2024, which was about US$12 a tonne, if you apply that to a billion tonnes, you can start to see the value of the Sampala project.”NIC has submitted a mine plan and feasibility study for government approval, with an environmental study to follow. Capital costs are estimated at US$50 million, and development of a haul road has begun.“I’m pushing the team for first production by the end of this year, but realistically, it might be early 2026,” Werner said.Indonesia nickel boomNine years ago, Indonesia produced just 5% of the world’s nickel, according to Benchmark Mineral Intelligence. By 2023, it accounted for half of global output, with forecasts suggesting a 65% market share by the end of the decade,Justin Werner, managing director. (Image courtesy of Nickel Industries.)The nickel market has been in surplus for several years and is expected to remain in surplus until later this decade.The Indonesian government has introduced production quotas to support domestic producers. In mid-2024, the quota was set at 240Mt but has since been reduced to 200Mt for this year, forcing Indonesian smelters to import ore from the Philippines.Werner said companies had to apply for permits to produce a certain amount of nickel in that year, but approvals were often delayed. The process has recently been changed to only require a new permit every three years, with the government increasing its scrutiny on environmental practices.“Where we have an advantage over other producers is that by being fully integrated between our mine and our processing operations, we’re self-sufficient in ore so we’re not at risk of ore shortages or premiums being paid because of ore shortages,” he said.Shaking the ‘dirty’ nickel tagIndonesian nickel has often been described as “dirty” by Western producers, including by Wyloo Metals CEO Luca Giacovazzi.“That was a lot of noise to try and, firstly, tarnish the industry in Indonesia, but they were seeking to try and get a green premium from buyers, because, according to them, they were greener, but there was absolutely no justification that they were greener,” Werner said. “We talked to all of the major EV and battery makers globally, across North America and Europe. EV sales are struggling. Margins aren’t great. As long as you meet their ESG requirements, then these guys just aren’t interested in paying a premium, understandably, and this whole idea of shaming the consumer by putting labels on saying this is a high carbon intensity car – last time I checked, you don’t shame consumers into buying things.”Werner said nickel pig iron, produced by its RKEF operations, produced around 60t of carbon per tonne of nickel, but the new generation of HPAL projects was much lower.“Our HNC operation, which we have 10% of, came in at 6.97t of carbon per tonne of nickel, and in fact, our Australian peer average is over 11t,” he said.“These things are actually the lowest carbon intensive, cleanest nickel units produced anywhere in the world, and we are aiming to further reduce from 6t.”NIC is building Indonesia’s largest solar project and is ramping up the use of electric trucks and mining equipment.Long way back for Western producersThe weak nickel price led to the collapse of Australia’s nickel sector last year, including the closure of BHP’s Nickel West division.Glencore’s Murrin Murrin mine in Western Australia is the only remaining nickel operation in Australia.Werner said NIC was competitive due to lucrative tax incentives from the Indonesian government and the support of Shanghai Decent.“Our Chinese partner offers us a unique set of guarantees that you don’t get anywhere else. We have a nameplate guarantee. We have a capex guarantee, so we’re immune from capex blowouts, which are pretty common [elsewhere],” he said.Werner believes it will be difficult for Western producers to compete.“There’s really been a significant cost reset,” he said. “You have HPALs producing nickel at $5,000-$7,000 per tonne, so even at a $15,000/t price, there’s still very good margins for the HPAL producers.”With cash costs of $18,000-$22,000/t, Werner believes the nickel price will need to be much higher over a sustained period for the Australian producers to re-enter the market.“You can’t run an operation that’s going on care and maintenance every couple of years, so it’s probably challenging in the near term,” he said.“Longer term, it’s going to be driven by EV penetration improving, and certainly stainless steel consumption in India is growing, so there’s market growth there. “There’s certainly some bright spots up ahead, but I think near term, the next couple of years, I wouldn’t expect to see any of them coming back online,” Werner concluded.
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