Nickel Industries share price dips despite 40% profit surge

Formerly known as Nickel Mines, the company reported a record half-year result.

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Key points

  • The Nickel Industries share price is in the red on Wednesday after the miner reported its half-year FY22 earnings 
  • Formerly known as Nickel Mines, it delivered a record half-year result 
  • The Nickel Industries share price is down 33% in the year to date and down 2% over the past 12 months 

The Nickel Industries Ltd (ASX: NIC) share price is in the red on Wednesday after the miner reported its half-year FY22 earnings.

The Nickel Industries share price is down 3.41% to 99 cents at the time of writing.

Let's take a look at the miner's report.

Nickel Industries share price slips despite record results

The company (formerly known as Nickel Mines) said it had delivered a record half-year result due to its rapid-expanding mining operations.

Nickel Industries has an 80% interest in three operational projects — Hengjaya Nickel, Ranger Nickel, and Angel Nickel.

It is in the process of buying two more projects, namely 70% of Oracle Nickel and 100% of Siduarsi Nickel-Cobalt.

The key metrics in the 1H FY22 report are as follows:

  • Sales revenue: Up 78% on the prior corresponding period (pcp) of 1H FY21 to US$515 million
  • Gross profit: Up 73% pcp to US$161.2 million
  • Operating profit: Up 58% pcp to US$140.1 million
  • Profit after tax: Up 43% pcp to US$118.4 million
  • Earnings before interest, tax, depreciation, and amortisation (EBITDA): Up 37% pcp to $126.9 million
  • 26,733 tonnes of nickel metal produced from 195,706 tonnes of nickel pig iron (NPI)
  • 25,906 tonnes of nickel metal equivalent sold
  • Net assets: $1,702.3 million compared to $1,329.9 million as at 31 December
  • Interim dividend of 2 AU cents per share, payable on 14 September

What else happened in 1H FY22?

The big thing going on at Nickel Industries is its acquisition of a 70% interest in the Oracle Nickel project in Central Sulawesi, Indonesia for US$525 million.

It acquired the first 30% during 1H FY22, funded through a US$212M capital raising. This included a $106 million share placement to the owner, Shanghai Decent, and another $106 million institutional placement at A$1.37 per share.

The company also offered a share purchase plan for Australian and New Zealand shareholders to raise A$18 million. It was well oversubscribed at A$56 million but the company withdrew the offer in the best interests of shareholders due to market volatility in March.

The Nickel Industries share price declined by 18% during March to close at $1.26 on 31 March.

The company also made US$81.2M in construction payments ahead of schedule to expedite construction and enable early commissioning of Oracle. This payment forms part of the $525 million overall purchase.

Nickel Industries now expects the first rotary kiln-electric furnace (RKEF) smelting line at Oracle Nickel to commence commissioning in October. A second one should be ready to go in November. This is well ahead of the contracted project delivery date of February 2023.

Nickel Industries noted a "material profit contribution" from the Hengjaya Mine, also in Central Sulawesi, Indonesia, in 1H FY22. EBITDA from this project was up 140% to $27.6 million. This follows "significant investment in mine expansion initiatives over the last 2 years".

Nickel Industries stated:

These improvement and expansion initiatives were undertaken to help unlock the full strategic value of the Hengjaya Mine's large limonite and saprolite resources and as a result, Hengjaya Mine is expected to make a material, long-term financial contribution to the overall Group financial performance.

The Angel project became operational during the half, and commercial sales are now underway.

Also during 1H FY22, the company signed a binding definitive agreement for the staged 100% acquisition of the Siduarsi Nickel-Cobalt project in Papua province, Indonesia.

Lastly, the company underwent a name change following shareholder approval on 31 May.

Regarding the name change, the company stated:

While the Company's origins are that of an explorer and miner of nickel ore, in recent years the Company has transitioned into a globally significant downstream processor of nickel metal and this change of name is considered to reflect the underlying nature of the Company's current core operations.

With the Company's Angel Nickel project now in the late stages of its commissioning phase and
the Oracle Nickel project in the advanced stages of its construction, the Company's revenue and earnings base will increasingly be derived from activities unrelated to mining, but rather driven from a growing suite of downstream "industrial-style" processing assets.

What did management say?

In its presentation, the company said its record performance came down to "strong and consistent" RKEF production from the Hengjaya and Ranger projects, the commissioning and ramp-up of the Angel project, higher realised nickel pig iron prices, and strong EBITDA margins (US$6,122/t).

The company said this was "despite cost pressures from rising nickel ore, coal and electricity prices".

It stated: "The Oracle Nickel project, like the Angel Nickel project, is expected to transform the Company's nickel production profile, with a nameplate capacity in excess of 100,000 tonnes (of nickel in NPI)."

What's next?

This month, Nickel Industries issued US$225 million of senior secured notes "leaving the Company well positioned to complete the acquisition and ramp-up of Oracle Nickel".

The notes have an interest rate of 10% and mature on 23 August 2025.

Nickel Industries share price snapshot

Today's share price slide might be partly related to the nickel price dropping 1.24% overnight to US$21,273 per tonne.

According to Trading Economics data, this extends the commodity's decline in value over the past month by 9.56%.

However year over year, the nickel price is still 8.6% higher.

The Nickel Industries share price is down 33% in the year to date and down 2% over the past 12 months.

Motley Fool contributor Bronwyn Allen has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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