Nickel / Tsingshan
Original Collaboration – Hengjaya Nickel
In September 2017 Nickel Industries signed a landmark Collaboration and Subscription Agreement (‘CSA’) with Shanghai Decent Investment (Group) Co. Ltd (‘Shanghai Decent’), a Tsingshan group company and Shanghai Wanlu Investment Co. Ltd (‘Wanlu’), a passive strategic cornerstone investor, to build a 2-line RKEF plant for US$200M.
- The initial stage of the agreement saw Shanghai Decent and Wanlu invest US$26M and US$24M respectively for Nickel Industries shares in April 2018.
- As governed by the CSA, the Company provided the aggregate of US$50 million received from Shanghai Decent and Wanlu by way of a shareholder loan to Hengjaya Holdings Private Limited (‘Hengjaya Holdings’), a Singaporean incorporated intermediate holding company established to wholly own an Indonesian incorporated RKEF special purpose vehicle, PT Hengjaya Nickel Industry (‘Hengjaya Nickel’), that constructed, owns and operates the RKEF Project.
- Upon completing an IPO in August 2018 Nickel Industries had the option to increase its holding in Hengjaya Holdings up to 60%. This option was exercised in September 2018, with Nickel Industries moving to a 60% ownership in Hengjaya Holdings through the payment of US$70M to Shanghai Decent.
- No later than 12 months after first NPI production from the RKEF Plant Nickel Industries could elect to acquire the remaining equity interest in Hengjaya Holdings it did not already own for (US$120M). This was subsequently amended in September 2019, see below.
Shanghai Decent agreed to indemnify Hengjaya Holdings or Hengjaya Nickel if the actual construction cost of the RKEF Project exceeds US$200 million. The cost of the RKEF Project was funded as follows:
- US$50 million was funded from the initial subscriptions from Shanghai Decent and Wanlu, as described above; and the balance of construction costs was funded by Shanghai Decent by way of shareholder loans injected into Hengjaya Holdings.
- In September 2019 Nickel Industries announced the Company and Shanghai Decent had agreed to amend two material terms in the CSA, with Nickel Industries agreeing to limit its contractual option to further equity interest in Hengjaya Nickel to not more than 80% (previously 100%) and the option period during which Nickel Industries could acquire further equity interests in Hengjaya Nickel had been extended until 30 November 2020 (previously 31 January 2020). On 30 June 2020 Nickel Industries exercised its option to acquire a further 20% of the shareholder loans and issued and paid-up share capital of Hengjaya Nickel through the payment of US$60M. This took Nickel Industries interest in Hengjaya Nickel to 80%.
Further Collaboration – Ranger Nickel
In November 2018 the Company announced the execution of a binding Collaboration Agreement (‘CA’) with its partner Shanghai Decent to acquire up to an 80% equity interest in 2 additional RKEF lines under construction within the IMIP at the time.
The additional RKEF lines (hereafter referred to as ‘Ranger Nickel’) are owned under a replica structure to Hengjaya Nickel, with Nickel Industries acquiring its interest through a Singaporean incorporated holding company, Ranger Investment Private Limited (‘Ranger’) that wholly owns an Indonesian PMA (‘foreign direct investment company’) operating company, PT Ranger Nickel Industry (‘RNI’) that wholly owns the Ranger Nickel RKEF lines.
The CA provided for Nickel Industries to acquire its interest in the three tranches:
- An initial acquisition in November 2018, the ‘First Acquisition’, saw Nickel Industries acquire an interest of 17% in Ranger and 17% of all shareholder loans due to Shanghai Decent (and its affiliates) at cost of US$50M (based on a valuation of US$300M).
- ‘Second Acquisition Option’, permitted Nickel Industries to increase its interest in Ranger and in the total shareholder loans to between 51% and 60% before 31 December 2019. In April 2019 Nickel Industries announced its intention to move to a 60% interest and in August 2019 the acquisition was completed, with the amount paid based on the discounted valuation due to early exercise of US$280M.
- A ‘Third Acquisition Option’, permitted Nickel Industries to increase its interest in Ranger and in the total shareholder loans to up to 80% within 18 months of the first batch of NPI being produced from the Ranger Nickel RKEF lines. On 30 June 2020 Nickel Industries exercised its option to acquire a further 20% of the shareholder loans and issued and paid-up share capital of Ranger through the payment of US$60M. This took Nickel Industries interest in Ranger Nickel to 80%.
Further Collaboration – Angel Nickel
The original Angel Nickel Agreement provided for Nickel Industries to acquire its 70% interest in Angel Nickel in two tranches:
- An initial acquisition, the ‘First Acquisition’, whereby Nickel Industries would acquire an initial interest of 30% in Angel Nickel and 30% of all shareholder loans due to Shanghai Decent (and its affiliates) at cost of US$210M (based on a valuation of US$700M) with this initial acquisition to be finalised by no later than 31 March 2021.
- Under the ‘Second Acquisition’ Nickel Industries would acquire an additional 40% in Angel Nickel and 40% of all shareholder loans due to Shanghai Decent (and its affiliates) at cost of US$280M (based on a valuation of US$700M) with this second acquisition to be finalised by no later than 31 December 2021.
At an Extraordinary General Meeting held on 19 January 2021 shareholders voted overwhelmingly in favour of the Company’s acquisition of the initially proposed 70% equity interest in Angel Nickel. An Independent Expert Valuation Report, which formed part of the Notice of Meeting, was released to ASX on 2 December 2020.
The Independent Expert Valuation Report opined:
- The Transaction is fair and reasonable to the Company’s shareholders.
- The advantages of the Transaction significantly outweigh the disadvantages.
- Based on the assumptions in the Independent Expert Valuation Report, the value of 100% of the Angel Nickel Project ranges from US$1.4 billion to US$1.5 billion with the corresponding value of Nickel Industries’ 70% interest ranging from US$1.0 billion to US$1.1 billion.
In January 2021 it agreed by both parties that the Company’s equity participation in the project would increase to 80%. This increase was approved by shareholders at the Company’s AGM in May 2021.
During 2021, the Company completed the acquisition of 80% of Angel Nickel in three tranches:
- 30% was acquired in January 2021 for $210M, inclusive of a $30M down payment made in 2020;
- a further 20% was acquired in April 2021 for $137.6M, inclusive of a $2.4M discount for early payment; and
- a further 30% was acquired on 30 September 2021 for $210M.
In January 2022, the Company announced Angel Nickel had entered its commissioning phase, with the first of its four RKEF lines having commenced NPI production. All four lines had commenced commissioning by mid-May 2022 and the Angel power plant came online in late August 2022.
Further Collaboration – Oracle Nickel
In December 2021 Nickel Industries executed a Definitive Agreement to purchase a 70% interest in the Oracle Nickel Project, a new development project that had commenced construction within the IMIP, comprising four RKEF lines with an annual nameplate production capacity of 36,000 tonnes of nickel metal (in nickel pig iron). The Oracle Nickel project company will also separately undertake the construction of a 380MW power plant that will support both the Oracle Nickel RKEF lines and IMIP’s overall grid power requirements. The Oracle Nickel asset specifications will replicate those of the Company’s Angel Nickel Project.
Oracle Nickel’s total valuation of $750M (on a 100% basis) represents a modest uplift in valuation from Angel Nickel (US$700M on a 100% basis) but still representing industry low levels of capital intensity for newly installed nickel production capacity. The Agreement set out that the Company would secure its 70% interest in the Oracle Nickel Project though an “acquisition” component comprising $371M ($530M * 70%) in addition to providing $154M ($220M * 70%) of funding by way of shareholder loans.
Upon receiving shareholder approval at an Extraordinary General Meeting on 25 January 2022 to acquire the 70% interest in Oracle Nickel the Company firstly acquired a 10% interest in February 2022, through the payment of US$23M to Shanghai Decent, with a US$30M deposit already having been paid. In May 2022 the Company’s interest was increased to 30%, with 108.1 million of the Company’s shares issued to a nominee of Shanghai Decent at A$1.37 per share. The Company also expedited US$81.2M in construction payments to assist Shanghai Decent’s efforts to expedite construction of the Oracle Nickel project. These early payments formed part of the Company’s US$525M acquisition cost. Then in September 2022 the Company moved to a 70% interest in Oracle Nickel following the early payment of US$212M (originally required by 31 December 2022) to Shanghai Decent to secure its increased interest. This followed the issuance in August 2022 of US$225M of senior secured notes at an interest rate of 10.0%, maturing 23 August 2025.
The maiden ‘NPI tap’ was completed by the first of Oracle’s four RKEF lines on 14 November 2022, well ahead of the scheduled delivery date of February 2023, with all four RKEF lines anticipated to have commenced operations by the end of the first quarter of 2023.