Ground Breakers: Nickel Industries gets $943 MILLION to continue its Indonickel growth, but is it giving up too much?

Nickel Industries charts path to become world’s fifth largest nickel producer with near $1b investment from Indonesian conglomerate
Deal could unlock opportunity to double Excelsior nickel cobalt project with Tsingshan and new investor United Tractors from Stage 1 72,000tpa to Stage 2 144,000tpa
Over 40% of NIC will be held by large Chinese and Indonesian investors

Nickel Industries (ASX:NIC) will fall further into the hands of large Asian conglomerates, securing a $943 million (US$628m) investment for almost 20% of the company in a deal that will accelerate its move into battery-grade nickel.

A majority-owned subsidiary of Indonesia’s largest conglomerate, the US$18.5 billion capped Astra International will make a $1.10 per share placement for 19.99% of NIC, paying a 27.2% premium that has seen Nickel Industries’ shares climb 9.8% this morning.

The deal will see Astra’s ~60% owned PT United Tractors, one of the largest mining services and heavy equipment distributors in the South East Asian nation, receive 857 million NIC shares, and collaborate with NIC and its major shareholder, Chinese stainless steel giant Tsingshan, on the development of the Excelsior Nickel-Cobalt project.

If Nickel Industries makes an FID on ENC by September 29, United Tractors subsidiary Danusa Tambang Nusantara will take a 20% direct investment in the project.

Nickel Industries will own 55% with Tsingshan Decent to hold 25%. The project’s proposed scale has been increased from 67,000t to 72,000t for its first stage, with a second stage in the pipeline to double that further to 144,000t.

That project alone could eventually be 1.5 times larger than BHP’s (ASX:BHP) nearly 60-year-old Nickel West business in WA.

It could see Nickel Industries, facing apparent disaster almost a decade ago after seeing Indonesia ban the export of unrefined nickel ore, become the world’s fifth largest nickel producer (on 2022 numbers) after both stages are complete, more than Vale as well as the combined 2022 output of Glencore and BHP (ASX:BHP).

For Norm Seckold and Justin Werner’s $2.87 billion nickel producer it’s an enticing prospect, with the project expected to more than double NIC’s output from 83,000t today to 156,000t from 2026 and 196,000t at some point beyond that.

But do Aussie investors get left behind?

NIC’s rags-to-riches tale has echoes of the mythology of Chicago bluesman Robert Johnson about it.

Nickel Industries has delivered remarkable production growth by going against the grain and betting big on Indonesia’s still rapidly growing nickel industry rather than worry about the country’s increasing market influence from the outside like other ASX nickel stocks.

To do that it has had to raise a massive amount of equity and debt capital and lean heavily on its ties to Tsingshan, and its ability to churn out Indonesian nickel factories like Maccas burger patties.

In 2022 it raised US$225m on two separate occasions in equal parts equity and debt (while still paying dividends) to fund the Oracle Nickel RKEF line acquisition, its fourth nickel pig iron plant in Indonesia.

Then there was a US$471m raise in January this year to fund the acquisition of stakes and investments in nickel matte and HPAL plants to shift its long-term focus from stainless steel to battery nickel supply.

But the new raising comes with no direct top-up offer for other retail or institutional shareholders. A shareholder meeting will be required to approve the placement, which will also hinge on shareholder approval for NIC to acquire an indirect 10% interest in the PT Huayue Nickel Cobalt Project from Tsingshan subsidiary Shanghai Decent affiliated Newstride Development Limited.

That has some analysts asking questions about both the value of the placement and the share of the company that will be held by major shareholders United Tractors (19.99%) and Tsingshan (22.5%).

However, CFO Chris Shepherd said in response to a question from Citi analyst Kate McCutcheon on a conference call today that the premium was key to understanding the value of the transaction.

“I think when you look at the size of the premium – 27% – that’s obviously to the last close, it’s not as if we’ve issued with a dip either,” he said.

“When you compare it to the 30-day VWAP, 60-day VWAP it’s very similar-type premiums.

“If our institutional (or) retail shareholders want to buy at a 27% premium, I would imagine that they would have been in the market doing so already.”

NIC has a US$1.265 billion capital requirement coming up for Excelsior, based on the set US$2.3b investment price set by Shanghai Decent.

But Shepherd doesn’t foresee any more equity raising in its foreseeable future.

MD Justin Werner says the funding and potential investment in ENC, which would bring its class one nickel product mix to over 90% once both stages are executed, provides access to capital that unlocks growth that could have otherwise been out of reach.

“We think when you look at the growth profile that this transaction is unlocking and specifically the opportunity from just Stage One ENC to stage two as well, we think there’s a lot of benefits and a lot of value for the company in that,” Werner said.