Fitch Rates Nickel Industries' Proposed US Dollar Bonds 'B+'

(Fitch Ratings - Sydney - 22 Sep 2025)--Fitch Ratings has assigned a 'B+' rating with a Recovery Rating of 'RR4' to Nickel Industries Limited's (NIC, B+/Stable) proposed senior unsecured bonds of USD500 million. They are rated at the same level as the Issuer Default Rating as they constitute the senior, unsecured and unsubordinated obligations of NIC.

NIC intends to refinance existing debt by tendering the existing USD400 million of senior unsecured notes, with the remainder to bolster liquidity, which has been significantly reduced by challenging commodity markets and rising pressure on cash flow from debt amortisation and capex. We expect liquidity to improve with the proposed bond issue; however, Fitch could take negative rating action if NIC is unable to successfully place the bonds.

Key Rating Drivers

Tight Liquidity: Fitch expects NIC's proposed bonds to address its liquidity shortfall in 2H25 and 2026, including USD209 million of debt amortisation. We believe NIC has some flexibility over the acquisition of the Excelsior Nickel Cobalt (ENC) high pressure acid leach (HPAL) project with respect to payments of USD253 million in total to its major shareholder, currently scheduled in 1H26.

ENC Commissioning Delay: We expect the later start of the first production at ENC to have a manageable impact on NIC's leverage. Fitch estimates EBITDA leverage to rise to around 4.5x in 2025 before improving in 2026 to below its negative rating trigger of 3.5x, the level at which Fitch would consider taking negative rating action. Deleveraging would be supported by our expectation of debt amortisation repayments and EBITDA contributions from new projects, including ENC and the Sampala mine.

Elevated Regulatory Risks: NIC's rating incorporates its exposure to higher-risk mining jurisdictions, less stable regulations, progressively increasing mining costs through the delayed renewal of the Kerja dan Anggaran Biaya Indonesian mining licence and raised royalty rates. We believe the changes would have a less material impact on companies like NIC due to its size and integration in downstream operations. However, the effect on NIC's credit profile could be greater if the impact of further regulatory reforms deviates from our expectations.

Cost Position Protects Profitability: NIC has a solid cash cost position at its nickel pig iron (NPI) facilities and ownership of power stations at the Angel Nickel Project (ANI) and Oracle Nickel Project (ONI). Average cash costs at its rotary kiln-electric furnaces (RKEFs) declined to USD10,233/tonne (t) in 2024, from USD11,385/t in 2023, supporting the 12% EBITDA margin for RKEFs. We forecast the margin to improve to 15% on stable volumes in 2025, and to 18% by 2027 despite an expected moderation in nickel prices to USD15,000 under Fitch's price deck.

Acquisitions Improve Self-Sufficiency. NIC's binding acquisition agreements for the Sampala project consist of three nickel mining licences covering 6,654 hectares. The company is targeting the first production by early 2026, with USD50 million in capex. Sampala will increase self-sufficiency of nickel ore feedstock at NIC's RKEFs and HPAL processing operations to 100%, supporting the stability of supply.

Peer Analysis

NIC is a relatively large nickel producer with integrated upstream operations, supplying around 60% of the feedstock for its processing facilities. This is similar to the US's Cleveland-Cliffs Inc. (BB-/Stable). NIC's low-cost operations place it in a better position on the industry cost curve compared with Cleveland-Cliffs and United States Steel Corporation (BBB-/Stable). However, NIC's competitive cost position has been under increasing pressure due to rising costs from mining regulation changes in Indonesia.

NIC has operated with a significantly higher average EBITDA margin of 21% over the last three years, compared with a 8%-16% range among its peers. However, higher-rated peers are typically significantly larger in operational scale and revenue generation, including Cleveland-Cliffs, United States Steel, and India's JSW Steel Limited (BB/Stable). They also tend to be more diversified and have higher exposure to value-added products. This gap could be narrowed over the short term when NIC's major project ENC produces at full capacity.

NIC's financial profile has worsened compared with the peer average. Still, its credit metrics remain comparable with those of JSW Steel, which has also required large capex in a weak-commodity-price environment, and we expect NIC's leverage to improve in 2025.

Key Assumptions

Fitch's Key Assumptions Within the Rating Case for the Issuer:

- Nickel spot prices of USD15,300/t in 2025 and USD15,000/t thereafter;

- NPI nickel equivalent price of around 75% to London Metal Exchange nickel prices on average in 2025-2028;

- Stable production of NPI at Ranger Nickel (RNI), ANI, ONI and Hengjaya Nickel (HNI) in 2025-2028;

- Capex on the ENC project of USD253 million in 2026, and first production in March 2026;

- Fitch-calculated EBITDA margin of between 16% and 26% in 2025-2028.

Recovery Analysis

The recovery analysis assumes NIC would be reorganised as a going concern in bankruptcy rather than liquidated. We assume a 10% administrative claim.

Our going-concern EBITDA estimate of USD500 million reflects our view of a sustainable, post-reorganisation EBITDA level on which we base the enterprise valuation, as well as the mid-cycle nickel price and stable lateritic nickel rotary kiln operations at HNI, RNI, ANI, ONI, and the ENC project commencing production in 2H25.

We use a multiple of 5x to estimate a value for NIC, because of its geographical concentration in Indonesia and smaller operational scale compared with peers. This is despite stronger growth prospects following ONI's production commencement.

The going-concern enterprise value corresponds to a 'RR3' Recovery Rating for NIC's senior unsecured bonds after adjusting for administrative claims and secured credit facilities. Nevertheless, we rate the senior unsecured notes at 'B+' and 'RR4', because NIC's operating assets are located in Indonesia. Under our Country-Specific Treatment of Recovery Ratings Criteria, Indonesia is classified under the Group D of countries in terms of creditor friendliness and Recovery Ratings are subject to a cap at 'RR4'.

RATING SENSITIVITIES

Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade

- An increase in EBITDA leverage to above 3.5x for a sustained period;

- A decrease in EBITDA interest coverage to below 4.0x for a sustained period;

- Weakening funding access;

- Weakening of Tsingshan's ability to make timely payments to NIC related to NPI offtake purchases.

Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade

- An increase in production scale, while demonstrating improved customer diversification;

- EBITDA leverage sustained below 2.5x.

Liquidity and Debt Structure

NIC's liquidity decreased to USD222 million in cash by end-2024 and to USD145 million by end-June 2025, from USD779 million in December 2023.

Issuer Profile

NIC is a producer of Class 2 and Class 1 nickel, with four smelter assets and one mining asset in Indonesia. NIC's ownership interest in all four smelters - HNI, RNI, ANI and ONI - is 80%, with the remaining 20% owned by Shanghai Decent Investment (Group) Co., Ltd, a Tsingshan group company. NIC is progressing with the construction of ENC, where the company's interest will be 55%. NIC also holds an 80% share in PT Hengjaya Mineralindo, a nickel and cobalt deposit in the Morowali area.

Date of Relevant Committee

13 March 2025

REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING

The principal sources of information used in the analysis are described in the Applicable Criteria.

MACROECONOMIC ASSUMPTIONS AND SECTOR FORECASTS

Click here to access Fitch's latest quarterly Global Corporates Macro and Sector Forecasts data file which aggregates key data points used in our credit analysis. Fitch's macroeconomic forecasts, commodity price assumptions, default rate forecasts, sector key performance indicators and sector-level forecasts are among the data items included.

ESG Considerations

The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visit https://www.fitchratings.com/topics/esg/products#esg-relevance-scores. (ends)