Hengjaya Nickel Project - 60% interest Nickel Mines (option to move to a 100% interest)

Nickel Mines holds a 60% interest in the Hengjaya Nickel Project via its 60% interest in the share capital of Hengjaya Holdings Private Limited (Hengjaya Holdings), a Singaporean incorporated intermediary company which owns 100% PT Hengjaya Nickel Industry (Hengjaya Nickel), an Indonesian incorporated RKEF special purpose vehicle which constructed, owns and operates the Hengjaya Nickel Project. The Hengjaya Nickel Project is a 2-line Rotary Kiln Electric Furnace (RKEF) plant being constructed within the Indonesia Morowali Industrial Park (IMIP).

Nickel Mines originally acquired a 25% in the Project for US$50 million, provided by way of shareholder loan to Hengjaya Holdings for construction of the RKEF Project, in April 2018. Following the successful completion of Nickel Mines’ IPO in August 2018, in accordance with its rights under its Collaboration and Subscription Agreement (CSA), the Company acquired a further 35% in the issued capital of Hengjaya Holdings for US$70 million. The purchase price was fully funded by proceeds from the Company’s IPO. Nickel Mines has a 12 month call option from the date on which the first nickel pig iron is produced from the Hengjaya Nickel Project to increase its ownership of Hengjaya Holdings up to 100% for an additional amount of up US$120 million.

Construction and Production

On 31 January 2019, Shanghai Decent, the Company’s operating partner and 40% equity holder in the Hengjaya Nickel Project advised that the first nickel pig iron (NPI) had been produced from the first of Hengjaya Nickel’s two rotary kilns in a maiden production run.  On 18 March 2019 the second Hengjaya Nickel kiln also commenced commissioning and produced its first NPI.

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Construction and Production

On 31 January 2019, Shanghai Decent, the Company’s operating partner and 40% equity holder in the Hengjaya Nickel Project advised that the first NPI had been produced from the first of Hengjaya Nickel’s two rotary kilns in a maiden production run.  On 18 March 2019 the second Hengjaya Nickel kiln also commenced commissioning and produced its first NPI.

Commencement of production at Hengjaya Nickel during the quarter was a milestone for the Company, achieved less than 12 months after ground was broken at the project and is further evidence of Tsingshan’s industry-leading ability to deliver a project in record time and a testament to their commitment, professionalism and work ethic.

The commissioning process and production ramp-up is consistent with that previously implemented across the 20 existing RKEF lines currently in operation within the IMIP with greater than 80% of name plate production capacity now being achieved from the first line.

The Company is pleased to report the following operating results for the first 2 months of commissioning with both RKEF lines continuing to ramp up to their steady state production and operating cost profiles.

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^        January is represented by a single day of production.

*      March quarter numbers include 1,516.9 tonnes of NPI and 190.9 tonnes of nickel metal from kiln #2 which commenced operation on 18 March 2019.

#        The IMIP’s NPI price is set on a monthly basis with reference to the average price paid for NPI by China’s four largest stainless steel mills with adjustments made for VAT (17% in China) and freight.

##      The average LME nickel price over the March quarter was US$12,930/t.

**   All in Cost is inclusive of depreciation and interest of US$598/t.

Corporate Income Tax Relief

In November 2018 Nickel Mines announced that the Minister of Finance of the Republic of Indonesia had granted the Company’s Indonesian operating entity, Hengjaya Nickel material corporate income tax relief for its Hengjaya Nickel Project.

Notice of the tax relief was communicated to the Company by official decree from the Minister of Finance of the Republic of Indonesia on the basis that Hengjaya Nickel had “met the criteria and requirements for the reduction of corporate income tax as regulated in Article 3 of the Regulation of the Minister of Finance Number 35/PMK.101/2018 concerning Provision of Corporate Income Tax Reduction Facilities”.

The corporate income tax reduction is as follows:

·         a Corporate Income Tax Reduction of 100% for a period of seven tax years, starting from the tax year in which commercial production is achieved;

·         a Corporate Income Tax Reduction of 50% of payable income tax for a period of two tax years, starting from the end of the initial seven year period; and

·         exemption from withholding and tax collection by third parties on sales proceeds that would normally be remitted to the Indonesian Revenue Department for a period of seven years, also commencing from the tax year in which commercial production is achieved.

It should be noted that these concessions may be revoked and are maximum periods that may be amended or adjusted if certain conditions are not met, the most important condition being the satisfaction of a minimum investment realisation which Hengjaya Nickel comfortably exceeds.

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