Fitch Rates Nickel Mines’ Proposed USD Notes at ‘B+’

Fitch Ratings has assigned a rating of ‘B+’ with a Recovery Rating of ‘RR4’ to Nickel Mines Limited’s (NIC, B+/Stable) proposed US dollar senior unsecured notes. The proposed notes will be issued by the company and have the same terms and conditions as the USD175 million 2024 notes issued earlier. They are rated at the same level as the Issuer Default Rating as they constitute unconditional, unsecured and unsubordinated obligations of NIC.

NIC’s rating reflects its solid financial profile, with a strong EBITDA margin of above 35% and positive free cash flows. Its financial strength is weighed down by its asset concentration, with two rotary kiln electric furnaces (RKEF) in PT Indonesia Morowali Industrial Park (IMIP). However, we expect NIC’s asset diversification to improve with its investment in PT Angel Nickel Industry (ANI), another RKEF facility at PT Indonesia Weda Bay Industrial Park.


Stable Production: NIC’s credit profile is supported by its robust RKEF operations at its two Indonesian subsidiaries, PT Hengjaya Nickel Industry (HNI) and PT Ranger Nickel Industry (RNI). Nickel pig iron (NPI) production at these facilities remained stable at above 10,000 tonnes per quarter since production began in January 2019 to date. We expect its RKEF operations to account for more than 95% of NIC’s EBITDA in 2021, and more than 80% in 2022 after ANI starts operating.

Low-Cost Position: NIC’s solid cash cost position at its NPI facilities will help the company to weather the impact of commodity price fluctuations on its selling prices and input costs. The purchase of nickel ore accounts for around 30%-40% of its cost and thermal coal purchases for electricity make up 25%-30%. NIC’s EBITDA margin remained solid in 1H21 at 36% (2020: 37%) as the rise in thermal coal prices was compensated by higher NPI prices.

HNI and RNI are strategically located in IMIP, the world’s largest integrated stainless-steel production facility. Indonesia is the largest nickel producer globally and the Morowali regency has some of the largest nickel ore deposits in the country. A ban on raw ore exports and close proximity to ore supply give NIC the advantages of cheaper raw material prices and lower logistic costs.

Production Conversion Neutral: NIC’s credit profile will remain intact despite its planned modification of two out of its four RKEFs to nickel matte production. NIC signed a memorandum of understanding with Shanghai Decent in May 2021 to deliver nickel matte for the electric-vehicle battery market. We expect the move to have minimal disruption with modification costs of around USD1 million per line. Nickel matte has higher correlation with London Metal Exchange nickel prices with comparable cash costs and production units to NIC’s current NPI operations.

Asset Diversification: ANI’s production will alleviate NIC’s asset concentration risk at IMIP due to its location at another industrial park. Management aims to start production at ANI in late 2022, which will add 36,000 tonnes per annum (tpa) of name-plate capacity to NIC. NIC will acquire 80% of ANI from Shanghai Decent before end-2021. NIC has purchased 50% so far and Shanghai Decent will be responsible for the completion of ANI project. We believe the risks of cost and time overruns from ANI’s asset construction and production commencement will be alleviated by Shanghai Decent’s record of similar project completion and ramp-up at IMIP.

Positive Free Cash Flows: We estimate NIC’s free cash flow will remain positive due to its solid cost position, assuming there are no major investments other than ANI and a significant increase in shareholder returns. NIC’s EBITDA margin will remain solid above 35% in 2021 and 2022 under our assumptions of stable cash cost per tonne. Positive free cash flow will be supported by minimal capex from its young RKEF lines. However, a material increase in dividends can reduce free cash flows and erode its current strong cash buffer.

Solid Credit Metrics: NIC’s FFO leverage will remain strong below 2.0x and its FFO interest coverage will stay solid above 5.0x in 2021-2022. NIC’s leverage profile will not be materially altered by any delay in the start of ANI’s operations, as the target total debt for acquisition of USD300 million is manageable relative to the company’s annual EBITDA of around USD200 million from its current RKEFs. We also expect the free cash flow at HNI and RNI to provide an additional cash cushion. Deleveraging from 2023 will be supported by the start of production at ANI.


We believe that NIC has a better credit profile than Guangyang Antai Holdings Limited (GYAT, B/Stable). GYAT’s larger operational scale and revenue generation, as the third-largest stainless-steel producer in China, are offset by NIC’s solid cash cost position and credit metrics. GYAT’s business profile and margin are weighed down by its increasing exposure towards the lower-margin trading business. NIC’s cash flow generation is significantly better with EBITDA margin of above 35%, supported by its strong cash cost position. In comparison, GYAT’s EBITDA margin is narrower at less than 5%. We expect NIC’s FFO leverage to remain conservative at less than 2.0x, below GYAT’s more than 2.0x.


Fitch’s Key Assumptions Within Our Rating Case for the Issuer

– Stable medium-term production at HNI and RNI at a level similar to that in 2020. Production at ANI will commence in late 2022.

– Stable EBITDA margin of above 35% in 2021-2022

– Minimal capex at subsidiaries as major investment projects were recently completed.

Going-Concern (GC) Approach

The GC EBITDA estimate reflects Fitch’s view of a sustainable, post-reorganisation EBITDA level upon which we base the enterprise valuation.

Our GC EBITDA estimate of USD170 million reflects the mid-cycle nickel price and stable RKEF operations at HNI and RNI.

An enterprise value multiple of 5x EBITDA is applied to the GC EBITDA to calculate a post-reorganisation enterprise value. We use a multiple of 5x to estimate a value for NIC because of its asset concentration in Indonesia and its smaller operational scale compared with peers, despite its stronger growth prospects following the ANI acquisition.

The GC enterprise value corresponds to a ‘RR1’ Recovery Rating for the senior unsecured notes after adjusting for administrative claims. Nevertheless, Fitch has rated the senior unsecured bonds ‘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’.


Factors that could, individually or collectively, lead to positive rating action/upgrade:

– Successful ramp-up of ANI in line with our expectation, while maintaining FFO leverage below 2.0x

Factors that could, individually or collectively, lead to negative rating action/downgrade:

– Sustained increase in FFO leverage above 3.0x

– Material disruption in its smelter operations at HNI and RNI


International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from ‘AAA’ to ‘D’. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit


Satisfactory Liquidity: NIC had USD190 million in cash, of which USD133 million was held at the NIC level at end-June 2021. NIC has no debt amortisation requirement and its closest debt maturity is in 2024 with the maturity of its USD175 million senior unsecured notes.


NIC is an NPI producer that operates in Indonesia’s Morowali Industrial Park. It operates four RKEF processing facilities with total name-plate capacity of 30,000 tpa.



Unless otherwise disclosed in this section, the highest level of ESG credit relevance is a score of ‘3’. This 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. For more information on Fitch’s ESG Relevance Scores,


03 March 2021


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

Nickel Mines Limited
  • senior unsecured
LT B+ New Rating RR4

Additional information is available


The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuers available public disclosure.


Numbers in parentheses accompanying applicable model(s) contain hyperlinks to criteria providing description of model(s).

  • Corporate Monitoring & Forecasting Model (COMFORT Model), v7.9.0(1)



Nickel Mines Limited EU Endorsed, UK Endorsed




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