Oct 3 (Reuters) - Australia's Nickel Industries Ltd on Monday forecast a slump in its quarterly operating earnings due to weakening nickel pig iron prices and said it would transition one of its Indonesian projects to a low-grade ore of the battery metal.

Nickel Industries said it expects third-quarter earnings before interest, taxes, depreciation, and amortization (EBITDA) to come in between $52 million and $55 million, a massive drop from the $103.2 million posted in the second quarter.

Shares of the company fell as much as 5.7% to A$0.745, their lowest since Oct. 14, 2020.

The Sydney-based miner will transition its Hengjaya nickel project (HNI) within the Indonesia Morowali Industrial Park to produce a low-grade nickel matte product to hedge itself against declining prices at a time when its Angel Nickel and Oracle Nickel ramp up their NPI output.

"The company believes now is the appropriate time to diversify our operations and start production of nickel matte at HNI – the introduction of another end-product provides additional flexibility for the operations," the nickel producer said.

Low-grade nickel matte product will be converted to high-grade using converters within the industrial park, Nickel Industries said, adding that it has also contracted all its high-grade nickel matte sales until March 2023. (Reporting by Sameer Manekar in Bengaluru; Editing by Sherry Jacob-Phillips)