So good morning, everyone. My name is Stuart Chambers, Chairman of Anglo American. It's my pleasure to welcome you to our 2019 half year results presentation. I just wanted to cover 2 things before I hand over to Mark. I wanted to touch, 1st of all, within HSE, I want to just touch on safety.
Mark will cover this shortly in his presentation, so I won't duplicate. But I do want to share with you that the Board of Anglo American is very engaged in this. We're very clear that it's a journey. It's by no means a job done. There's a lot more to do.
And in fact, we're pretty clear now on the things that we have to change to ensure that we continue to improve in this area, build on the improvements we're already making in the underlying measures, but of course, importantly, to eliminate fatalities. And as I said, Mark will cover this again quite shortly. The second thing to do is simply to update you on Board changes since we last spoke in this forum, which was the full year results in February. So since then, Jack Thompson, one of our 2 mining non execs, retired, having time served 9 years. And we're very pleased to have been able to bring in Marcelo Ervastos Bastos to get us back to 2 minuteers within our nonexecs.
And Marcelo, of course, is also he's Brazilian, but even more importantly, he has extensive mining experience in South America. Then
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Then I don't know if you saw it, but 2 days ago, we announced then some further changes, which is that Nolita Fakhude steps down from the Board, which is a loss, our South African Non Exec Director, one of them. And but I'm pleased to say that we're not losing her because she's stepping down because she's taking up a full time executive role in Mark's senior exec team, leading down in South Africa. We're then bringing in 2 new non execs, 1 to directly replace Nolita and the second also South African to ensure that we sustain our target level, which is that we wish to have 2 South African non execs over time in our board to again express the importance of that part of our operations. So in that respect, we're bringing on Hixonia Nyosulu and Nkun Nyambezi, and they both join in November January, respectively. So that's enough from me.
Thank you. I'll hand over to Mark.
Thanks, Stuart, and good morning, ladies and gentlemen. Thanks for joining us today. I would like to acknowledge my colleagues here in the room. As always, we'll be available after the session for additional questions that you may have. And certainly, from my point of view, I encourage you to talk to the guys and hear their version of events.
I'd also like to acknowledge both Ruben and Themba. Themba just on the GMC, so this is his first session. Timba is the CEO of Kumpa. So if you've got really tough questions, we'll throw them to Timba. And Ruben has just taken over the copper business from Duncan.
And we've had a good performance. Both of them are taking credit for the improving performance in copper at the moment. So I'm sure when you talk to both and you'll get 2 versions of that story. For us, the order of March for today, very consistent with what we've done in the past. I'll kick away with an overview of the results.
Stephen will pick up the financials and really pull apart the numbers and help give you a better sense of how we got there. And then I'll add some insights in terms of where to from here. And I think that's an important point to make. As we pick up conversations around buyback, if you look back at where we've come from in resetting the business, restructuring the business, There's been a lot of work done. But from our point of view, there's still a lot to do as we look forward and we believe a lot more improvement potential.
And we'll unpack that conversation as we go. And the buyback and part of the story around the buyback was obviously about what we think or where we think we are and where we believe we're going. And certainly, I think that's a very important part of the story. And for me, probably the most important part is the conversations during the course of today. So on the results, our financials reflect both good prices, particularly in iron ore and solid cost control across the broader business.
And while volumes were down 2%, that for me was the disappointment, the cost control work was exceptionally good and very pleased with the work that's been done. Obviously, still a lot more to be done. But in the case of inflation and other pressures, I think that's been credible. As a consequence, our EBITDA margin of 40 6% is right up there with the best we've ever achieved and certainly right up there with the best in the industry. So again, it reflects both improving cost control and also improving prices or realized prices on our products.
And I think one of the unsung changes in the business and transformation between the marketing story and we're very proud of what Peter and the guys have achieved. Our dividends reflect the earnings improvement. Obviously, a 40% payout ratio represents €800,000,000 payout to shareholders. And in addition, we're announcing a $1,000,000,000 buyback. And again, we'll unpack the logic behind that, and I'll leave most of that to Stephen.
But from our point of view, I think it's a very clear statement about where we believe we are. The project's in control. We're investing in growth in the future. And certainly, from our point of view, the prognosis going forward as we look to continue to improve is pretty solid. And so we felt that it was appropriate and it also reflects the confidence both the Board and the executive has in the future of the company.
Free cash flow isn't as good as it might have been given the headline performance. We had about $600,000,000 locked up in working capital. We should see that come out. But again, Stephen will give you a much better picture on what that looks like. We have over the course of the 6 months, seen some pressures in the diamond market.
Again, happy to unpack some of those conversations. But the real high point, I think, for the first half was the performance at Minas Rio. We've adjusted up the guidance once. We've done it again today, 19,000,000 to 21,000,000 tonnes. Really pleased with how the team has come back after the pipeline incident.
Obviously, a lot of work done while the pipeline was off, and that certainly gave us a running start into the year. So very pleased with that work. And our return on capital employed, 22% reflects both improving margins and the continuing discipline that we have on capital allocation. And again, Stephen will unpack that conversation. As Stuart flagged, safety, critical issue for us.
And from our point of view, it remains an absolute focus and our priority item. We've reported 3 fatalities in the 1st 6 months: 1 at Murrenbah in Australia, 1 in Los Bronces in Chile and one in Quellaveco in Peru on a concrete truck supplying concrete to the plant. Post the results, we've had 2 bus incidents, people commuting from work to home at Kolyawasi and near Los Bronces. In our case, we've extended our transportation work or we've extended our elimination of fatalities work into transportation, which includes commuting off-site and with 3rd party providers to make sure we pick up that element. Because when we look at the risks across the business, one thing that doesn't get picked up as well as it should be is where we have off-site commutes back to whether it's Santiago.
And so we're working with our 3rd party suppliers and contractors as well to make sure that we've got that covered as well. So that's certainly been very disappointing from our perspective, and it will be included in the EOF2 work and it's a very important piece of work for us as we feel that responsibility not only on-site or within the mine gate, but getting people back home and helping people make sure that their homes are safer as well. And that's a responsibility we take very seriously. On health, again, continuing to improve the operations, focusing on making sure where people work are in the right is in the right shape. And certainly, the progress there has been significant.
We'll continue to focus on that work. And on the environment, the improvement in the environmental side reflects the discipline around planning, the discipline around the operations and control of each of our processes. And whilst we're not at 0, we've got to keep improving until we get to that 0 number. And certainly, we're pleased with the progress that we've made so far. In terms of the environmental side and tailings, we continue to work on tailings, and we're going through the process at Minas Rio, obviously, but that facility is certainly something very new.
And a high level of technical a high degree of technical complexity has gone into that design, and it's certainly a very different design to most of the tailings dams in Brazil. And it's also designed to actually manage water as well. So it's actually a water containing facility. So we don't expect problems in terms of the approval, and we're on track to actually get that approval by the end of the year. In terms of the overall tonnage, we went public recently.
Feedback has been very positive. We thank people that may have provided us with feedback. And we're looking at anything we can do to improve. We're working with our colleagues in the industry, particularly in the ICMM and looking at standards more broadly. We're currently operating above the ICMM standards.
We have done in fact, we created a new set of standards back in 'fourteen. They were used to help define the new standards for the ICM in 'sixteen, and we're continuing to improve our facilities and the management of our facilities across the group. And I just want to assure people that it really does remain a key area of focus for us in the business and very pleased with the progress we've made. In terms of the operations, you've seen this chart a few times before. Our portfolio work has resulted in us being able to focus on the larger scale assets and resources that we felt had a lot more potential.
And our improvement focus has been around 3 areas. Firstly, we've re configured our technical processes. So 70% of our mining operations have been adjusted to mine the ore body more effectively than we were mining. And that includes mining methods and process technologies. Our operating model has then helped us improve the way we plan and execute work.
And so we've certainly improved our consistency. We're not at where we want to be. But in terms of where we were, we're at least 20% better than where we were. In fact, each operating asset has improved 30% in the last 5 years. That's on average across the assets we have in the portfolio to date.
And we're now working on the technical and innovation platform across resource right through to delivering product to market. And Tony is here again today if there are any questions about progress. I'll touch a few points. But if you'd like a little more detail, Tony is here. We'd certainly be happy to answer a few questions.
We have delivered, as I said, 30% more production from each asset. And more importantly, in terms of driving margins, we dropped our operating cost by around 45% in real terms or 27% nominally since 2012. And so that transformation has been absolutely key in supporting our improvement in EBITDA margins, the 46% EBITDA margins. And again, going with the work that the marketing team has done has certainly underpinned our improvement in margins across the business. Now in terms of measuring that performance across the industry and in particular talking about competitive position, we've improved since the last time you saw this chart.
We've gone from the 37th percentile on average, that's cost position across our assets, to the 36th percentile. On balance sheet, while we're not the lowest number, we like to think that our debt is in a good place and that the way we think about the balance sheet and investing in growth and investing in returns to shareholders, The approach is a balanced approach. And I'm stealing Stephen's word there. I think it's a great word, and I know he'll unpack that a little bit more in his presentation. And on looking forward, our suite of high quality growth options, most of those assets have EBITDA margins better than 50%.
And so from our point of view, that's really important as we continue to grow the business through investment in those quality growth options. And so we think over the next 3 to 5 years, it really is an exciting time as we grow top line performance by around 20% to 25%. And at the same time, we drive ourselves towards a 50% EBITDA margin. And 46%, we're a little bit further ahead than we thought we'd be. But of course, Ion always helped us get there.
So we're pleased with where we stand and how we've positioned ourselves. When we talk about the transformation, we talk about future smart mining and the changes we've made, we do like to make the point, and I think it's very important, that it's all connected to being part of our sustainability work. So the work that we're doing to reduce energy consumption, water consumption, improve our physical footprint is all about improving the business and returns, which is absolutely consistent with creating a more sustainable operation. And whether you're talking environmental, health, safety, social partnerships, they're all part of the same lot of conversations. And obviously, having a much more competitive cost position is also about sustainability.
So for us, our material or our organic improvement is built on the 3 key short term foundations. Obviously, with the quality of the assets we have provides us with the raw materials to shape the business over the longer term and position ourselves for continuing performance improvement and growth. Our P101 program actually builds off the implementation of the operating model. So we've put the operating model in. We've improved our competitive position, but every one of us when looking at each other in the eyes, we're not yet best practice.
The real drive from here is to get each part of the business to operating best practice. Now that doesn't mean every one of your processes get to that position because there are critical points in the process that we need to be at the top to ensure that we've got best performance across the business. And so that's important for us. And the operating model and the work around the operating model has provided the platform for that next set of conversations. So every one of our operators knows what they have to achieve to get to best in class on a shovel, a truck, loaders, in the plants right across the business.
And it's really generating a buzz and a conversation about how do we get there and how do we help each other get there. Then the second part, the technical change. So when we talked about mining method changes and configuration changes, In taking that to its logical next step, Tony and the team have been talking about changing the footprint, reducing energy consumption by 30%, reducing water consumption by 50%. All of those technologies and those different approaches come off the base that we've created. That is we're mining the ore bodies, in our view, the best way in terms of managing short term, medium term and longer term returns and looking for the right technologies to hit those critical points that improves our performance and continues to improve both the recovery of the resources, the cost position on those resources and we position the asset for the long term.
Because when we look at cutoff grades and those sorts of things, we're trying to think about squaring up those three dimensions, short, medium and longer term, and getting the best out of our assets. And I think the continuity that we've been able to achieve in our operations speaks to trying to get that balance right. On future smart mining specifically, we look at the program right through the value chain. Concentrated mine is around getting the mining methods right, mining the ore and only the ore and driving the process or driving the ore through the process at the highest grade possible. So making sure that we're not wasting money on mining waste or processing waste through the system.
And that's a critical part of the process. And we've got our 1st ore shorter currently being commissioned at Delsadatta. And so far, the results have pretty good. In the waterless mine, we're looking at various elements of the process, being able to course a grind. And I talked about it last time, so I won't go back through that.
That's part of the process. Mud and Mine is around the systems we're building and the operating model provides a very different base for us to look at, think about, plan and execute work in the operation. And so from our point of view, the operating model provides starting point. It's really an industrial model applied to the operation. And we take every person through the business.
And it takes us 18 months to transform an operation from a standing start to having a very different mentality about the operation. And what I will say, it is hard work. It takes time. Some places, it takes a bit longer. And some places, where you're working on a number of fronts, you might have some place to come back a bit.
And it's important and it helps us identify where that's occurring quickly, so we can go back in and address it. And I think there was a good example at Kumba where we said we had a bit of problem with operating equipment, but Themba and the team identified the issue early. And the fact that you've got those processes in place helps you identify those sorts of issues, then the reaction time is much shorter and you're able to pull the operation up back much quicker. And I think Kemba did a good job explaining that in the result his results presentation a few days back. And finally, on the intelligent mind, thinking about what we do in a very different way.
Our industry, in my experience, has not been good with data. Our data literacy has been fairly poor, even though we're an industry that's had big data for a long period of time. And the work on understanding that data and understanding how to apply that data and working the critical pinch points and control points and opportunity points across the business very different. It also has gone to another level with the development of different algorithms and diagnostics across the industry tells us that we think the changes that are possible are much more significant than most people understand. And so we've really pushed hard into this part of the business.
And it again, it connects to everything else that we've been doing from basically getting a better understanding of geology, the mining opportunities, the mining methods and the application of new technologies to these operations, which we think is absolutely critical. And we've been investing in this for 5 years. So it's not we woke up last week and said this might be a good idea. When we started to transform the business, we were investing in this thinking 5 6 years ago, and we're starting to see the benefits in terms of what we believe we can achieve going forward. I thought this is a very simple graphic.
The small truck, 1900. Today, we're actually mining or spending 16 times the amount of energy, double the amount of water, about 8 times the amount of ground to actually produce a pound of copper. And the trucks keep getting better. Clearly, the benefits of scale have been through cost performance. But we think we're getting to not the limits, but the curve is starting to flatten off.
And the opportunities to think very differently about mining using all of the tools I've just talked about is significant and we've been a significant investor over the last 5 years in that whole thinking process. Tony has been the leader with the operating CEOs and they've worked as partners in working out how those technologies can be applied in these businesses. And I think in the next 3 to 4 years, the transformation in the business is going to be just as significant as the transformation we've seen in the last 3 or 4 years. And I think that's the point we were making about we're thinking about where we're going as a company when we look at what we should do with shareholder returns and investment in the future and getting that balance right. Again, sustainability, I've talked to the key elements.
I won't go back through that. But I think it's important to make the point that we connect them and they are interconnected. For us, it's all about the same conversation. And we look at both sides of that equation in everything we're doing. And again, we've been doing that for a number of years.
And I think the benefits are coming through both in the terms of the results, the relationships we have with our core stakeholders across the business, local communities, a lot more to be done. But again, I think Quellaveco is a good example of doing the right work in the community and what can be a fairly complex social environment. And certainly, I think the way Tom and the guys are handling the work in Kyiv Eko has really gone well. And certainly, feedback from the government has been exceptional. Finally, before I hand across to Stephen, pretty simple story.
2012, 30 percent EBITDA margin has been an important piece for us, reflecting production and the nature of the production. We've continued to grow the business. We're now at a 46% EBITDA. So an 8 percent production improvement won't drive that type of improvement in EBITDA because the price comparison and the prices today are actually lower still when we did these numbers. It's been all about the transformation in the portfolio and the drive in the operating cost side.
And for us, with the projects we have in place, we can see growth up to that 135 off the 100 base in 2012. And we believe on current prices, we can deliver a 50% margin. The 45% margin is on long term prices. And so that's the difference that we see or that's the explanation of the range that we've shown. So I think with that, I'll hand across to Stephen, and he can really unpack the detail behind the numbers.
As I talk through some of the numbers this morning, I really want to touch on 3 key themes, and it sort of flows on some of the topics that Mark was talking about. So firstly, consistent delivery of the numbers is really derived from consistent delivery from the operations, and that's underpinned by the operating model and that relentless focus on productivity that Mark has spoken about. Secondly, the increase in margin driven by the relentless focus on productivity and also our prices this half have really flowed in to our improvement in our relative cost position. And thirdly, then it's the disciplined use of cash. I'll try not to overuse this word this morning, but balance is my word of the reporting season.
It's about how we think about that balance between the balance sheet, the capital and the way we invest in the business and returns to shareholders. And if we get that cycle right now, it allows us to set up for that next wave of growth and cash flow and investment and returns. But obviously, the big news for this morning is the returns to shareholders. So the buyback of up to USD 1,000,000,000 consistent with those three themes that I've, in fact, just spoken about and how we're thinking about that use and allocation of the discretionary cash flow that we generate. And then the base dividend, 40% payout ratio, US0.62 dollars per share, and I'll talk to both of those components in a few slides' time.
So the numbers themselves: EBITDA, dollars 5,500,000,000 earnings per share, dollars 1.58 as Mark mentioned, the best half we've had since 2011 Free cash flow of £1,600,000,000 slight build in working capital, as we've noted in the results. If ever there was a good build in working capital from a finance director's point of view, the majority of it is this, and it's in receivables because we've had increasing prices, which obviously flows through to cash flow, and the return of Minas Rio have also led to some of that build in working capital. So as I say, if ever there was a good build, this would have to be it. Our CapEx, our usual half one, half two split. And obviously, then in terms of using the Mitsubishi cash we had on hand coming into the second half, we'll fund our proportion.
Importantly, our guidance for the year on CapEx is maintained. And finally, effective tax rate. I know it causes you a few issues in terms of getting to your EPS and dividend number, apologies, but it really is the mix of results across the businesses that drives that to some extent. In particular, this 6 months, is the return of Minas Rio so strongly in a high iron ore price environment has meant we've been able to utilize some of those past tax losses that we've accumulated from those operations. So that's really driven us down to that 30%, and our guidance going forward is 29% to 31%.
Okay. Mark often talks about the number of assets that we have in the business. I suppose another way to think about it is, yes, we have 34 assets, but we're currently organized around 4 simple business units. Big increase in bulks, obviously driven by return of Minas Rio and prices. PGMs, nice to see prices coming back to give us a little bit of a hand.
Copper continued great work in terms of both volumes and cost. And diamonds, even though we have seen softness in the market, particularly from quarter 2 onwards, still contributes over $500,000,000 to the group result. In each case, and to pick up a big theme of Mark's, driving very healthy margins in each of those four business units. So as we work through the underlying numbers period on period, so as you say, £5,500,000,000 up 19% from the prior year. Price, largely driven by iron ore price, 62 percent averaged around $91 a tonne.
That translates to us from a realized CFR price of about $118 a tonne, really driven by quality grade and lump product. Offsetting that, some price weakness in thermal coal. This period, we've had a little bit of a turnaround in terms of a positive impact across FX and CPI. So currency has generally moved in our favor, offsetting about a 200 negative movement in CPI and inflation costs. As you look across the combination of currency, the impact of inflation, the Minas Rio recovery and the cost and volume change that we've had for the period, it's a net positive when you add all of those things up, and that translates to that relative improvement in our cost position across the portfolio.
As we come into half 2, some real momentum with Kumba, met coal, Minas Rio and copper, all from a production point of view and looking to recover some of that shortfall that you saw in our quarterly that we had that we released the other day. As we look at cost and volume going forward, it's not always an even flow half to half. So you'll recall last year, we had a very strong first half and then slightly flat second half. This time around, we're actually anticipating to see the reverse with the momentum that we have, a fairly flat first half and some good momentum into the 2nd. If we then turn to the balance sheet, again, very consistent messages every time I get up here around the balance sheet, and that's not going to change today and it's not going to change as we go forward.
So net debt effectively flat. We had the accounting standard adjustment for operating leases, opening adjustment of $500,000,000 and then another $100,000,000 added during the 6 months, mainly around shipping normal shipping contracts. So fairly flat period to period. Net debt to EBITDA of 0.3 times, again, a very healthy position to take the business forward and net gearing, which really goes to the underlying strength of the balance sheet in terms of debt to balance sheet, a very healthy 10%. So returns to shareholders.
We are committed to the payout ratio. We're committed to the 40 percent payout ratio, and that has resulted in the quite substantial increase in dividends per share for the half, again a direct reflection of the improvement into the underlying earnings, so 27% up. That compares to for the full year from last year, so a very good start assuming we continue with the performance, and that's at roughly around a 5% yield. In terms of the buyback, it really is consistent with our capital allocation policy, and I'll touch on the wheel that we normally talk to in a moment as we work through that allocation of discretionary cash flow. It reflects a confidence in our balance sheet, confidence in our near- and medium term growth and again, the balance that we have as we think about where we're taking the business today and as we go forward.
We also thought about the balance of returns to shareholders. And yes, we recognize different shareholders have different preferences. But to date, leading up to today and including today's 40% buyback, that would represent $3,400,000,000 of dividends. And now with the buyback, dollars 1,000,000,000 of buyback. So in total, dollars 4,400,000,000 since we started we restarted the dividend back in 'seventeen.
So that's an eightytwenty split. Again, it's about balance. Going forward, please put in your spreadsheets 40% payout policy. We will continue with that policy. I know we've perhaps surprised some of you given my absolute resolute sticking to the 40% guidance, But it's okay to reassess those things from time to time, and we will reassess those things from time to time as we go forward as well.
We will always consider how we allocate the cash flow. So how have we done? Let's look at the scorecard in terms of our capital allocation and cash flow. So £1,600,000,000 of sustaining cash flow, 40% dividend last year was £700,000,000 this year, it's £800,000,000 and pleased where we are from a balance sheet point of view. And you can see we're starting to allocate cash to some of the discretionary items, whether that be some smaller growth brownfield growth projects, Quellaveco, as I say, where you'll start to see our proportionate funding come through this year and then obviously the share buyback, which will flow between now and early next year.
So back in February, we tried to give you some really good forward information around capital spend and where we saw the capital spend journey going.
As you
noted then and as you can see today, we see it picking up a little bit through 2020 2021. And I would anticipate as we move to 2021, we And I would anticipate as we move to 2021, we'll be towards the top end of that range. And that's a combination of the sustaining CapEx that we've clearly flagged and the productivity gains and extra volumes that we see, the brownfield approvals, which I will touch on shortly, and then the investment in innovation and technology and obviously, cave echo. You recall at the full year, I presented a capital efficiency slide, and nothing really has changed in that. So we're still tracking at the moment to that sort of 20% to 30% capital efficiency.
And if you recall, that reflects exactly the same 20% to 30% operating efficiency that we're seeing through the operating sides of the business. You will see that fluctuate a little bit from time to time. Remember, I spoke about while it's okay for the absolute number of sustaining CapEx to go up, provided on a copper equivalent per tonne basis, we're spending that money more efficiently. That's exactly what we're still seeing. But as some of the businesses go through ramp up and volume improvements, a good example is Moranbah Grosvenor.
We're seeing increased productivity rates, which means we need to step forward a little bit quicker in terms of the degassing and mine development and setting up for the next longwalls. So good reason why that's increasing. It's driving really high margin great returns even though the absolute number creeps up by 0.1 or 0.2 across that time frame. Looking at some of the options that we have across the portfolio and I suppose it's lovely to see that we've got a nice list in front of us and we own these options. Again, we flagged this last year, and we're going to keep you informed in terms of how this unfolds going forward.
So we can tick another one off. In May, we approved the marine vessel in Namibia for the dead marine operations. And we've been talking about the Moranbah Grosvenor expansion. That's likely to come through, through the first half of next year, I would anticipate at this stage. With some of the improvements in the debottlenecking work that we have seen already, we are already seeing, let's call it, some of the volume benefits we thought we would have seen in the next CapEx program already coming forward to today.
So we'll just feed that into the studies and see how that flows out. And probably some of the next things you'd see would be some of the technology and innovation perhaps showing itself a little more obviously to you as we invest through that 'nineteen 'twenty period, and then you'll see some of those benefits flow out through the 'twenty one 'twenty two period as it works its way through the production systems and into underlying EBITDA. What we will guarantee is that we'll keep you posted on these things. These things will be very visible to you as we go through. They will only be approved over time and take full account of markets, balance sheet, cash flows and circumstances of the day, and we'll keep you posted through that time frame.
So just coming back to our cost and volume improvement targets. So we are targeting £400,000,000 for this year, originally £500,000,000 so we have just softened that a little bit. With the softness in the market that we've seen in diamonds in particular, we're not prepared to give up on that 400. It will be perhaps challenging, but we have a number of initiatives building up to that and through that, that we will be working very hard to deliver through the year. On the basis that we achieve that, that will take our cost and volume benefit from this $3,000,000,000 to $4,000,000,000 to $800,000,000 And if you recall in that bottom section there, the operating model and sort of product productivity improvements, we'd flagged £1,000,000,000 to £1,500,000,000 in that bucket.
So over time and we said that that would probably be more front end loaded than the other categories, That's what we're seeing, and we're starting to move towards that target over the next year or 2. As I said earlier, the technology and innovation, you will see a little more back ended, and so we would expect to see some of those benefits flow through in that 'twenty one and 'twenty two period. And then obviously there's the growth projects as well, very much a mix of the brownfields in the nearer term and then the delivery of Quellaveco towards the end of 'twenty one, 'twenty two. So those things should flow again nicely and quite visibly through the results over time. So very much reconfirming our target of $3,000,000,000 to $4,000,000,000 between now and the end of 2022, and you should expect to see progressive delivery against that through that time frame.
So just to wrap up for me, where are we and where do we want to be? Obviously, growth, highly competitive and market leading. In particular, what we're delivering adds to the margin story that Mark spoke about, underpinned by disciplined allocation of cash flow and from a strong balance sheet position. But what we do have, I suppose, is really a real commitment in terms of getting the balance of these things right, whether that be around balance sheet, returns to shareholders or delivering and investing in the future of the company. Thank you.
Thanks, Stuart. Thanks, Mike. So thank you, Stephen. Obviously, the G word is something we're very sensitive to. And when we talk about growth, we are very specific and we try and make sure that in the business, people understand the conversation the right way given the history of the industry.
The focus on quality is absolutely critical. And from our point of view, we do look at our markets. We look at the response. We test our projects against the impact we would have on those markets. That's very important to us.
And we look at the absolute margin we expect to achieve after adjusting for those changes. And so it's all about quality. And as I said, almost all of those projects have got a better than 50% margin at long term prices. Driving margins is about making sure the quality is there. And if you've got the quality project, you'll get the margins and also how we place product into the markets.
And our focus on quality, which I'll pick up towards the end of the presentation, is something that we think is absolutely critical as the world evolves across mining. And then making sure that the capital discipline is right and that we've worked at projects to their potential is also important in making sure we do better than that 20% threshold return on capital employed that we set ourselves through the cycle. And so all those pieces come together to put us into what I think is a very balanced position about what that should look like across the business. In terms of what we've seen in the last 6 months and to talk to the things that will continue to improve the quality of our performance and margins, Minas Rio has had a very strong ramp up in the 1st 6 months, as we said. We've adjusted the guidance a couple of times now, and we're very pleased with where we are in terms of the tailings program.
Yes, tailings is a sensitive word in Brazil at the moment. But again, I think the technological differences we have in the dam set us apart. And by the way, the next lift is no different to the approval process that everyone else in the industry has to go through to get their next lot of tailings lifts. That's part of the process in Brazil. So we're not in a unique cycle today.
We're now in a normal operating process. So I think that point has to be made pretty strongly. And it is a little bit different to where we've come from in terms of our process. So again, based on everything we've done so far, we think year end is certainly the right expectation given the conversation. And we certainly got a lot of support from the government and the authorities in those processes.
And by the way, one thing we should remind people is we got our Step 3 license 6 months earlier than we forecast. That was the license we got in December, which allowed us to open the footprint. And that's also been part of why we've done much better in the 1st 6 months because we've been able to blend product and get better throughput through the plant. So that approval was very important. And I think that's also a measure of the nature of the relationship we've built with the authorities in Brazil.
So I certainly don't see the risk around that as some have been talking to it more broadly. Certainly very comfortable and very happy with where the guys are. In terms of projects, Quellaveco, on track, very pleased with the progress that's been made. And certainly, from our point of view, Tom and the team have done a great job. Most complex part of the business is obviously around the social dimensions.
And I think, again, the guys have done good work there. We've mobilized all the major work areas. We're pouring concrete. And certainly, the progress has been very good. We've ordered a new ship.
It's on its way. Bruce and the guys are very excited. For us, this is a really special bit of gear. Obviously, technically, it's very different. But also, it mines our highest value diamonds on a per carat basis.
And they're not large, but they're very high quality, smaller diamonds, but a real good part of the business. Again, pretty rapid payback, so a good project. And Aquila, following Grass Tree, good piece of work. And the guys in Queensland have done a great job in the business. Again, I think Moranbah has won 5 years best coal mine in Australia, also best mine in Australia a couple of times as well.
And all of the learnings from Murrinbah, Grass Tree, Grovenor will go into or have gone into the design of Aquila. So from our point of view, good shape in the project site and again, supporting the quality growth story that Stephen talked to. On positioning for the future, we would argue that our portfolio is quite unique in the industry. And we would hope that shareholders and prospective shareholders in particular can see that the exposure you get to Anglo American is very different to other peers in the industry. And we hope that the one thing that really is coming through is that diversity as a consequence of the quality of the assets is certainly a differentiating feature, one that we want to push for in time.
In diamonds, we've got the ultimate luxury consumer product. With a growing middle class and shrinking industry resource and production base, our global leadership position through De Beers is exceptional. And as we say, De Beers isn't really a diamond company. It's a brand that is an industry icon that really means the very best in diamonds. And when you look at our revenue per carat, and I'll show you a little bit later, it's the best in the industry.
We're proud of that position. And certainly, the industry is going through a bit of a tough time and there's been a confluence of certain issues. From our point of view, we think that's not a structural change. And with the work on Lightbox, I think we're very pleased with the market's reaction to the product. 3,000,000 to 5,000,000 carats, very small compared to the global diamond production of 143,000,000 carats, so not really a factor.
And the fact that the pricing is more akin to other lower value products has really pleased us in terms of the response of the market. As the world becomes greener, accommodating 9,000,000,000 people will need energy and other industrial solutions that will drive significant growth in copper, nickel, manganese and PGNs unlike we've ever seen. And as the circular economy starts to impact sourcing of bulk commodities in various forms, our focus on quality coal and quality iron ore is again a differentiator in a market that will go through significant change over the next 5 to 10 years. And we've been thinking about how we position our business in where we are today, where we will be in 5 years and where we will be in 10 years. And we think those changes will play into our hands in terms of the focus on quality, both through Kumba, 64.5% lump premium Minas Rio, 67%.
Again, unique assets in the world or the bulk worlds. And certainly, we think we're well positioned there. And for us, if you look at our performance, and I think we've got this in the appendix, Paul, we've improved our relative margin cost position from mid Q3 to mid Q2 off the back of improving costs at Kumba, the good production performance at Minas Rio and the improvement in price premiums that we've consistently into the market. And we're going to keep trying to drive that position to the left across the portfolio. There's always a debate about macro trends, and we're having the debates as you'd expect and trying to think about how we position our business in those trends.
And again, we think the focus on quality and in particular margins is going to be absolutely critical. It's the best way to insulate yourself from things that you might not understand or might not anticipate. The way we look at things, again, changes in population, that 9,000,000,000 population will look very different as well in terms of urbanization. In the last few years, we've seen 1,400,000,000 people move to cities and and there will be another 1,400,000,000 move to cities over the next 18 years. So from that point of view, we look at demographics, aging population, urbanization, the rise of the middle class, climate change, carbon reduction, the rise of renewables, transportation fuels and the circular economy and that includes recycling and that will increase particularly across bulks through the recycling of steel, high quality primary feeds, new business models.
50% of our portfolio by production consists of greener and consumer facing commodities. And I think that's a unique mix in our industry. And it's one that we think, from a strategic point of view, will play out in more conversations around our sector. And the environmental benefits that we have in the portfolio and the research work that we're doing through the R and D programs we have across precious metals are going to be very important. And certainly, now where people talk about platinum, palladium being used in lithium batteries, they are important developments and developments we're at the forefront of with other players investing and making sure that we create opportunities for our product.
And certainly, Chris is well up to speed in driving many of those changes through his leadership in the Platinum Guild and other of the consumer facing entities that we work with in the PGM space. So for us, we think strategically about the commodity mix and we think tactically in terms of making sure we've got the best operations. And we are building a business that is resilient for the long term. It's a unique product mix. It's a high quality product mix.
And it's one we're going to keep improving and growing as we go forward. In terms of the focus on quality, and I might just explain that the chart actually shows on the x axis the volume that we produce relative to our competitors in those markets. So you'll see in terms of diamonds, we are right up there and no prizes for guessing who's up there. That's Alrosa producing a few more carats. But certainly, the value per carat that we produce really does set us apart.
And we believe longer term, the real price activity and potential for value sits more in the high value areas. Of course, diamonds, we think as Argyle and other operations closed, the prognosis for the whole diamond market is very positive, medium to longer term. But again, we think we're placed very powerfully in the market with that quality mix. In iron ore, again, a strong player, strong quality player. We're not the biggest, but we'd like to think that we're heading towards being the best depending on how you measure that.
We've still got a long way to go. But certainly, the improving cost position has helped improve our margins. In PGMs, again, just off being the largest producer. But again, our focus on quality is about discipline, making sure we're driving returns. And certainly, if you want to differentiate us, it's around that focus on margin and returns.
And again, in met coal, very competitive on the cost, pretty good sized producer, but very much focused on making sure we're at the top end and demanding a product premium for our quality consistent with the value that we're delivering to our customers. And again, it's about this quality focus across the assets and across our products. It's very important and we think is a significant differentiator for us in the future. And so to summarize our investment proposition, we've got world class assets with attractive and carefully phased growth options. We are building leading capabilities in operations, new technologies and the marketing of our products for value.
And our returns are underpinned by ensuring that our focus on capital discipline is maintained, irrespective of where product prices are on the day. And we've got to make sure that we and we're focused with the board that we're delivering consistent returns on capital and of capital to our shareholders. And with that, happy to take questions.
Dominic O'Kane, JPMorgan. Two quick questions.
The I just want to try and
understand the capital allocation wheel a bit better. So 40% ordinary payout recommitted to and the $1,000,000,000 buyback. But if we look at the net cash in South Africa, you've got about $5,200,000,000 of net cash, building about $1,000,000,000 a year. If I look at the gross CapEx over the next 3 years, about $3,000,000,000 of gross CapEx at top of the range, none of that is in South Africa. So how do we reconcile the South Africa net cash position and the build going forward to excess capital returns?
Is that should we regard the South Africa net cash essentially as a piggy bank?
There's a couple of questions there, but Stephen's been dying for somebody to ask him that question. So Stephen, all yours.
So remember, we report cash in 2 ways. So one is technically where it's owned from, but practically where we manage it and use it. And so the majority of that cash is in fact held in London in U. S. Dollars and used as part of General Group Liquidity.
And so from a day to day point of view, it really has little impact on how we manage the business. Obviously, yes, we accumulated a $5,100,000 but there's probably not many of you in the room predicting iron ore to remain at 120 dollars And obviously, thermal coal prices have eased through the time frame as well. So yes, we've had great cash flow, lovely problem to have. To pay that $800,000,000 for the base dividend, we'll use a little bit in excess of $1,000,000,000 given the minorities in Coomba and Platts. And obviously, we'll use the $1,000,000,000 in terms of the buyback.
So you'll see a significant step down, lovely problem to have. If we earn it again, then we can consider things. We do have reasonable capital. We've got Venetia Underground running at the moment in South Africa. Chris and the team are working through options with Mogalakwena.
And while they're a little while away, that does factor into our thinking as we look forward as well.
And then second question on Minas Rio conversion of the operating license. You previously mentioned November, December was a time period where you would expect to have a license, otherwise you'd have to start thinking about production volumes. Is there any slippage in that? Do you think you've got greater flexibility into 2020 on when you might need to have the operating license in place before you start to think about production volumes?
Yes, we do. Firstly, we haven't changed on the likely timing end of October, November. But give it a little more time given the sensitivities around the issue. The legislation is now hardwired into September. So the legislation is in place will be in place.
And then there's about 6 weeks of consultation to finalize. So we expect to see probably around November the approval. We've got at least till the end of Q1 where we've got lots of scope in terms of volume. We start to change the quality mix a little bit in the Q2, but certainly we've got at least till middle of next year to be able to operate before we have to really think about pulling things up. So we think we've got enough scope there to deal with anything that might come along.
I work across, broken across. Yes.
It's Myles Alsop, UBS. A couple of questions. First of all, going back to the capital allocation and the buyback, how sustainable do you think the buyback is given CapEx is going up and given the outlook for bulk commodity prices? And is there sort of linked to that, is there a net debt target now we should be thinking about for non South African net debt that provides a threshold when you see excess cash? And then secondly, on thermal coal, I mean, it was cash negative in the half.
Does that change your view in terms of how core that asset is in South Africa?
Steve, do you
want to
take that? Yes. So in terms of capital allocation, is it sustainable? Well, no, it's a one off. We've accumulated excess cash, and we're now allocating that excess cash to shareholders.
So I really do mean it when I say you should assume and put in your spreadsheets the 40% payout ratio until such time as we would accumulate more cash and then we'd consider how we dealt with that as well. So very much an earn it before we think about it policy. In terms of net debt targets, no, I wouldn't try to pinpoint today's debt as the number, tomorrow's debt as the number. It's really a holistic consideration of where we think the business is at today, how it's performed, what we've accumulated and how we see it in the future, both in the medium and longer term, panning out. And it's really it's that combination of factors that gave us the absolute confidence to make that announcement today.
Mark, thermal coal?
Yes. On thermal coal, in the last 3 years, we've reduced our footprint by I think it's a bit more than 50%. 2, we have made it very clear that the thermal coal assets have got the shortest life in our portfolio and that we're unlikely to be investing in new thermal coal projects. So I think we've made it pretty clear that thermal coal, while still important, is reducing in significance across the portfolio. And I think EBITDA is less than 5%, partly a pricing issue.
But from our point of view, we are talking to a just transition. So making sure that we're working with stakeholders. So the average life of their assets 13 years and that's South Africa. Our history has been as we get towards or get closer to a life, we have in the past dealt differently with those assets. But I think making sure that we're working with the government, working with customers, working with communities, working with employees on what that should look like.
But certainly, we're in a process looking to continue to improve the business. But longer term, it will be less prominent in our portfolio. We haven't made a final call on where we'll go, but certainly pretty clear where we're working ourselves towards given the shorter life of those assets. So we're extending the life as you would expect. But at the same time, longer term, it's likely others will own the assets.
But we certainly haven't put anything or hardwired anything at this stage.
Libvis Patrick from Deutsche Bank. Two questions. Firstly, on De Beers. It could be the weaker a weaker year compared to 2015, which was a big destock year. So how close are we to a turning point?
And do you think a more aggressive pullback in your supply volumes may be required to rebalance that market? And then secondly, on the growth capital, the €1,500,000,000 to €2,000,000,000 for 2020, 2021, how much of that is approved versus non approved?
Thank you.
Okay. On the De Beers story, there is still a little way to go, we think, in the marketplace if you listen to the chatter. And certainly, from our point of view, we're managing the situation very carefully from a volumes perspective. We do think the second half will remain tough. How far we have to go is something that we'll gauge and measure very carefully over the next 3 or 4 months.
Bruce, is there anything you wanted to say about the market above and beyond that?
Thanks, Mark. Broadly, I think when you compare this to 2015, I think people seem to forget sometimes that when there's a combination of things in the downstream and the downstream demand, we shouldn't forget, is still relatively robust. So if you look in the consumer markets, although there are different things going on in different markets, there is reasonable demand. It's not fantastic, but it's by no means awful. As long as there is downstream demand, the issues that are going on in the midstream, all things being equal and us being very careful with volume and price, you would expect them to play themselves out over a period of time.
It really depends on consumer demand in the downstream markets, particularly in Q4. And so we'll watch those carefully. But as we sit here, demand isn't in a bad space. We'll be spending money differently and a bit smarter in marketing in the second half of the year to try and help downstream demand. But I don't think there's any need for us at this point to change the strategy we have.
Yes.
I think the key point is that we take a leadership position. We are sensible and sensitive to demand. And we'll continue to operate and deliver to demand. And what we've seen both in 2015 as well, a relatively reasonably quick response in the marketplace. Now whether it's the end of the year, at the end of the next quarter, not quite sure.
But the one thing you'll know is Bruce and the team are taking a leadership position and trying to make sure that we navigate through as carefully as we can. And we're going to keep navigating with care and attention to what's happening and what's happening in the midstream as well.
Mark, I'll just come back to the capital part of the question in 2021. I don't know the percentage off the top of my head, but some of the main projects that we'd be running and that we'd be spending money on through that time, Obviously, Quellaveco, it's one of the bigger years in terms of CapEx through that time frame. Venetia Underground would be coming to the end of its capital spend around there. The ship that we've just approved, there'd be some component. I'd imagine Mungba Grosvenor expansion would be approved and some of the investment in technology would make up the majority of that spend that we've identified in that year.
The investment in technology stuff is quite incremental, by the way. So when Tony articulates the point, I think you make the point Tony, it's between 12 new mines effectively, but they're incremental elements. So the spending can be phased quite carefully. And where there's a bit of a kicker, we usually get a fairly quick response. So it's a good way to think about.
We can deal with that a little bit later as well if you need a little bit
more shape on that. Sylvain Brunet with Exane BNP Paribas. My first question on coal. In the greener world you described Marc and the transition, is there a case where you could even consider accelerating that transition and separating coal from your portfolio?
Look, I think we need to remain open to society's sensitivity in the broader sense and in particular to shareholder sensitivity. So clearly, we're listening carefully. We're an active participant an active participant in the debate, but we're also very sensitive to our responsibility to stakeholders, governments, local communities, employees. So clearly, the debate is becoming or the temperature in the debate, if you pardon the pun, is becoming is rising. And so we've got to be sensitive to those issues.
As I said, it is a smaller part of our portfolio and in time becoming less significant in any case, but we're still very sensitive to stakeholder relationships. And we'll manage ourselves to a final position very carefully. And in the next 12 months, we'll put more shape around that, I suspect, as part of our commentary and dialogue, particularly in the sustainability conversation that we'll do early next year.
And just second question on Eskom and electricity cost in South Africa. Anything you could share on the debate? We saw the headlines on the bailout package. But any progress that you can share on the electricity cost cost debate?
Look, there's a lot of work to be done. Maybe I might ask Chris. He's probably as close as anyone to where those issues are and how the team managed load shedding earlier this year was 1st class, did a really good job. Chris, do you want to give us a sense on that?
Thanks, Mark. I'm not sure I can add anything new, though. So you all know that we had load shedding in the Q1 of the year. I think we managed mostly to get through that without losing mine production. Most of the refined production has been pushed into the second half of this year.
So I think we should still get most of that production this year. I think the big issue for us is has been the increase. So we've seen a 14% increase in electricity prices. That's 3x inflation. Next year, it's likely to go down to 10%, but I think we can pencil in higher S COM prices for the next number of years.
And that's also some of the reasons why Tony and myself and the group are working at seeing what else we can do around solar generation of power ourselves. But for now, I think we've gone through the winter months without load shedding, and I think that was to be expected because we don't do any maintenance or Eskom doesn't do any maintenance in the winter periods. So expect as it comes to summer that it might actually get a bit tighter than it feels now, and that's not what most folks are thinking about. So I think, Mark, nothing really new. Prices are high or the charges are high.
We're all managing as best we can. We're all engaging. And one of the things also, I think, that we participate as Anglo American is in the technical assistance to Eskom. So we put in place a team to go help a technical team to help Eskom just to go through all of their assets. That was only ever meant to be feedback to Eskom.
So we don't really have the kind of feedback that we would like, but that feedback has gone into Eskom, and I think Anglo Americans played a big role in that regard.
One of the key points that people sometimes don't appreciate with respect to our PGM business in South Africa is because of Mogalakwena's contribution and the degree of mechanization and where we're pushing into mechanization. Our exposure to Eskom is lower than our competitors because of where we draw our production from. And Chris has got more flexibility because he's also got downstream processes, both a number of smelters and refining. So he's able to work across the process and his assets are less exposed. So if you've got an underground operation, ventilation would be 40% energy would be 40% sorry, ventilation is 40% of the energy consumption and it's 24 hours a day.
So I think we are structurally advantaged because of where and how we've set the operations up. Some of that's by luck. Some of that's by design. And as well as that, Chris, Tony and the team are working on solar options and a whole range of renewable type strategies that will reduce our dependence on time on Eskom as well. Yes.
Yes. I'm working my way across.
Sergey Donska Soggin. Three questions, if I may. Firstly, just on results, your cash cost at Rio first half was $21 If I understand correctly, the guidance for the full year is $24 to $27 Are we expecting terrible second half? Second question, working capital was up in the first half by EUR 600,000,000, EUR 700,000,000. Should we expect a release in the second half?
Or we're just kind of at a new normal level? And thirdly, copper, you flagged some issues with water availability at Los Bronces that may impact your operations in 2019 sorry, in 2020? And two questions here. First of all, could you right now somehow quantify what sort of a potential shortfall we're talking about? Is it like 5% or like 20%?
And strategically, to what extent water is threatening your plan or ambition to achieve 1,000,000 tonne growth in South American copper, if what is constrained is possible at all?
So Steve, do you want to pick up working capital and minutes?
Yes. So minutes are our costs. So we've had a fantastic first half, but it was off the back of a lot of great work the team did while the plant was shut in terms of maintenance and getting everything ready to run as smoothly as you've seen it ramp up. We will have some maintenance. And sometimes in the second half, you also have some weather disruptions towards the tail end.
So if you double our first half, you'd get a bit more than what we're forecasting. So slightly softer volumes in the second half than the first, and that will translate a little bit into unit costs. So nothing too much to worry about, still a great performance expected. Working capital, yeah, went up by £600,000,000 2 components. The first was £400,000,000 in receivables that I spoke about, as good as it gets in terms of an increase because of price and because of Innos Rio coming back on.
The other 200,000,000 was inventory, a little bit of copper, PGMs, etcetera. So we would expect some of that to run out in the second half as Chris ramps his refinery up and gets those volumes out to market. And but possibly offset if softness in the diamond market continues all the way through to year end with a little bit of build of working capital into Beers.
On the copper, we're confident that our guidance for copper is solid for the year. We have seen an impact on copper probably the last couple of months of maybe 3% to 5%. We're in the driest year for 60 years in Chile. So yes, it's had an impact. We think if we look next year, the guys are already looking at water harvesting and a whole range of additional measures they can have in place to cover of what will impact next year.
If you said to me, is there a potential impact? Yes, it might be 5%. But I think we have to see how the balance of the next 3 or 4 months play out before we start talking about next year. But there's a lot of work going on in making sure we've got water in the right places to minimize any potential impacts. But it's not more than that from what we can see today, but let's wait and see the next 3 or 4 months.
2nd point on the 1,000,000 tonne. The work on the technology, so absolutely critical to making sure that we've got the water. So a 50% reduction through the implementation of coarse particle flotation, the ore sorting, coarse particle flotation and those technology changes is the key to the 1,000,000 tonne. And we're well on track with that research work. El Sadado will be the first site that we actually do.
Tony, I think we start construction towards the end of the year, but it won't be till next year before we see commission. So you're going to come in early. Okay. Thanks.
Thanks. Paul Gader, Bernstein. Just a couple of questions, if I could. So De Beers, you've got this sort of strategy of sort of supplying volume to demand. I'm just wondering what you're seeing amongst your competitors there.
Is there a market? The second question was on the sort of PGM price deck. I mean, so I know iron ore is at extraordinary levels. But then at the same time, if you look at the sort of platinum to palladium ratio, that's a kind of mirror image story to the other side. I mean, should we be expecting that likewise to renormalize at some point?
Or has there been a sort of real or is this sort of shift that we've seen in the market now again, should we regard that as the new normal? And then the sort of last question is just I'm just juggling on sort of Slide 26 with the net debt to EBITDA ratio of 1.5 at the bottom of the cycle. I mean, given we've got $3,400,000,000 of net debt, should I imply that you think bottom of the cycle EBITDA is about $2,300,000,000 Or how should I else why should I think about that slide?
Yes. Why don't you go first? Yes. You've got that answer already,
I know.
As we look forward into today's business at low prices, that's how we then think about that bottom of the cycle EBITDA ratio. So of $1,000,000,000 dollars EBITDA. And then we would look to not have more than $11,000,000,000 or something in that range, right? So it's really a look forward basis in a downside scenario rather than working backwards from today's numbers, if that makes sense.
Yes.
And as our volumes and margins improve, that number continues to It
gives us capacity should we wish to utilize it.
Okay. Okay. On the diamond question, making sure that I keep Bruce and I out of jail. I'm always careful about talking about competitors in the diamond space. Look, from our point of view, on a value basis, we are the largest player in the diamond market and we make judgments against what we see in the market.
And we take cognizance of that. Our partner and a shareholder, the Botswana government, is also very sensitive to the long term view of Don. So we take positions for the long term. Others sometimes follow, sometimes don't. We don't talk to them.
Whether they're pulling their own weight, let others make that judgment. From our point of view, it's important. We're the leader. We take the positions. And what we've done in the last few years seems to have worked reasonably well, although the behavior elsewhere has been nicked.
And we don't assume that it will be any different looking forward. The other one on palladium platinum. I'm going to be very careful here because the last time I opened my mouth on palladium, we called it as a bubble. Look, if I can say that the palladium price reflects demand and supply. And that look the market has appeared to have been short palladium and we're seeing that in the price.
Whether switching will occur over time, probably. But then we would an improvement in the platinum price. The way we think about PGM prices is we look at rhodium being, I guess, the most reactive and the most valued in terms of in use applications, then platinum and then palladium. And palladium has a very specific application nearer the engine block in terms of heat and performance. And so it's got specific value in its own right.
So it's going to move between the 3. And the thing I've learned in the business from Chris and the guys is that they don't tend to move all down in one sway, although when the market's tough, you may get that. There'll probably be adjustments. But we do well if we take an average price across the commodity base or across the 3, we do well 900 and above, do extremely well. And at the moment, we're at about 1200 on a ballast base, even probably a bit higher.
And it's not going to swing away too far from that anytime soon, Chris. That's good. Yes. Is that yes?
No, that's good.
Yes. Okay.
Jan Rousseau from Barclays. I'm just
referring to
rugby. Two questions or cricket.
I think that's self
imposed. Keep your guard on his tail.
Just Stephen on your comment about it's okay for sustaining CapEx to go up. I mean obviously if you see that per copper equivalent growth follow. But on Tuesday, Thembo was highlighting some CapEx numbers for extra stripping and a few extra additional items, and he wasn't prepared to give us any numbers yet. But is there a risk that increases your sustaining CapEx above the ranges that you've given us in the slides at the moment? [SPEAKER JACQUES VAN
DEN BROEK:] Not materially, I'd say. And some of that may be short term, catch up a
little bit, timber too, just to get the
mine right and the processing plant right. So nothing that I think you should be overly concerned about at the group level.
Okay. Yes. There's some balancing to do, I think, in the pit.
And then just coming back to the sort of ex SA net debt number. I mean that obviously jumped up from the pro form a number you mentioned €8,000,000,000 up to €8,500,000,000 Obviously, I suspect the IFRS 16 was probably the majority of that as well and working capital. But do you expect I mean, sort of absent high iron ore prices, do you expect that number to come down at all in the next few years?
Listen, I'd love to be able to predict the mix of prices that would flow out. If prices stay the same, the majority of our growth CapEx in the near term, the next couple of years is in the rest of the world. So with healthy prices, it would probably stay about the same, maybe the best outcome.
Yes. But definitely our capital employed in South Africa is about 25% of the portfolio and with growth occurring. And even though we will have growth in South Africa or in certain areas, the average capital employed will probably reduce and the rest of the world will be playing a bigger part. So it does normalize over time, I think.
Yes. And most of the growth in the EBITDA in the next couple of years is in the rest of the world as well. So it's just a timing question probably to balance that out. Yes.
Arun Gabriel at Morgan Stanley. One quick question on your cost and volume improvement target of €400,000,000 So clearly, if you tie it back to Slide 20 on your slides or Slide 18 on our back, you've realized you've achieved around €300,000,000 negative in H1. Does that leave us with €700,000,000 for H2? And how would you split it up in different buckets, if you give us more granularity? Thank you.
So you're exactly right on the maths. Hence, while we're not prepared to get up on the target, it will be tough to bring it home in the second half. But yes, we do have pretty good momentum, particularly in some of the bulks. So a combination of Murumbah, Grosvenor and Temba is going to bring the second half home very strongly, under Temba, in Coomba and continue good performance in Minas Rio, I would expect is probably the larger individual portion. And copper has also run very well from a cost and volume point of view too.
So probably they're the main elements that would drive us towards that $700,000,000
May, June were strong months. June, we broke an all time production record at Moranbah. So the recovery from coal seems to be gathering momentum. We're starting to get more volumes back through timber in Kumba. That started back on the recovery.
June was actually a pretty solid month. So I think we're starting to build momentum in the last couple of months. And so those numbers we're happy with. There are some pushes in there, but certainly the momentum seems to be picking up pretty well. And in Mandeville, it's another last 2 months, it's actually been hitting pretty good numbers as well.
Sometimes currency plays a bit of a role as well, Mark. Obviously, in the last few years, we probably had really good strong cost and volume improvements offset by negative inflation in currencies. It's a little bit softer in the cost and volume, a little bit better in the currency factor.
Yes. I
think the only area that we're just watching very carefully is obviously with Bruce and Debit, A little more market work there, but the other parts of the business are coming back pretty strongly.
Mark Cedar Efbaum from Bank of America Merrill Lynch. Just a question on your technology push. Adoption of technology in the industry is becoming an industry wide issue. Can you talk about the breadth of your projects and where you think you are on the journey relative to your peers as it relates to retention of those savings? Do you think you're just going to be giving them away as everyone catches up?
Or do you think you've actually got quite a big head start?
Look, I'm going to ask Tony to get up. We're wheeling out every couple of months to talk about what we're doing and where we are. We're trying to get a 3 to 5 year break on our competitors. And in my experience in this industry, that's a pretty good break because with Internet and all the other technologies, things can transfer fairly quickly. So you've got to remain that far ahead year on year.
The good news is we've been investing for 5 years, and I think we're in a pretty solid position. And certainly, the feedback from people has been very good. But with that, let me hand across to Tony and you can make your own judgment.
Our program is certainly a lot broader than the rest of the industry. And we've seen our sweet spot as essentially being around the ore body and what tunes we can play with that and in the processing plant. If I look across the broad industry, it's focused mainly on automation, whereas we've been taking more of a technology approach. That's not saying that we're not working on automation and particularly around data analytics and advanced process control, so we're not particularly behind in those areas. And the automation gap, we're closing with P101.
So my sense is actually we're in front of the rest of the industry, but it's important that we implement really quickly more so that we don't get eaten away by inflation.
Yes.
So we've worked on a number of fronts. I think we're making good progress. We're starting to build things in the field now. So that's the really important part. And the whole Open Forum approach, the Open Forum, the fail fast, being quick on the ground is something we introduced about 4 years ago and I think that's given us a break.
Others there's been a lot of debate in the industry around IP. Part of the difference in our Open Forum approach is that we're more comfortable letting IP go and going for speed. Because in our view, the way the world works today, that information gets spread very quickly. And people find workarounds. You're better off focusing on speed and agility and getting there as quick as you can.
And that's why I think the work we've done so far puts us in a pretty good position. Okay.
I think
that's it.
I think we've got one on the top line.
I think
growth on sort of Okay.
Can you just
see if we can open the lines?
Can we go to the call? There's a question on the phones, Pablo.
Pablo. Can you
say that again, Mike? Yes.
Can we open the lines up for questions, please, on the telephones? Thank you.
Thank you. Your first question comes from the line of Grant Spohr. Good morning, gentlemen. Apologies, Mike. My questions have actually been answered throughout the course.
So thank you very much.
Operator, any other question on the phone? Or is that the only one we had?
We do have two more questions. Next one from Tyler Broda. Most of my questions were answered as well. I guess just the one question, I'm not sure if you touched on it, if I missed it. But in terms of the buyback, what is the timing you expect this buyback to go on for?
And can you describe sort of what is the constraints around the up to $1,000,000,000 Thank you.
So the timing that we've indicated in the buyback announcement is from now up until the end of March. We would expect to execute that program up to $1,000,000,000 Ultimately, it depends on volumes in days and price moves and all those sort of things. We plan to execute it proportionally to our share register in both South Africa and London. They're probably the main mechanical aspects over that sort of time frame, but ultimately it depends on markets themselves as to how quickly or how slowly that would be executed.
Probably one for Tony. Just wondering with regards to the bulk sorting, you guys have indicated the potential uptick in grade 3 concentrator and throughput. When and how are we likely to see the tangible results of what's happening at El Soldado? The reason I ask is that we'll see if there's proof of concept and potentially myself, other analysts could include those benefits in our forecast in some of the other operations that you said your role of sourcing out at?
Thank you for the question.
Thanks, Sam. We're working on the mine plan now for El Soldado. I expect you'll start to see an uptick next year and really get full uptick the following year, but you'll start to see it come through next year. On bulk sorting, I think it's also worth mentioning that we're commissioning a bulk sorter at this point in time in platinum at Mahana Kueena, And we have another bulk sorter due to stuck construction in nickel in Barro Alto in October, November. So we will start to have a spread across quite a bit of the portfolio.
Is there right about 18 months lead from start to getting to near full rate?
Essentially 18 months, yes.
And Sam, as we go forward into 2020 2021, we'll try to highlight for you some of that benefit and assets flowing through. Obviously, identifying it precisely as it flows through working capital and out to markets and into EBITDA is a little complex, but we'll try to give you as clear a picture as we can in the years ahead. Okay. Thank you.
All right, guys. Well, thank you, ladies and gentlemen, for being with us today. Much appreciated. Again, a lot more for us to do. And as Stuart said right from the outset, we are still very much a works in progress on all fronts and we're focused on continuing to improve the operation.
We're pleased with progress, but still a lot more to be done and a lot more improvement to be had. Thank you.