Okay. Well, thank you for joining us, gentlemen, and a couple of ladies. I think we're going to do a little bit about diversity, guys, in this group. Welcome. Thanks for joining us this morning. I would like to acknowledge a few of my colleagues this morning before I start. Chairman Stuart Chambers, welcome, Stuart. My colleagues on the management committee are sprinkled through the audience. We've also got Tom McCulley, who is the project executive for Quellaveco. He's joining us today. I think he's hopping a plane tonight to Peru. Ruben Fernandes. Ruben's fresh from Minas Rio, where he's been cleaning the pipeline. I'm sure he'd be happy to have a chat with a couple of you during the course of the morning. A few of my other colleagues. I see Craig Miller's here as well.
Can I encourage all of you to take advantage of having a few people around? You can ask whatever questions you want. Hopefully, we can provide you the insights you need to help understand where we are, where we've come from, and where we're going. Today, we'll stick pretty well with the format. I'll talk about business performance just briefly, give an overview. Talk about where we've come in terms of the last five years, some of the work we've done and positions of the business. Stephen will talk about the financial results and unpack the numbers, which I think is very important. There's a few moving parts there in this set of results that need to be explained. I'll pick up again on capital allocation.
Obviously, the conversation around Quellaveco is an important part of that conversation and really does reflect our focus and a different approach to the way we allocate capital. Just pick up some details on the foundations that we've created and why we believe we've set ourselves up for the next five years. It'll look quite different to where we've been. Most importantly, though, I think talking about the lessons we've learned over the last five years and how those lessons are being applied into how we think about and how we'll execute the continuing improvement journey that we're focused on over the next five years. With that, we'll kick straight into performance. From an operating performance point of view, continuing improvement in the operations performance. Our $400 million improvement in the first half reflects half of that $800 million commitment for the full year.
Again, Stephen will unpack those numbers just to help you understand where we've got that from. Earnings and cash flow reflect continuing improvement in the business. Our EBITDA is up 11%. Attributable free cash flow, when you pull apart the one-offs compared to last year, is pretty solid, but we need to continue to improve. On margins and returns, we've improved our EBITDA margin to 41%, and our return on capital employed is 19%. It's a solid set of results. More we can do, and certainly we're focused on continuing the trends to improve and make sure that we've got a business that can deliver consistently. On safety, health, and environment, an important place for us to start. Unfortunately, we've reported two fatalities in the first half, and in fact, we had a third fatal incident in July. Still a lot of work to be done.
We have improved, but from my point of view, these aren't a good set of results until we're at zero. That quest continues. The elimination of fatalities task force work is starting to gather real momentum. I think we're in the middle of impacting that performance, and certainly a 31% improvement in the total frequency rate for the half is encouraging, but nowhere near where we want to be. Encouragement, but a lot more work to be done. Health, the numbers are good. We continue to focus on a broad range of issues with our workforce. On the environmental side, again, a solid set of results, but I would say the disappointment, obviously, Minas Rio. Of the four incidents that we reported in the first half, the Minas Rio leaks were two of those incidents. A lot of work going on now.
As we stand today, we are in the middle of the process of inspecting the pipe. We are setting up to replace around four kilometers of pipe. That's been ordered, all being done. The preparation work's being done. We're working with the authorities to make sure that we've got appropriate independent advice and that we're connecting to the authorities so that the appropriate regulatory approvals are moved through fairly quickly. We're still on track to start producing again by the end of the year, but there's still a fair bit of work to be done and to make sure that we fully understand the mechanism. We believe we do, but I want to wait till all of the inspections are done to make sure we've got every angle covered. A lot of work going on.
Again, both Seamus and Ruben are here if you'd like to understand a little bit more after our sessions. You're more than welcome to chat to the guys. On productivity and improvement generally through the operations, as you know, productivity continues to improve. For us, volumes are up 8% over the last five years. The key number, obviously, number of assets. When we either took fairly drastic action in either closing or selling assets, we pulled out about 15%-17% of our productive capacity. The fact that we're up 8% reflects improved performance from the existing assets. On average, it's about 30% uplift in performance across the existing asset or the current asset suite. We've also had a couple of contributions from assets coming into the mix, Grosvenor, for example, but they're still not yet at full capacity.
Our productivity should continue to improve over the course of the next 18 months. For us, that's very important because we want to continue to improve our operating costs and our competitive positions. On numbers, in terms of people, there has been a significant reduction. We've gone from around 160,000 down to 95,000. Those numbers will continue to reduce. We're making sure that we do that with all of our employees, but that's where the focus is, to continue to improve our cost position. I just wanted to give a little bit of sense, or to give you a little sense of what does an average 30% improvement look like across the business. This slide is a slide around Mogalakwena. It could easily be Sishen. It could be Moranbah. It could be Grasstree.
It could be Kolomela. It could be Los Bronces. You get the picture. At Mogalakwena, on mining, our shovel productivities have gone from 1,700 to 2,300. There is still a long way to improve. In the last five years, we're up 5%, 34%, sorry. We still see significant performance potential in the assets, but that's been encouraging in terms of the underlying mixed shovel productivities across the group. On truck utilization, we're up 20%, almost 20%, actually at 20% now. We've gone from 5,400 hours per truck to 6,500 hours per truck. It also helps explain why our sustaining capital numbers have been improving as well. We're getting more out of the assets we have. In terms of the concentrators and tons processed, we're up 35%.
Whilst we've improved the North Concentrator and the South Concentrator, we did add some incremental volumes with Baobab. Overall, the underlying efficiency improvements in our operations is north of 20%. Again, that's very important, not $1 of capital has been spent on any of those improvements. At the same time, we've gone from 74% recovery of payable material to 80% recovery. The volumes are up, and without putting new storage or other capacity in, we've been able to improve our underlying recoveries by 8%. That's straight to the bottom line. That's been significant. We're improving both the volumes and the quality of the work that's being done.
As a consequence of that improvement and with the way we set the pit up, and if you can recall, three or four years ago, we talked about rescheduling the pit over the next 15 years. We've got some improvements in grade. When you add all of that up together, we've seen a 60% increase in production of precious metals. We're now at or around a million ounces of precious metals. We talk about platinum, but for us it's about all the payables, and it's north of a million ounces payable. Today, our margin is 45%, even though the platinum price has dropped 30%. That's been significant. The real story, and this all adds up to, and this is equivalent platinum cost, we've gone from $994 back in 2012 to $250 an ounce. Chris's target of zero platinum cost is alive and well.
There's still a lot of potential, we think we can get there. Obviously, grade will play some part in that. From our point of view, 75% reduction. Or if you want to talk margins, we've gone from a 40% margin to a 45% margin despite a 30% reduction in the price of the products we produce. That's really a big part of the story in terms of getting platinum from net $1.5 billion dollar debt to a net cash position at the half year. In a pretty strong place. Very pleased with that. Again, there's a number of assets that I could talk to in those same terms. Sishen, Kolomela, the full portfolio. Importantly, it's improving our competitive position across our commodities. In 2013, the best data we had for De Beers is 2014.
If you look at the positions across the quartile cost curves, these are the positions by commodity that we occupied back in 2013 and 2014. So as a consequence of portfolio, operating efficiencies, and some of the new innovation stuff that we're starting to tinker with and introduce into the operation, which will become a much bigger part of the story in the next five years, we've started to see improvements in our relative positions. So this means we're moving quicker in those areas where you see we're going to the right in terms of cost positions relative to competitors. So copper's gone from 71% to the 57th percentile. Quellaveco, being Q1, will take us mid-Q2. So again, a very important addition to the portfolio in terms of the quality of the copper business. Met Coal, Moranbah in particular, Grosvenor will start to make a significant contribution.
Grasstree have taken us to the top of the league table in terms of long wall operations, moving us again to the left. So Seamus and the team have done a great job in the Met Coal business. In De Beers, general focus on cost. Gahcho Kué making a good contribution. So again, moving to the left with more to be done. In platinum, you know the Mogalakwena story, but we are improving other assets, including Amandelbult. A lot more to be done in those assets and a lot more potential still at Mogalakwena. But a good shift to the left. In nickel, Barro Alto, we've got the furnaces sorted out. From what we can judge in the nickel business, Barro Alto now is one of the very few major new nickel assets that are actually hit their designed capacity.
If you remember the problems we had with the furnaces, we redid the furnaces, and now we're at full rate. And again, Ruben has been the leader of the business for some years now, and it's probably the best in control asset that we've got across the group. And we've got lots of success stories, but in terms of nickel, those furnaces are really starting to set the trend and the benchmark for us as a business to follow in terms of running an asset well. In thermal coal, story not as positive. We pulled back capital in Cerrejón with our partners on the basis that we didn't think it was the right time or we weren't spending that capital as well as we could. So we've pulled a bit to the right. We've also got two assets getting close to end of life. So that's impacted the costs.
Over the next three to four years, they will start to come out of the system, so we'll move again to the left. But there's more work to be done on productivity and Seamus can talk about some of the things he's working on at the moment in thermal coal, in particular in South Africa. In iron ore, you guys know the story pretty well. A lot of new capacity in the Pilbara and in Brazil has been built so that the curve's shunted to the right. In our case, we've more than halved our controllable costs at Kumba. But even with that, we've not been able to compete at this level. But we've closed the gap to the Pilbara and Brazil.
In fact, I think three of the months last year towards the end of the year, where premium quality premiums and lump premiums were pretty good, we're actually middle Q2. For us, the target is $10 a ton, either through premiums and cost. That would give us a $35 break even landed in China, gets us in this range. Seamus and the guys and Themba know what has to be done in the next three to five years. That's we're in pursuit of trying to get ourselves on the bottom half of the cost curve. Minas Rio at full rate is mid Q2 as well, based on quality and cost, around $35 landed in China. There's work to be done. We know what we've got to do, but there's still more to be done to get ourselves to the left-hand side of the cost curve.
Today, 2018, we've moved from 52 percentile to 46 percentile. We have a view on how we've done against our competitors. We've done well, we think. But it's a constant analysis from our point of view because we've got to keep driving ourselves to the left. In each of those businesses, we know what we've got to do to get ourselves to the left. We've got to try and get there quicker than our competitors. That's the imperative. That's the focus. That's what I'll talk about when I talk about things a little bit later in terms of the five years. Today, if you remember, we were predominantly here. We've moved a lot of the businesses into the second quartile, but we've still got more work to do. Certainly, we know how to get there in copper.
Seamus and the guys are very focused on getting us there in iron ore as well. As a consequence, from 2012, we're up to a 41% margin. That is against a lower price deck for our commodities. Our 23% reduction in cost, which is the nominal number or about 30% real, has helped us move up the margin curve. That includes, sorry, I should say, also includes the marketing work that Peter and the team have been doing. That's been important in terms of our margins. Over the next five years, three to five years, we'll continue with the efficiency work. Our innovation and technology work is set to make a more significant contribution in the three to five-year range. Again, Tony can describe some of the things that we've got going.
Obviously with Quellaveco and the smaller projects that we're starting to put under the launching pad, there's a real push to head us towards the 50%-type margin. Clearly subject to price, but on an apples for apples basis, we know where we've got to go and what we're driving towards. With that, I'll hand across to Stephen. He'll unpack the numbers. Thanks, Stephen.
Sure.
Yeah, man.
Thanks, Mark. Thanks, Mark. Morning, everyone. The theme this morning for the numbers section is the journey continues. All right? It's a really good set of numbers. It's a clean set of numbers. Importantly, it sort of simply shows where we're focusing our efforts as we run the business and as we prioritize the things that we want to do internally. Those priorities really continue around a balanced approach. It's a balanced approach around returns to shareholders, capital allocation, and ongoing focus on the balance sheet. The same themes that you saw in the last six months, the six months prior, you're seeing in this six months, and you'll see again in the next six months. The journey continues. We'll also unpack a little bit about the EBITDA drivers, and we'll finish on the report card that we talked to.
We speak a lot about our focus on costs and volume. The reason we do that is because we know from time to time at different parts of the cycle, we will come under pressure from inflation and other sort of cost increases. This half, we delivered $400 million of the $800 million target that we've set for this year. That $400 million takes us to $4.6 billion since 2012. What have we seen in terms of some of those cost increases? We touched on this theme a little bit at the full year results. Increased diesel price, given the higher oil price. That's the same for everyone really across the industry. We've seen increased energy prices, particularly so down in South Africa, and that can reflect itself either in electricity prices or in infrastructure charges if those things also use energy.
We've also seen a little bit of wages and salary growth, again, South Africa, South America in particular. That's the reason why we stay focused on these cost and volume improvements, so we stay ahead of the curve. Let's have a quick talk at this slide. We'll move across left to right. In terms of prices, PGMs up, largely driven by palladium and rhodium. Copper, thermal coal also up. In terms of currency, a little bit of a mixed bag in terms of currencies. Probably the most noticeable one was the strengthening of the ZAR through the half, the South African rand through the half. That softened right towards the end of June 30. Inflation, I've touched on. Minas Rio, we'll highlight separately for you through the year so that you can just clearly understand the impact that has first and second half.
The good news is we are on track in terms of the inspection and repair work. Guidance unchanged in terms of coming on at the end of the fourth quarter. Really, as we look forward to 2019, a little bit of positive momentum into earnings as that comes back on stream. I just want to step away for a moment from this half's numbers and just look a little bit forward as we look at the sort of cost and volume improvement journey that's ahead of us. You recall at the full year, we outlined our target over the next five years from the start of 2018 to the end of 2022, $3 billion-$4 billion improvement that we're looking for. There's really three broad buckets.
I just want to give you a touch of a little more detail to help you understand where the focus is. The first bucket's operational efficiency. You'll hear us talk internally and probably a little more externally about P101, it's the sort of the catchphrase that we have internally that really talks about getting to benchmark and beyond. All right? Full potential plus is sort of another phrase of how we explain it. Even though we've had a great journey in some of the assets, Mark spoke about Mogalakwena before, there is still a real opportunity in front of us. We've improved Mogalakwena, we've improved Sishen, and we've improved cutting rates and things at Moranbah/Grosvenor. We still have real opportunity in front of us to get to benchmark and beyond and really sort of set the trend for the industry.
That's across all the diggers, all the trucks, processing plant, recovery. It's everywhere. We've got that same mentality as we look for those improvement opportunities. When you do start to approach P101, you've got to start to make some choices. How do you take that benefit? Do you take that benefit in terms of cost out? Do you park up trucks? Do you park up diggers? Do you take that benefit in terms of increased production if you can get it to market down infrastructure? Or is it some combination of both? Is it a focus on grade and quality of product so that you're maximizing your margin of what you earn for each ton? They're the sort of choices that we have to make as we go forward. Great choices and great opportunities to have to think through. Right?
It's a really, really great challenge as we look and think about the business all the way from mine to market and think about how we maximize that value equation. Second bucket's around technology and innovation. Here, I suppose I want to give you a sense that we're moving out of the lab and into the field. All right? We're really have quite a neat schedule as we roll out some of these production test units across some of our operations. In the concentrated mine, it's about bulk sorting. What is that? It's about more precisely getting the cut-off grade right by separating prior to the main processing plant, the lower grade element of what we're about to put through the plant. The aim there is a 10%-20% increase in feed grade through the processing plant.
We're about to put the first of those units into El Soldado. Should be in about end of August, September timing. I think that's due in. Early next year, it'll be at Barro Alto and Mogalakwena. Those things really starting to go live and roll out across the operations. In copper, we're probably more certain of the benefit. Platinum, still doing some earlier phase work to make sure that we're going to get those sorts of benefits. On coarse particle flotation, remember that sort of coarser grinding so that we use less energy. The target there is 30% more throughput, a smaller recovery loss, maybe 3%, and that should get us at 20% less energy, 30% less water. Again, copper will be the first rollout of that at El Soldado. That'll really be through the early half of 2019.
The third bucket's really about project delivery, Mark's touched on some of those things. We've spoken about them before. Moranbah/Grosvenor debottlenecking, potentially an extra vessel in Debmarine. Quellaveco coming in at the end of the 2022 period. Lots of opportunities in front of us. Again, the commitment across the whole organization to chase these things, really quite exciting for us at the moment, the momentum and the enthusiasm that we've got across all of the operations. Back to some of today's results. The main message here is really about stability of earnings and effectiveness of capital allocation. From a stability of earnings point of view, 3% increase in EPS, 6% increase in return on capital employed to 19%. Cash flow. Someone able to move the screen for me, or is that- Hang on.
Here we go. We're right. Thank you. Looking at cash flow. We did have a really strong 2017. We did have a number of sort of one-offs, benefits that flow through 2017, which you're now seeing a more normalized level of sort of cash flow on a half-by-half basis. Last time around, some of the one-offs, we had slightly lower cash tax. We just restarted the dividend post the half year, we had less minority leakage. We had lower CapEx. We had a bit of a working capital release in the first half of last year. A more normalized state this time around. If you normalize for those things, a good increase period on period and a strong cash flow for the half. Turning to the balance sheet. Focus on net debt reductions continued, a further $0.5 billion down to $4 billion.
It remains a priority for us, as I said earlier, we're determined still to take advantage of this window of opportunity that we have before we have to put our hand in our pocket for CapEx on Quellaveco. At $4 billion, we're probably really at the low end of where we're very, very comfortable with where the debt sits for this part of the cycle. Remember I spoke last time around about the way I look at the balance sheet across three key metrics. Absolute net debt level, obviously strength of the balance sheet. Net debt to EBITDA, strength of the underlying cash flow. Although that can obviously move with volatility in commodity prices. Obviously net gearing or net leverage ratios really goes to the heart of the strength of the balance sheet, even through those cycles. We will remain focused on all three.
Our guidance for the net debt to EBITDA ratio is at one to one and a half times. We don't want to exceed that for any long period through the lows of the cycle. Obviously, we're at incredibly attractive levels, but as we should be for this part of the cycle. Ideally, we want to set this balance sheet up so that we can be counter-cyclical if opportunities emerge in the years ahead. In terms of returns to shareholders, we're committed to the payout policy, 40% of underlying earnings per share. $0.49 for the period, slightly nudged up from where we were in the prior half. With this dividend, that takes our returns to shareholders to $1.9 billion since we restarted the dividend this time last year. That's about a 4% yield, just a tick over, I think, on today's prices.
Just to wrap it up then, how did we go in terms of report card? Prior to discretionary capital, $1.8 billion of cash flow. What did we do with it? Net debt down half a billion, final dividend of $700 million in terms of returns to shareholders and a few other bits and pieces. Discretionary capital, $200 million for the half. Obviously, that'll tick up a little bit through the second half of 2019. As I say, continued journey, continued trends, a good journey that we're on. Mark, back to you.
I was just thinking, this thing wasn't working. It's probably a lithium battery. It should be nickel, shouldn't it? Okay, I'll move on. Thanks, dude. People ask me about the ship in terms of capital discipline. When I look at Bruce, if I could just make a simple point, one of those incremental improvements that we've got available to us is to build and put on the water a new ship represents a one-year payback. That's what we're about. Efficiency of capital, getting good returns, and that typifies or exemplifies our perfect project, 12-month payback. For us, when we look at the business, we talk about the commodity positions. I'd like to stress the point that the positions we have by commodity are a function of our focus on quality assets. It's our focus on quality assets that determines where we put our capital and where we develop.
The good news for us in copper, the fundamentals are strong. We've got a great position, and we're able to convert that opportunity in something very real with Quellaveco and many are pursuing copper in the industry. We've got some great internal options, both from a greenfields perspective, a brownfields perspective, and longer term, we think our exploration work will position us even further in terms of the industry. A great position to be in. In terms of Sorry, just finish the story. In terms of diamonds, we continue to supply to demand. As we see demand growing, we've got the ability to deflect. We are transitioning in a couple of parts of the business. Obviously, Venetia going from open cut to underground. That's a transition story at the moment. Gahcho Kué hitting its straps and certainly continuing improvements.
Obviously, Debmarine and Jwaneng, important contributors in terms of the business. Certainly, the prognosis looks pretty good going forward. Certainly very encouraging. On PGM, big focus on Mogalakwena and its ability to make continuing improvements and a major or a significantly improved contribution. In particular for us right at the moment, a lot more work to be done at Amandelbult. Still continuing our journey down the cost curve. A lot of work to be done. Very focused. Chris and his team are very focused there. Clearly, the big contribution for Bulks, if you look at the numbers from Bulks over the last couple of years, they've been exceptional. Moranbah, Grosvenor and the ramp-up continue. From our point of view, lots of incremental opportunities in that business to improve that contribution.
Certainly, the contribution in the last two years has been significant and will continue to be strong given the improving performance across the business. For us, the potential or the focus on portfolio upgrading is continual. Obviously, we'll talk about Quellaveco in a couple of minutes. PGMs, Union Mine, we've completed the S189. BRPM S189 continues our focus on really focusing on those assets that can move the dial for us. The Mototolo acquisition should be really thought about. Firstly, we know the asset, we know the resource. The purchase position with Glencore is about extending from a five-year life to a 30-year life with the connection to Der Brochen. That doesn't mean we're going to go out and do anything significant today. What it does do is provide us a long-term option in terms of the business.
It's not the right time in the market to go and spend something new in terms of the asset, positioning ourselves, very important in terms of quality assets for the long term. We see this as a good move. Thermal Coal, you're aware of the completion of the transactions on the Eskom-tied mines along with New Largo. In De Beers, we haven't been standing with our feet in the mud. Lightbox, a very important step in terms of the business. Again, Bruce is here if you'd like a bit more insight into that. Happy to answer any questions. Obviously, the offer for Peregrine flags an approach for us that's very important. The world is short diamonds. There will be a significant shortfall by 2022. We're positioning ourselves with options in terms of going into the market.
Again, it's market-led, making sure that we're doing the right things and spending our money in a smart way. Quellaveco. Some have observed that the photo does indicate that we have been active in the last two or three years. The actual number, Jason, is about $500 million in terms of investment in value in the ground in keeping the option open. I think it's been money well invested in terms of understanding the geotechnical issues, understanding the big issues that you don't know about before you make these big commitments. Most importantly, it's been an investment in the community and the commitments that we've made to the community. In terms of those relationships, absolutely critical in a place like Peru, and we certainly got the support of the local community. That's been an important part of the work.
On Quellaveco itself, obviously, returns, key focus for us, making sure that we get the discipline right. Internal rate of return works off the midpoint of the range that we talked about in terms of the capital, the $5 billion-$5.3 billion. Return on capital employed is north of 20% when we hit that full production rate and through the first 10 years. Our payback post first production is four years. For us, very important metrics. If you look at the key hurdles that we set ourselves in terms of our capital allocation processes four years ago, it ticks each one of those boxes. In terms of the asset itself, low cost, and I'll unpack why the costs are as low as they are. Long life, obviously, the resource is significant. We do see significant long-term potential beyond the 30 years.
I think the address in terms of who's next to us tells you there's a good story or good potential story there in the long term. Capital discipline. The commitment to the syndication and the partnership with Mitsubishi was very important. As Stephen indicated, we won't be required to put our hand in our pocket in funding our share until well into 2019. That's an important point to make in terms of the balance sheet and our continuing journey in reducing our debt. In terms of being execution ready, it's permitted. The social credentials is where we have been investing and working very hard with the local community, very strong. From the dialogue table in 2012, it's been a real success story in terms of the conversations. Interestingly, the governor that chaired the roundtable in 2012 is now the president of the country.
I think he is probably more excited than we are in terms of the commitment, and I will be standing with him next week talking about that in the context of Peru. Very strong support from the government right the way through to the local community, which is something that's very important in all of our jurisdictions, and particularly Peru. Again, execution ready in terms of the community support. We've actually committed through the life of the project $300 million in community investment programs. It's not the investment programs that we think they should have. They are the investment programs that they've asked us to help them with in being a true partner in the community. It is different. It's a different approach. It's a different conversation. We think critical to ensure continuity and cost competitiveness of the project.
You need your local community in there as a partner. Our key permits are in place. The construction program is as good as I've seen in my 42 years in the industry. Clearly, we've had a long time to bake this cake, and we've done a lot of the pre-work, and we've applied all the lessons that we could, plus some, out of our previous adventures or misadventures in some cases. I think it's well set up, and we're well set up for success. Tom's here to lead the project, Duncan, Tony, all of the GMC members have been active participants in making sure that we've looked at this from every angle. The syndication, I think, was an important message to everyone that we're serious about thinking about a different investment model for the industry.
Yes, it borrows somewhat from the oil and gas sector in terms of sharing that risk. We've got a good partnership with Mitsubishi. We know them well. They know us well. Certainly, from our point of view, we think it's a win-win for both of us as an organization. When I talk about returns, the fact that we've been able to book a profit on some of the investments we've made is actually helped us return a little bit better IRR on return than we're reporting at the project level. The good news is it actually enhances our returns as well.
We think that's smart to do in putting a little bit of that profit back in our pocket and using that to help fund the early parts of the progress and keep our balance sheet in good shape and able to support the continuing improvements across other parts of the portfolio. Again, we think it's a win-win for us and for all parts of our business. The returns, very important. You've seen the headline numbers I've talked about. I think the EBITDA margin, we talked about that 50% target for us as a group. This helps us achieve that type of improvement in our margins. The construction capital, this is our share post syndication in the range $2.5-$2.7. I think that's important to focus on as well in terms of Anglo American's financial commitment to building the project.
From our point of view, in 2018, our share will be around $400 m illion. It'll be fully funded from the proceeds that we've received from Mitsubishi, and that goes well into 2019 as well. Unit operating costs for the first 10 years, $1.05. In fact, with the softer material in the first five years, it's a bit below that. The structural cost advantages are important for people to understand. It's low strip ratio, below one. Secondly, for the first 10 years, most of the haul is downhill. You've got low cost haulage costs. The labor costs and the energy costs are very competitive. They are not a pittance, as some would be aware in other parts of the world. In Peru, it's a developed country. It's a progressive country. The productivities are good. The pays are good. More competitive than some of the other jurisdictions.
From our point of view, the structural cost base is very good. Hydropower is also an advantage in terms of the energy side. It's a good mix, and we're making a good contribution in terms of the organization. It's also sustainable because the pay rates are very competitive on a broader basis. Production, 300,000 tonne a year for the first 10 years. It'll be a bit higher than that in the first five. Again, as a consequence of the softer material going through the plant very quickly. Cost position, as we said, we will improve our cost position as a consequence of Quellaveco. It'll move us solidly into Q2. If you remember the copper position on the top curve. That's an important step for us. Again, a continuing focus on improving the portfolio. Can you give us a kick on the slide? Thank you.
Shake it a bit.
Shake it a bit. Lithium, it might blow up. What? Nope. Let me try that again. There we go. Got it. Oh, it's behind me. Okay. Well, yeah. I'm pointing at someone up the back. It should be here. It's an IQ test which I failed. The start of the resource [footprint]. I think the big thing with, as you know, copper deposits, we're in a great address. The two Southern Copper assets that flank us have been long-term assets, very successful assets. Certainly from our point of view, the address is a great address. The mineralization is pretty well known. From our point of view, it's open at depth and certainly in one direction. We would expect beyond the 40 years from the project. If you look at the resource base, obviously significant. We'd like to think that it's beyond 60 years.
A lot of work to be done, obviously, to prove those sorts of numbers, but significant potential. If you look at history in terms of Los Bronces growth since 2004, same with Colquiri. We think it's one of those types of deposits that becomes a long-term foundation for the group. A very important commitment, and I think well-priced, great returns, and for the long term is a changing or is a portfolio changer for us as a group. On the foundations that we've set or have been setting and with Quellaveco being another step toward building on those foundations, I think it's important to just reflect for a moment that today, if you looked at where we were five years ago, our average life of mine was somewhere between 20 and 25 years. Today, we're at 30 years across the portfolio.
Our thermal coal assets have got the shortest life at about 14 years, and some assets have got beyond 100 year of Mogalakwena. Our target is in the next five years is to make sure we maintain that life as a minimum. There are opportunities to increase the life, which would then ultimately underpin future growth in the asset base. Again, connected to the markets. With that type of asset base, we're in a unique position and certainly unique in our industry, and it gives us the ability to focus on that underlying improvement for the long term. Every time we make an improvement, we got 30 years to bank the results, and that's critical, and that is different in our industry to many of our competitors.
We've also got a list of opportunities in each of those commodity positions that provide us with the opportunity to grow, and we're forecasting, as Stephen talked about, a 3% growth year-over-year through to 2022. We have the options that go well beyond that type of configuration or that timeframe. Sakatti, for example, is something that could follow a Quellaveco, market conditions permitting. It's a smaller asset, low capital base, high margins, great returns. We've got a number of those types of opportunities across the portfolio. Something that we'll start to talk about in the next year or two is exploration. Through the tough times in 2015 and 2016, we didn't stop committing to exploration and technical innovation. I think today we're starting to see the benefits of that commitment in terms of what we're doing on the ground.
In terms of our exploration strategy, Tony and the team redefined our approach to exploration. A step back, big regional positions, think about exploration in a very different way. We're focused on key geographies. The innovation work that we're doing now is being applied to our approach to exploration. For us, it's all about value. Certainly from our point of view, we think the exploration team is starting to show real value for the commitment that we've shown in the last two or three years in particular. Today, we've got some really interesting positions. For those that have been tracking us, you're probably aware that we drilled some holes in Brazil, six holes. We've stopped. We've actually pegged out fairly substantial land position. I think it's five times the size of Kent or in Australia it's about the size of Gina's backyard.
It is a significant position and certainly from our point of view, it's a very interesting place to be. We think we may be sitting on a porphyry, there's a lot of work still to be done. Early days, but we'll keep you posted in terms of the process over the next six to 18 months. Our brownfields opportunities. We've been doing a lot of drilling around Collahuasi, Los Bronces, both from an underground potential and extensions to the existing operation and obviously the Quellaveco district. We're not going to do much more than let you know that this is becoming a very important part of our portfolio and the future options that we have. Again, focus on asset quality as a consequence. Revenue by product, quite a mixed bag.
That from our point of view, it really is different and we're providing a different set of options to the marketplace. In our case, the quality of the assets that underpin those revenue streams are very strong. From our perspective, we think it's differentiated, it's unique. Capital employed by geography over time has been balancing pretty well. South Africa at 26%, used to be up near 50%. We're getting the balance right and certainly from our point of view, we think the risk profile in terms of the revenue base is starting to balance out quite nicely. That will continue to balance out over the next three to five years with a commitment to Quellaveco certainly improving that balance across key geographies. I've just turned the thing off. That wasn't helpful. In terms of are we positioned in commodities for the future?
We're well positioned in electrification and innovation. A greener world, PGMs in particular. Copper is part of that world. In terms of coking coal, the quality of our coking coal and the quality of our iron ore is playing very much into the China environmental story. We think the premiums on those products will certainly remain as China and other locations focus on quality and making sure there's both efficiency and clean production from those sources. We think that's important. Growing middle class. Platinum jewelry, diamonds, those other products are all playing into those sectors. Again, as a consequence of our differentiation across the portfolio, we're playing into the right market segments in terms of use of raw materials and product. Finally, for us, again, it's about assets.
We're building the capabilities inside the organization to take advantage of the quality we have inside the asset base. For us, it's about cash flow, it's about the efficiency of those cash flows as measured in return on capital. It's about being sustainable. From safety all the way through to the social contract we have with the partners in developing new opportunities in the business. Absolutely critical. That's the Anglo American story. Very happy to take questions. Yep. I'll come across.
Hi. Dominic O'Kane, JPMorgan. Just three questions. Firstly, on Quellaveco, can you maybe help us understand the CapEx profile over the next few years? Obviously, that has implications for group balance sheet and free cash flow.
Yep.
Moving on from that. The dividend policy 40%, whilst obviously positive that you've restarted dividend, maybe the range maybe looks a little bit skinny relative to some of your peers. Could you maybe just comment on why, given the strength of the balance sheet, you don't adopt maybe greater flexibility and a higher payout ratio going forward? Finally on cost control. Copper looked like the one area that stood out as having a reduction in unit costs during the period. Some of that seemed to be grade-related. Could you maybe just give us some guidance on how we should think about copper unit costs second half this year and also 2019, and maybe some more detailed guidance on grades?
I'll maybe deal with the last one first, and then I'll let Stephen get up because I'm sure he's keen to answer all of those questions. At Los Bronces, the underlying cost reductions that the team have delivered, given the increased haul rates and distances, is north of 20%. Is that correct, Duncan?
Yeah.
The recent kick in copper grade has helped us in the last 12 months reduce our cost. If you look at the trend over the five years, it's north of 20% in real terms. Colquiri has made a significant note down the cost curve as a consequence of improving efficiencies and a little bit of growth. Overwhelmingly, it's been the underlying performance, but certainly in the last 12 months, the costs have improved at Los Bronces with better grades. On the other elements, Stephen, capital, dividend policy?
Yeah. Just to add to the cost story. Yeah, it was a great half for copper. Our currencies and a bit of inflation went against us. Going with us was obviously both the volume increase, grade, as you said, and some by-product credits also sort of played into that. A good outcome, and Duncan has assured me he's going to keep delivering for the second half. That, again, I'd expect us to come inside our previous guidance. Generally, across the other commodities, I suppose the same part of that last theme. Mixed impacts in terms of currency and volumes, grade, et cetera. Generally, we're inside and tracking inside of our full year guidance for most of the commodities. Coming to your other topic, CapEx.
We're guiding that we will spend $400 million on a 100% basis for the balance of this, $300-$400 million for the balance of this calendar year. That will be funded from the proceeds from the sell down. Some of those proceeds will then carry on through into next year. The first phase, largely through that first half, will also be funded from those proceeds. It's really then from, let's call it mid-next year, that we'll start to contribute on a 60/40 basis. If you recall in the announcement of the sell down, it's about $833 million comes in, and that's the $500 plus gross up comes into the account. It's the 834th sort of millionth dollar that then gets funded on a 60/40 basis, if that's the correct THs and all those sorts of things.
We're not guiding at the moment in terms of the exact split. When we come out with capital guidance for 2019, we'll give you the better split and those sort of things. It is a fairly typical sort of project spend profile. Years 2019, obviously years 2020, 2021 will probably be the largest spends, and then it will ease back in 2022 as we get to the end. In terms of dividend policy, listen, we're really happy with that 40% sort of guidance and payout ratio. When we struck it, and we still think, it strikes the right balance. Right? Remember for us, it's not about one thing or the other. It's not about capital returns to shareholders, and that's all we've got to do with the money.
We think we've struck a really nice balance in terms of appropriate returns to shareholders, sensible capital allocation and investment in the future, whether that be longer term or shorter term type initiatives, and de-gearing the balance sheet. We still are priority each of those three, absolutely unashamedly. I'd love to make progress across the balance sheet still for the next 12 months. We think we've got that balance right. Ultimately, we will work our way around that capital allocation wheel, and if we find ourselves with excess cash as we've worked around that wheel, then we'll consider how we allocate it back. Right now, I think the 40% really strikes the right balance.
Steph.
Coming?
Share it to him.
Jason Fairclough, Bank of America, Merrill Lynch. You're here. Norsk Hydro had a little incident back in Q1.
Yeah.
It seems with limited environmental impact. They're still struggling to get permission to restart. Could you discuss a little bit your engagement with the various levels of government and whether you're engaged yet with the public prosecutor? Just walk us through how the path from here to restarting that asset.
Sure.
I guess along with that, Mark.
Yeah
What are your take or pay obligations and your fixed cost base that you have to carry while this thing isn't running?
Okay. On, we know the guys from Hydro pretty well, Svein Richard, the crew. They've got a specific set of issues that are quite different to what we have. I think it's very different, and we do understand the challenges they have. In our case, we've got all of our approvals. The last license approval required is the license to operate, which comes off the installation. That's pretty clear. Ruben has been working very closely with the prosecutor's office and other officials. I think he counts them as his first, second, and third best friends. We know them very well. There was a conversation around some of the requirements on the licensing that the prosecutor put forward, I think a week ago. That was not considered or it was knocked back on the basis they don't have jurisdiction.
We engage all of the key players, we think that the processes we have to go through are pretty straightforward and that we don't anticipate major further disruption. We'll work through the processes, and we're engaged on a daily basis. We'll wait and see. So far, they've been very supportive. The big thing, we've got 95% of the local community saying, "We want this." When we had the vote, it was 11 out of 12 of the key representatives of the key players. They know the community wants this project, and I think that's been very helpful in our condition in particular. I think the way the issue was handled has been complimented by literally everyone.
Even the prosecutor's office said, "You handled it in a very good way." I think we're maintaining the right dialogue, I think we're in as a place to keep that going forward. Ruben, did you want to add anything?
Maybe just one comment.
Graeme and Mark. Mark, if I may.
We have hired Technological Institute of São Paulo to do the investigation of the root causes, it's the same institute that the public prosecutors wanted to have investigating the incident. We have this alignment with them in terms of technical analysis. It gives us confidence that we have the same kind of approach in understanding the incident and preventing the new ones.
I've just come back from Brazil, the team have taken me through all of the steps, I think they're covering the issues better than anything I've seen in terms of the process. Seamus has just come back as well. I think we're all comfortable that we're doing all the right things, engaging all the right people. Again, you can never say there's a 100% guarantee, I think we're doing all the right things and we're in the right conversation.
Mark, just on the take-or-pay and financial impact. Yeah, that's all included in that $300 million-$400 million that we've guided.
Is that per year, perhaps?
That is to the period that we expect to restart it in Q4.
If this thing drifted.
If it drifted, I am going to look at Craig Miller, maybe ZAR 30 million a month. ZAR 20 million, ZAR 30 million a month, something around that. The ZAR 300 million-ZAR 400 million includes all the things you would expect in terms of staying engaged with the workforce and the training and all those sorts of things, as well as the repairs and the cleanup and that sort of stuff. We are trying to be really quite comprehensive. Will we use all of that ZAR 300 million-ZAR 400 million? Obviously, we will see how it plays out. There is still work to be done and things to deliver, but we are pretty comfortable with that scale of guidance that we have got at the moment.
Thanks, Mark.
There's a strong sense in the community, and I've been in these communities with the guys. They want it operating. I think we've got lots of support in the community, which I think is very important. Yes, ma'am.
Thanks. It's Menno, at Morgan Stanley. Just sticking with Minas Rio. I'm a little bit puzzled. The technical review is underway. The results are not in, remedial construction has started and you hope to be back on the fourth quarter. How do you know that you're back in the fourth quarter if the technical review is still underway? These things seem to clash a little bit. It's still not clear to me what the implications are for license number three, because clearly Ministério Público has said, "Hmm, let's remove this." Yes, they don't have jurisdiction, but they can go to the courts and stop the whole process. They've proven to be big defenders of the general good in the last 18 months after Samarco. A bit more detail on that, please. Secondly, now that Bruce is here.
Clearly, Bruce, you let the cat out of the bag and set the cat amongst the pigeons or whatever the expressions are. Lightbox seems exciting but also quite risky. Can you just detail what the thinking behind is? Do you have the Botswana government on board? What's the response in the midstream? I appreciate you did a presentation last week in Antwerp. How was the feedback on that? Finally, Mark, you seem very excited about Brazil despite its issues and the 19,000 square kilometers, I think, that you picked it. Could you tell us a bit more what you found? You said 18 months for more data, it seems like you almost want to talk about it now. I'm laying this up for you. Even a Chelsea forward can't miss this.
A Watford forward could.
Very harsh. We sold our forward.
Good. Love it. Okay. Firstly, on the pipeline. We believe we understand the key issue with respect to the technical issue. A deterioration on a weld. We have tracked a poor batch of pipes, and we know exactly where every one of those pipes is. The 4 km is based on our understanding and knowledge of what we've seen so far. The most important thing, Menno, is to make sure we confirm that that is, in fact, the issue and the only issue. There's a deep technical analysis that the guys took me through over a full 12 hours. As part of the resolution, monitoring the pipe for changed ambient conditions is very important because these things don't fail catastrophically. There may be a fatigue, small leak over a period of time, and it gathers pace.
The key thing will be to monitor by temperature, by moisture, by sound, and by vibration, and we'll have an early indication. We're making sure that those technologies are part of the fix. That's why it's taking a bit longer, making sure that we understand it and that the fix covers not only the integrity of the pipeline, but also providing early warnings if we have any issues so that we're in full control of the pipeline and making sure it works. The Samarco pipeline ran six years without a leak. We're also understanding those technologies. We've got a few of the Samarco team actually working with us, so we've got experience with us working through those potential issues as well. Again, the right technical expertise right across the board is being applied, and we're using the advisors to the prosecutor and the government.
I think, again, the prosecutors appreciate the fact that we've got that type of expertise on the job. Yes, they have, in some ways, appointed themselves as the protectorate for the community. Having said that, we're in a very constructive dialogue with the guys. From our point of view, they will continue to do their job. Our job is to give them comfort that we've got the issues covered, and I think we're well down that pathway. It's not there yet. There are still a couple of operating processes we have to go through. I think the guys are doing everything that they should be doing, and certainly the feedback's been very positive from all of the key players.
Go to Bruce on Lightbox. We go to Bruce on Lightbox?
Yeah. Bruce, would you like to say something?
Menno, thanks. Firstly on engagement, I'm very comfortable that all of our producer governments are very comfortable with Lightbox. I personally spoke to Ian Khama before he left, Mokgweetsi Masisi, President Ramaphosa, and Hage Geingob, and each of their cabinets. I can see the cabinet in South Africa, and they are all enthusiastic supporters. A lot of engagement, but I think very good alignment for our producer countries. I think we should remember, we launched Lightbox in relation to consumer research, which came back to us, which is consumers in America say they do see that there's a place for a fun, fashion, accessible product, in laboratory-grown diamonds, but they don't think they're the same as the natural, and they don't think they have any emotional attachment in purchases, and they were confused by the current offering.
We didn't do this, if for any other reason, we did it in response to the consumer demand out there for what they think the product should be. A very important parts of it are color, lots of color in our offering because fashion is color, blue and pink in particular, and very important, is that the pricing is all binary, so one carat costs twice what a half a carat costs in laboratory grown because it takes you twice as long to grow it in a lab. That's very different in the natural business. The response in it, so far anyway, has been much better than I thought, particularly in the U.S., which is where we aimed this.
All of the retailers in the U.S., and we speak to all of them, understand why we're doing it, support it, and completely get why we're doing it. We also wanted funders to think twice about funding more production, given that the margins seem to us unsustainable in the current offering, and there's quite a lot of anecdotal evidence that that's already happening. We've probably didn't engage as much as we might have in places like India and Antwerp, but that's not where the current problem is. We spent much of our engagement in America. I'm very comfortable with where we are there, and we will keep engaging around the world as we always do.
Thanks, Bruce.
Yeah. I'll just answer the last question on Brazil. As Menno said, I can't help but talk about it. Look, both Tony and I are fellows of the Australian Institute of Mining and Metallurgy, so our ability to talk to what we've got is constrained by those requirements, and they're appropriate. There is obviously lots of chatter in Brazil. People know that we've put a hole through something. We are making sure we understand what that is, but there's a lot of work to be done, and we've both been around long enough, 40-odd years. He's been around a bit longer than me. That you've gotta be careful with this stuff because it may not be what we hope it is.
Yeah.
In the next 6 months, we'll do all the anomaly tests. We will do additional drilling. I think we'll have something more sensible to say at the end of the year. We should wait for that. Again, I'm also aware of the chatter in Brazil, so it would look rather odd not to say something, given where we are. We'd prefer to wait the 6 months and be clear about what we may or may not have.
That's an up cost.
It's encouraging.
That's an up cost.
Does that help then? Anyway, it's encouraging and certainly from our point of view, the existence of porphyry in Brazil was something that is certainly a different type of conversation to what we've been told in the past. Certainly, I think it validates the commitment we've made to our exploration team. We'll see where that goes. Okay. Yep.
Good morning. Liam Fitzpatrick from Deutsche. Two more questions on Minas. Just to understand the process, given the length of the pipeline and given how new the asset is, how do you plan to give the public and all the various stakeholders the comfort that they need? I mean, should we expect that there'll be a publicly available report at some stage on what you found and what the remedies are? Secondly, if we take an optimistic view that it does restart at the end of this year, can you give us a rough idea on the sort of volumes we could see in 2019 and 2020? Thirdly and finally, just on diamonds, on your synthetics business, do you plan to disclose this separately going forward? Thank you.
Firstly, on the comfort point, the technical work. We're very open to share the technical reports when the work's done. We're very transparent. We think that's appropriate. We'll do that with the authorities. We'll do that with anyone that has an interest. From our point of view, we think the evidence is pretty strong, but we wanna make sure that we haven't missed anything. We're working through that process. The 4 kilometers is specific and relates to a batch of pipes that we know were problematic or potentially problematic, and we're in the process of understanding the exact failure mechanism. As you can appreciate, we just wanna make sure we've got those issues covered. In terms of comfort, it's not an optimistic start.
It's what we think is the right balance in terms of getting the operation up by the end of the year. Clearly, the regulatory approvals, which are normal as part of this sort of process, we expect to be able to navigate those. If there are any other issues that pop out, might take a little bit longer. At this stage, based on all the stuff we've done so far. We're pretty sure we know what the issue is. Again, we want to make sure we've got every angle reasonably covered. We're being prudent, I think, in what we're saying, but at the same time, realistic in that there are still a few things to navigate as part of the process. In terms of going forward, again, we're a transparent company.
We believe in sharing those things that people should be aware of. We'll do that in an appropriate way. Certainly, the feedback and the support we've had in the community, the fact we've been there from the first minute, explained every step to the community, the prosecutor, and all the key players, I think they've appreciated how open we are. They've been surprised, I think, how open we are. In fact, I know a couple of competitors are now using Ruben's work on crisis management as an example of how something should be handled. It was a great credit to Ruben and the team in terms of how they handled a difficult situation at the time. I think that's helping us in terms of our dialogues with the community. Seamus, would you like to add something?
I think on the-
Sorry, mate, you just need a microphone. We've got people on conference calls.
The pipeline inspection gauge technology, there's three different sets of gauges being run down. Cumulatively, they allow us to detect cracks down to one millimeter. When we talk about confidence, we're talking about being able to detect cracks in the pipe down to a depth of one millimeter. The restart is based on replacing four kilometers. Go back to Menno's question, how do we know that four kilometers has to be replaced? We don't. We've risk assessed the pipeline. We looked at all the contributing factors to the leaks. Based on that assessment, we believe if there are any issues, those issues will be in that four kilometer immediately after the second pump station. It's anticipatory replacement. We obviously won't restart till we have all the results back from all the pipeline inspection gauge runs.
We vandalized those, we've assessed the condition of the pipelines. We're anticipating that we won't have to replace pipes, except in that four kilometers.
Mark, just to answer the other parts of the question that Liam had. We'll update the guidance towards the end of the calendar year, as we do always for all of the business units. We'll have a much better idea exactly when it's coming on and how it'll come back on as we get to that normal guidance stage for 2019. In terms of synthetic separate disclosure, no, not at this point in time. Just to give you a sense of materiality, we're investing about $100 million in this initiative. We invest multi-billion dollars in our mainstream mines, particularly through South Africa and Botswana. It's not likely to be material anytime soon that would warrant separate disclosure. Nonetheless, we'll let you know how the initiative's going in terms of its rollout and take-up.
Okay. I've got to answer one more question, which is the how will we report Lightbox. From our point of view-
Sorry, that was that. That was the answer, mate.
Good.
That was the answer.
Oh, was that? Sorry.
Yeah.
Oh, thanks. I was anticipating the next question.
Morning. Ian Rossouw from Barclays. Just on Quellaveco, in that diagram, you showed your two sort of neighbors on either side. I just wanted to get an idea if you've had any discussions with them on sharing infrastructure or, and to what extent do you think that can improve the returns of the project?
We had early conversations, but it was pretty clear that the terms that they were looking for weren't suitable for us and certainly didn't help us in terms of returns. We remain open to any conversation that would help enhance the project return. We're very open, but there's no current conversations. We've got a good relationship, and so if there's a possibility, we'd be very open to a conversation.
Okay, thanks.
Yep, I'll come across.
Morning. Sylvain Monet with Exane BNP Paribas. Two questions. First on diamonds. First, to give us a bit more color behind the softness in sales year-over-year, which were 3% lower in volumes. Is India the only weak spot? The other question on diamonds is on your discussion with Botswana in anticipation of the renewal of the 2020 agreement. These talks, I assume, start early. Have you had any indication of what the request would be? My third question is on Volcan, whether you have been approached in any way and if you see any value for your shareholders in exploring any tie-up with South African activities there. Thank you.
Okay. Firstly, on the sales differential, remember last year we saw a fairly significant clearance of the lower value products. There's a big inventory clean out. The sales actually this year have been pretty good, adjusted for that number. We're very happy with what we've seen so far. Demand in the U.S. looks pretty solid. China's certainly been growing. Generally, very happy with where the market is. The difference is really the inventory change that we kicked away early last year. I think that's the main difference.
First and second site cleared it out last year. Correct.
Very happy with what we've seen from a sales perspective. Certainly, the sentiment's been very solid. We had a recent innovation seminar that we have each year with all of our site holders, and they're very positive. Certainly, from our point of view, the refusals are very low. That's usually a very good indicator. Secondly, from a Botswana perspective, we never stop talking to the Botswana government about what we're doing, how we're working together. I think it'd be fair to say that we've come on a journey together, and it is a very positive relationship. They've been very supportive of everything we've done. As you would expect, Bruce and the team are in the appropriate conversation to make sure we get it framed right. For us, long-term commitments on stripping, they understand that we're there for the long haul.
We'll find the right outcomes. It's getting tighter for us, obviously, and them in terms of value. It's really about consolidating the relationship and making sure that we're both 110% committed, and I think we're going the right way in those conversations. Bruce, did you want to add anything to that? That's fine. Third, on Volcan. Firstly, Mr. Agarwal has been a very supportive shareholder. He's made it very clear from everything we've said or seen in the press and in his conversation to us, that he likes our strategy. He's supportive of what we've been doing as a management team. He has said also that he prefers not to sell any further assets. Well, we haven't been in that process for two years, so I think that's a positive. Beyond that, you need to ask him, but we're certainly not in any other conversations.
The conversations we have with the team, with Mr. Agarwal, is consistent with the conversation we have with all of our shareholders. There's nothing else at play or no other conversations in place. Anything further from their perspective, you should ask them. We're very respectful of that relationship.
Thank you.
Hi, it's Alon Alishay from Macquarie. Just two questions. Firstly, on costs. Inflation hasn't really come up much, which is interesting. One of your other peers, which mainly produces iron ore in Australia, has been at pains to emphasize that inflation really is picking up. From your comments, it seems to be fairly benign. Is that your view? Are we experiencing fairly normalized inflation at this point in the cycle, or are there any emerging signs of inflation picking up in certain areas? Just the second question relates to legislation in South Africa, a new draft Mining Charter out, a significant improvement on the old charter or the old draft. Are there still any of those issues in that new draft that you want to resolve with government? The Carbon Tax bill in South Africa, where are we on that?
Have you guys ever looked at that and the impact it could have on your business?
Steve, do you want to pick up inflation?
Yeah, sure. Without getting too detailed, we average CPI across the jurisdictions that we operate in, averages at about 3.6%. That's that $200 million that you see on that left-hand side of the graph. We do see a little bit of above CPI inflation. The way we show that is we net that in our cost and volume benefits, right? It's our job to sort of drive out above CPI impacts across the business. That's how we disclose it. Are we seeing increases? Yeah. I suppose I touched on them. Things like diesel, obviously off a $70 oil price, diesel's up, shipping fuel's up. You're seeing some of those things naturally feed through your cost structure. Apart from that, nothing what I'd say terribly untoward, remembering that we operate in jurisdictions that have probably higher than average inflation impacts anyway.
For us, it's a little bit business as usual in that that's why we've got to drive those cost and volume improvements. That's why we're so committed to that cost out journey, we do see those things coming through. That was the same the year before and the same the year before that. I spoke a little bit at the full year. It's probably a little newer for Australia, particularly in WA and particularly in the Pilbara. They probably had a five or six-year period of deflation, particularly through mining services, where people had spent a lot of capital, there was a lot of capacity there, and they were desperately keen just to cover some of their costs to keep the doors open to get through to the next cycle.
As those people need to reinvest in the next cycle of capital and capital availability, they need returns on that capital. I think that's what you're starting to see through some of those jurisdictions. Europe's probably been a little bit higher just off the back of better growth. And up until recently, maybe the U.S. was starting to bubble a little bit too. It's probably in countries where people haven't seen it. It's emerging. For us, I suppose it's a regular part of our business.
They've also got catch-up capital they're spending, so they've got a little bit more exposure from a cash point of view as well. Whereas for us, we've been living in those jurisdictions, as Stephen said, so we're a little more used to working hard and productivities and all of those things. It's become more of a way of working and understanding that it's a continuous improvement journey. On the Mining Charter, I think the best way to characterize our conversations and thoughts, the new charter or the new version is certainly, I think, very helpful in providing us with certainty on our existing assets and operations. That's a big tick. That's a big positive and very pleased for us. From our perspective, very pleased with the certainty that it provides us.
Much happier and certainly gives us the confidence to continue driving and investing in our existing business. In terms of the new parameters, I think there's some real challenges in there in terms of free carry, trickle dividend, these other pieces. We've made that very clear. I think there's a lot of work on both sides of the fence to try and land something that will encourage foreign direct investment. We've made that point pretty clear. The Chamber's in those conversations. We're certainly in problem-solving mode with the government. We are optimistic in terms of the long term in South Africa. We want to be part of that future. We want to make sure that we have a charter on a go-forward basis that encourages investment.
There's still a bit of work to do on that front. Happy with key parts that give us confidence in terms of where we are, but some more work to be done on the look-forward stuff and I think there's a lot of work still to be done on that front. In terms of the Carbon Tax, Stephen, have you got the rough numbers? I can give a rough breakdown.
Specifically to South Africa?
Yeah.
No, we haven't got the exact numbers with me. No.
Craig, I think it was somewhere between $10 million-$15 million impact on a full-year basis across all of our assets in South Africa. It was in that range, and that's still a conversation at the moment in relation to the new dispensation with Cyril Ramaphosa.
It might be come back this year.
Yeah. It's it has an impact, but it's not that significant. We have said that given what you're trying to do, the $100 billion that Mr. Ramaphosa wants to encourage, one of the things we'd be saying is to just have a look at that and consider whether that's the right thing to do. That's a dialogue that we're in at the moment through Norman and the South African team.
Myles?
It's.
Yeah.
Myles Allsop UBS. Just three quick questions. First, just continuing the sort of South Africa conversation. The MPRDA amendment bill was pretty toxic, and that's still floating around. Does that mean that the uncertainty in South Africa is gonna continue for at least 12, 18 months beyond the charter kind of being promulgated? Secondly, just on the M&A side, obviously a couple of small acquisitions. Can you give us a sense as to how you as a management team are thinking about M&A going forward? Is it just kind of tacking on small opportunities or are you gonna get bolder? Thirdly, the capital allocation, going back to the original, the very first question on dividends. How should we think about when the balance sheet's at a point when there is really excess cash?
Are we looking at the wrong net debt number? Should it be the net debt outside of South Africa? Was it $7 billion? Has that got to get down to $4 billion before you'll consider lifting the payout? I mean, that I think is the area of maybe slight disappointment with these results.
I'll come back. I'll ask Stephen to get the fine points on his answer regarding the capital. On the MPRDA, it's been floating around ever since I've been working in South Africa, and that's 10 years in one form or another. It's complex. You've got the traditional leaders having input, a whole range of places. I still think it's got a long way to go. For me, it doesn't worry me. I think the Mining Charter conversation captures the essence of the nature of the relationship between the two parties, and that commitment to not jeopardize existing operations and investments, I think is absolutely critical. I think that's the key sentiment we should hold on to, because I think the MPRDA's probably still got a fair way to go.
The focus on the charter going forward, I think, is the other critical element. I think they will then look at harmonizing the two, and that will take time. Again, it's not something I worry about. If you look across the world.
the certainty we have in South Africa is certainly pretty robust compared to many jurisdictions, as some of our colleagues are finding in the industry in a range of places around the world. We can make South Africa better, and we're committed to being part of that dialogue. On M&A, look, we've always kept our eye on the market as we should. The good news is, and Stephen picked up three points, and I want to reiterate those three points. Firstly, our growth going forward will come from internal efficiencies. The efficiencies I talked about on that Mogalakwena slide are available to us in every part of the business, and that's the real focus.
Tony and his team with Seamus and all the operations guys, Bruce, the rest of the team, Duncan, everyone, is focused on getting the best out of the business. There's still a lot more to be had. That's first point. Second point, innovation and step changes. We invested in innovation and technology because we knew that was the best pathway to growth and effective growth in terms of returns on capital, and we're still committed. Tony and the guys have helped us see a lot more opportunity that provides step opportunities in terms of improvement. Three, the internal project pipeline. Okavango is the obviously the large scale step. We've got incremental opportunities across the business. The first thing we need to do is get the best out of the capital assets we have.
That's first, second, and third priority. At the same time, we can see opportunities that make sense for us. At Peregrine, the Mototolo conversion. We see some smaller opportunities that make sense and provide us with the ability to continue to improve our performance across the organization. Again, our focus on exploration provides us, we think, with a pathway of very value accretive growth. It fits as part of an overall strategy, but we think we're in a better position than most because we've got those internal opportunities. If there's something out there that makes sense, we will follow it up. We can convert it. We've demonstrated we can. When you've got the opportunities we've got, why would you chase stuff that has a higher level of risk?
Not saying we won't, but it's got to make sense, and it's got to compete with all of those great opportunities we've got inside the portfolio.
To answer the second part of your question on dividends, maybe let's just focus on this half result, first of all. I think generally, most numbers that I saw were pretty spot on in terms of EBITDA. There was a little bit of a variance across EPS, given two things. One was effective tax rate. It was probably a little bit higher than what people were assuming, and that's largely a profit mix thing. We had sort of higher profits continuing through Australia and South America, with slightly higher effective tax rates in the half. That's why you saw that effective tax rate a little bit higher than average. The other one was depreciation, where people were just a little bit off on, and that's we have had new assets commence, and we've had increased volumes come through.
The combination of those two, I think were the $100-$200, perhaps, that a few people were missing on depreciation. That flowed through to maybe a different expectation on the sense number of earnings, underlying earnings, and therefore dividend. For a couple of really sensible reasons, we are committed to that 40% payout policy. In the near term, I think that's what you should put in your spreadsheets, and that's what you should expect. Ultimately, we will always work our way around that capital allocation wheel, and as you get towards the end of that consideration, one of them is additional returns to shareholders. As a priority, I would say the balance sheet still outweighs that in terms of just making sure it's absolutely rock solid as we come into more of an investment phase for the company.
I think it's absolutely the right thing for us to stay focused on. Yes, net debt, consolidated net debt is one view. I should point out, the rest of the world debt, I would love to get that a little bit closer and a little bit more aligned right across the balance sheet. That is part of the reason why we remain focused on de-gearing.
Mark, we've got time for one more question, and Tyler has the microphone.
Tyler Broda, RBC Capital Markets. Two questions. One and a half. Question number 1A is, for diamonds, you're matching the production to the pricing environment. It sounds like things are starting to get a bit better in the diamond industry. Venetia is going through the transition. Would you be able to give a guide for where you could get production up to, say, over the next two years if the market supported it in terms of volumes? Question 1B is on thermal coal. We're looking at the group structure as you walk through those charts on cost curve positioning. The one thing that struck me as interesting is that thermal coal sort of seems a bit different than a lot of your other assets. Shorter mine life.
You're getting towards the end of life at a couple of the assets, more weighted to the SA. It's got the CSR that's coming up on thermal coal these days. I guess the question is that with the rest of your portfolio having improved as much as it has, does thermal coal still fit?
Okay. In diamonds, we are very sensitive to make sure that we're not running ahead of the market. We're very happy with what we're seeing, and we're supplying to the market, and we have a little bit of flex in terms of what we can do. As we go through the transition at Venetia and we're making other changes, we don't want to stress that system in the next couple of years. We want to make sure that we're focused on getting our efficiencies right, getting our margins right, and not putting more product out there that we might otherwise do better in two or three years' time in getting that balance right. Bruce and the guys are watching that very carefully. If they had to kick up 1 million carats, I think we've got that capacity depending on where we are and what we're doing.
Longer term, we head closer to the 37 million carats towards the four- and five-year period. Again, that's based on the transition that we go through for Venetia and making sure that we're getting the best out of the other assets. We've got the potential there. At the same time, we're trying to match that to the market so that we keep the margins in a healthy place. Bruce, do you want to approve of that? On thermal coal, Seamus did a very good speech a few weeks back to the staff, and if I can borrow on how he presented the story, which I think is exactly the right way to present it. We've got very good assets in thermal coal, very good cost positions. We're low quartile or right on the cusp, and we can improve with our productivity.
There's been significant, what, a 40%-50% productivity improvement in South Africa in the last about three and a half years. We've got 14 years life on average. From our point of view, it makes sense to continue to run those quality assets through that process, and we're making sensible capital allocations on incremental life extensions. It would certainly be a lot harder for us to justify a big investment in thermal coal that goes beyond a seven-year lifetime on the basis that there are questions about the value that you will see in thermal coal relative to oil, gas, and the whole fossil fuel question. We think committing our capital to a Quellaveco and other incremental projects make sense, but we won't start the business of capital. We make sensible decisions.
When we talk about a transition, we've halved our footprint in thermal coal in the last five years, and we call it a just transition. We're connecting with our communities. We're making sure they understand what we're doing in those local communities. The governments and the customers that we work for understand exactly how we're going, and we're making incremental investments. It would be a lot tougher for us to justify a big investment for a long-term development position in thermal coal, given the uncertainties and the price environment. It would have to be a very special case. Carefully considered, measured as we go, and we'll keep the market and everyone else informed because the CSR conversation is a very important one to us and one that we're very cognizant of. At the same time, we're not going to bail out tomorrow.
Many of the CSR stakeholders are very appreciative of the fact that we haven't run, that we have been clear about a transition. They said we'd prefer that because we understand the importance of your local communities. We understand the importance of those industries to the big power stations. It's better to have a responsible operator like you transitioning with those assets than having some other characters running those assets in a way that may not be as sensitive as the way you guys will run it. We're trying to get that balance right.