Good morning, everyone, and welcome to Tungela's very first Capital Markets Day. I'm Ryan Africa, and I will be heading up Investor Relations for Tungela. I'd like
to take a couple of
minutes to introduce today's agenda and also to explain how the day will run. But before that, Please allow me to draw your attention to a couple of important messages from our lawyers. While you take a moment to read through the A reminder that today's session will be recorded and that the recording will be made available on the Tungela website, which you can access at www.tungela.com, and that will be available from tomorrow morning. A transcript of the session will also be made available on the Tungela website in the coming days. Let's start with the agenda for today.
We have 9 sessions to cover, and these have been scheduled into 2 blocks as shown on Slide 4. At the conclusion of the first block, we shall cover sessions 1 through 5. There will be an opportunity for Q and A, which will be followed by a short interval. In the second block, we will cover sessions 6 through 9, which will be followed by a slightly longer Q and A session before we wrap up the day. Today's presentation is available for download on the Tungela website, and for those logging to the webinar, there's also a tab where you can download the presentation.
Turning to Q and A. For those joining via the webinar, you will have the opportunity to submit questions via text, which will then be read out during the Q and A session. For those wishing to ask questions directly, I. E, in your own voice, we ask That you please join the session using the conference call facility provided as we can only take direct questions through this facility. In order to ask a question during the Q and A session on the conference call, please dial star 1 on your keypad and this will register your intention to ask a question.
Once the Q and A session starts, the operator will then open your line and ask you to go ahead with your question. For Q and A specifically, we do encourage those wishing to ask a question directly to opt for the conference call option as everyone will be much more interested to hear your question directly. It is also possible to dial into the conference call facility only shortly before each Q and A session and directly from your computer. If you are planning to do this, I do encourage you To please register for the conference call in advance of the first Q and A session this morning at 10:30 South African Time as you will need the link sent to you upon registration. Now with those logistical matters out of the way, let's turn to the action.
On the 8th April 2021, Anglo American announced its intention to exit its South African thermal coal assets, specifically to demerge these assets into a separately listed business. These assets will be transferred to a new holding company called Tungela Resources Limited, which will have a primary listing on the JSE and a standard listing on the LSE. On both the JSE and the LSE, the shares will trade under the ticker TGA. Let me repeat that, TGA for the ticker. At the point of demerger, 100% of the issued share capital of Tungela will be held by existing Anglo American shareholders, who will receive 1 Tungela share for every 10 Anglo American shares held.
With regard to the necessary approvals, all of the substantial conditions and regulatory approvals I have already been satisfied. Yesterday, at the Anglo American PLC AGM, the demerger was approved by Anglo American shareholders. Thus, the demerger will be effective following the close of business on the 4th June 2021, and Tungela shares will commence unconditional trading on the 7th June 2021. On Slide 6, you can see today's presenters. You'll be hearing from July and the full executive management team during the course of the day.
I will not run through the list of speakers here, but will instead ask the presenters to briefly introduce themselves at the start of their respective sections. I would, however, like to briefly introduce our first speaker for the day, our CEO, Julien Global. Julien has been with the Anglo American Group for 30 years, during which, Limey served in a number of senior roles, including on the Executive Committee of Anglo American Platinum. July took the reins as CEO of the SA Thermal Coal Business Unit in 2016, and together with Dion and the rest of the Executive Committee, has steered this business for the last 5 years. Finally, July is also currently the Chairman of the World Coal Association.
With that, please allow me to hand over to July.
Thank you very much, Ryan, for that introductory remark. And what I'd like to do to start us off for the day is to give you an introductory Jenny, on who we are as Tungela, share with you the assets that we've got very briefly, Talk to you about our strategy and talk to you about our values and talk to you about our purpose. Good morning, everyone, and welcome to Tungela's very first markets day. So we are building a future oriented leading ThermoCore business with an honor mindset focused on value creation for all stakeholders. To succeed, we're not changing what we do.
We leverage our solid historical foundation, our existing asset base, Markets, track record and talent. We intend to change how we work, what we prioritize and why we take action. This is the essence of our purpose, to be focused on creating value for a shared future and what it takes to get there. Our purpose, priorities and values connects us with the meaning behind our work, Understanding that each decision and action we take ultimately leads us to a promising future for ourselves, the company, our communities and our country. To succeed and become best in class A best in class business for our employees, investors and communities, we will be unwavering when it comes to safety and health, Prioritizing it above all else, we should be becoming owners, Considering the right impact of every decision or action, big or small, Our unrelenting in pursuit of doing things better to drive productivity and margin uplift and improving our cost position.
Being a single commodity, single country business, we are better placed to buy goods and services that are fit For the type and life of assets we have, that's what we mean by buy better, use better. We'll spend capital appropriate to the type of assets and life of mines we have. And our goal Is to make Tungela a highly appealing and investable enterprise due to its cash flow driven mentality, robust balance sheet, Credible leaders are consistent in meeting or exceeding our targets. Among our set of priorities It's a key focus on ESG, uplifting our communities, considering our environmental footprint And becoming a preferred employer through modern and progressive rewards and career development opportunities. Our six values, which are at the bottom of this slide, underpin and are foundational to everything that we do.
And make sure that all of us together, we have an act in unison and concept towards a shared Future. So let me turn to introducing the business in a little bit more detail. Our mission is to remain a sustainable and high quality thermal coal business with an enviable cash cost position poised to deliver attractive returns through the cycle. Our business of today is a set of well established and well managed Assets producing high quality thermal core products is strategically located close to and within established export infrastructure. If you look at the graph in front of you and you look at the middle and you see how close those assets are numbered 1 to 7.
The business has significant embedded optionality that we'll touch on later. And over time, We expect to improve productivity and optimize costs. We also expect to manage our capital more efficiently with first priority being strong cash flow generation to deliver value to our stakeholders. Where appropriate, additional investments to extend the life of our mines We'll be focused on value enhancing low risk brownfield options with synergies with existing infrastructure. Thermocor is vital for the South African economy, and our country relies on Thermocor for energy generation and economic activity.
In fact, ThermoCo directly employs roughly 90,000 employees, accounting for roughly 20% of all mining jobs in South Africa. If you look at our business today and compare to 2015, we had a very different business in 2015 With meaningful portion of our production tied to supplying ESCO, we have significantly repositioned and upgraded our portfolio to make it a focused export producer. We've undertaken all the right decisions to transform and resize our business. We've disposed of our Eskom Tide mines and divested of the Greenfield New Largo project. We upgraded our portfolio through bringing on Mafuve into production and approving The navigation project, and you hear a little bit more about this project, Elokul later today.
We've also made tough portfolio decisions by taking out our cost production. So if you look to the right of the graph, Today, we have a portfolio of 3 underground mines and 4 open cast mines, all producing high quality export coal at Zibulo, Greenside, Hudubu, Kwezela and Mafumem. Our other two mines, Isibonelo and Rit Our export mines are integrated to the Transnet Real line running all the way to RBCT, which is a world class bulk material handling port, of which we are the single largest shareholder. So let me turn a little bit to our financials. And this is a high level snapshot of Tungela's last 3 years of financials, which will be discussed in further detail later today.
The key driver behind reduced revenue from 2018 Through to 2020 was price reduction of about 25% into 2019. If you look on the top right graph, The line which has got three numbers, 10.60, 7.88 and 7.98 is the price line that I'm talking to. With global energy prices and coal prices continued into 2020 as the globe dealt with the COVID pandemic. During this time, however, we continue to invest in the business. You note that our CapEx was at historic high levels In 2019, as we constructed navigation, a new operation within the Kwezela complex, which has extended the life of that mine.
We also took some tough decisions by closing Hudubeb South and placing Bokoni on care and maintenance. Both of these corporate required corporate and service restructuring, which we completed early in 2021. These decisions and actions resulted in taking high cost production out of our business. It has helped us to position ourselves for the future. So whilst the business was not profitable during the last 2 years, You know that we generated positive operating free cash flow prior to CapEx in each year.
With improved bucket fundamentals In average prices, which are above $90 which we achieved in Q1, these were last seen in 2018. We are confident that once we have rebuild inventories and managed through the worst of COVID In TFI challenges, Tungela is well positioned to generate attractive cash flows into the future. Now let me turn To our leadership. We spend a lot of time thinking of what Skills and expertise and knowledge is needed for the board. And we've put together the following group of directors, which is led by Renowned businessman and business leader, Sangon Saluba.
They bring deep and diverse relevant experience to guide Tungela into the future. The executive leadership team has been together for several years, And we bring very diverse and deep mining experience. We know the coal industry well. We know our assets intimately. The management teams on the mines is a continuation of the excellent operational teams that we've had in the past.
So let me pause and just reflect on what you're going to hear today. Firstly, what we're going to share with you is that thermal core remains a key pillar of the global energy mix. With robust global demand for thermal coal, particularly from key export markets, and that the South African thermal coal export supply is in decline and that together with declining investments in new supply globally will provide a unique opportunity Tungela. We believe these fundamentals are expected to support higher prices. We'll share with you our strong track record of reserves and resource conversion.
We have a Well diversified quality reserve and resource base, and we have a track record of replacing reserves and adding to our resource base. We have developed a focused capital allocation framework with substantial India term optionality to convert further results into reserves From projects currently undergoing feasibility studies, we have a set of well positioned portfolio of assets. In fact, Mafube recently achieved steady state production, while the navigation pit at Kwezela is in ramp up. A number of life extension options are being evaluated for assets nearing end of current life, Although there's no imminent investment decision, our assets are well positioned In the lower half of the global seaborne cost curve, we have excellent infrastructure supporting our route to the market. We'll share with you our balance sheet and the opportunities for cost and capital optimization.
In that regard, costs are planned to remain flat in real terms over the next 3 years. That will optimize our CapEx according to a key allocation criteria, which is appropriate for the type of Assets we
have
that we have got a strong balance sheet With cash positive balance enabling Tungela to operate unconstrained by debt. We'll share with you that Tungela is fully empowered and meets the requirements of the DMIA. That will be the key mining rights in place with sufficient tenure to meet the life of mine of Tungela's assets. We'll also spend a bit of time on ESG with key commitments to the social and environmental aspects, which ensures the health and wellness of our people. We'll talk about partnering with employees and communities in which we operate In that, we undertake environmental programs that benefit society at large.
We'll share with you that we have an experienced and diverse Board ensuring the highest standards of governance and ethical conduct. And lastly, we'll talk about our competent and diverse and inclusive workforce, which has got a passion for our business And we'll demonstrate the history of productivity and cost improvement. We'll talk about our sound employees And that we've got robust talent management processes that develops and returns the right people. That we've got appropriate incentives That drives the right outcomes aligned to our stakeholders needs. So what I'd like to do at this point in time now To hand over to my executive colleagues, starting with Bernard, to talk to us in a bit more detail about these attractive thermal core Market Dynamics.
Thanks, Bernard.
Thank you, July. Good morning, ladies and gentlemen. As introduced, my name is Bernard Dalton. I joined Tungela on the 1st April of this year. Prior to that, I spent around 12 years working for South32, specifically in the thermal coal business.
The last 2 years of that period were spent in the operational separation of the coal business from the rest of South32, and I specifically focused on the establishment of the marketing a team across both London and Johannesburg. Prior to that, I spent time in BHP Bulletin working on Marketing Systems, specifically commodity trading and risk management systems implemented across all of BHP Billiton's commodities worldwide. And prior to that, I was involved in the aluminium business in Richards Bay, also with BHP Billiton. Moving on to the thermal coal market dynamics. The bulk of the forecasts provided for in this section are drawn from Wood Mackenzie, an independent and global research and consultancy group.
Furthermore, we are also providing actual facts and not always necessarily what the audience may want to hear. Thermal coal remains a key energy pillar. The world and specifically the developing economies We'll continue to require increased energy generation. This increase is expected to be approximately 12.5% for both total energy generation and thermal coal global power generation, and this is over the next decade. Renewables will form the largest part of total incremental energy demand.
However, Thermal coal will continue to remain a substantial energy source, forecast to make up 31% of global power generation, And that 31% equates to approximately 964,000,000 tonnes of seaborne demand by around 2,030 and this is particularly prevalent in developing countries. Asian countries require large amounts of low cost power to support economic development and growth. Asia's share of the global thermal coal power generation is forecast to grow from around 79% in 2020 to 86% in 2,030. Asia remains the key market or region using thermal coal as a fuel source With an expected 7% increase over the next 10 years from an already solid base, The increasing demand for energy and related thermal coal imports seen over the last 3 years in key Asian markets is expected to continue. Its ongoing large scale industrialization requires significant power generation, which supports the forecasts That thermal coal and thermal coal demand will continue to be robust from India.
Coal 5 power generation remains significantly cheaper, and the ambitious nuclear and renewable power generation targets are unlikely to be met. Base load thermal coal will be required to complement renewables. Thermal coal capacity continues to be added in India, and India's own domestic mining and production of thermal coal Continues to face its own challenges, including coals that have quality characteristics that are not suitable for specifically industrial applications. India has been the primary market for South African thermal coal for a number of years now at approximately 50% of South Africa's export coal, and India's demand today accounts for 17% of the seaborne supply. It is important to note that South African coal is not only supplied into the energy Sector in India, but also into the industrial sector and in this regards, the cement and sponge iron industries.
And this is due to inherent coal quantities in South African coals required in these industries. This trend is expected to continue as the country requires large amounts of thermal coal fired energy given its relative cost advantage. This all translates into a forecast 19% increase, Yes, 19% increase in thermal coal imports from around 162,000,000 tonnes in 2020 to 192,000,000 tonnes in 2,035. This is an extremely If we turn our attention to other key Asian markets, Whilst India has for some time now been the major export market for South African coals, we now see We are now seeing similar thermal coal demand and increasing in further South Asian countries. We focus on each one of these countries, and we start off with Pakistan.
Local supply of domestic gas and fuel oil is declining and being replaced by costly imports. New power stations are designed to use imported thermal coal, most of which can be sourced from South Africa. Pakistan has also imported significant volumes of South African coals for its industrial sector, including for its cement industry. As outlined on this slide, There has already been 5 gigawatts of coal fired power commission in Pakistan since 2016, with a further 1.3 gigawatts in advanced construction stages. Turning our focus to Bangladesh.
The government's focus remains on expanding gas fired power plants and renewables. However, the availability of domestic gas is declining. The construction of import based coal fired power stations has been proposed to lower the power costs. Coal demand is expected to grow from around 7,600,000 tonnes in 2020 to 12,800,000 tonnes by 2,030, and this is around a 68% increase. Moving on to Vietnam.
As domestic production is constrained by geology and rising costs, It is expected that Vietnam will turn increasingly to the seaborne import market to meet its thermal coal demands. As outlined on the slide, demand is expected to increase to around 51,000,000 tonnes per annum And South African coals with suitable inherent qualities have penetrated this market over the last 3 to 4 years And we'll continue to be placed into this market. South African coal entrance into this market over the last 3 to 4 years has been a really positive story. Turning to China. China requires significant tonnage of seaborne imports to satisfy total demand despite being a large producer of thermal coal.
China's own domestic production, supply faces challenges, including mining cost inflation, Infrastructure challenges and barrier to entry in the state controlled power market. The recent political Between Australia and China has enabled South African coals to again be exported into China. In this regard, Certain Tungela coals have been certified and accepted as suitable for imports into China. And again, this is a really positive market development for Tungela. Although China seaborne demand It's expected to reduce from around 187,000,000 tonnes in 2020 to 149,000,000 tonnes in 2,030 Due to a reduction in the demand for thermal coal from China's coastal markets and increasing competition from China's domestic market for Imports are expected to continue due to the high delivered cost of domestic supply to coastal markets as well as quality requirements.
If we turn our attention to the supply side, as presented, there is increasing demand for thermal coal in all of the Key markets that we supply in South Asia, as we have just discussed. However, On the opposite side of the equation, we see supply from South Africa reducing by approximately 25% On the back of depleting mines and lack of new investments, with an immediate lack of new and significant investment in either brown All greenfield expansions, South Africa's production is expected to decline by around 53,000,000 tonnes By 2,030 and with the reduced production becoming even more evident as from around 2025, The South African export production and supply is forecast to decline from 72,000,000 tonnes in 2020 to 49,000,000 tonnes by 2,035. So the decline in the export volume will be approximately 23,000,000 tonnes. This is not a South African story alone. On a global basis, the story is similar With export supply from operating mines globally reducing from around 950,000,000 tonnes in 2020 to 750,000,000 tonnes by 2,030.
Turning our focus to prices. The market dynamics that we have outlined on the price slide, I. E, continued firm and improving demand and reducing supply also support higher prices going forward. Domestically, in South Africa, there is also the effect and the impact of the Eskom coal cliff. The graph in this slide is Wood Mackenzie's view on prices in both nominal and real terms, And we can see the trend is expected to remain steady for the next couple of years, followed by gradual improvement.
We have already seen a significant price recovery in 2021, an average of 90.76 cents per tonne in quarter 1 of 2021 and with peaks of over $95 per tonne versus the lows of 2020, where prices were as low as $45 per tonne. The actual mine to market price achieved by Anglo American Marketing for this quarter was at $74 per tonne, Inclusive of the marketing margin, the full discount and adjustments were at 18.5%. What does this mean? Coal producers with an attractive cost position should enjoy healthy margins and cash generation over the next couple of years. If we look at the cost curve now, and again, I just want to point out that the cost curves reflected in this slide Or as per the previous slide are the views of Wood Mackenzie.
Tungela has a well capitalized Asset base producing quality coal and is attractively positioned on the global energy cost curve. The best comparison to Tungela's assets on this slide would, of course, be the South African peers. And as you can see, there are not a lot of peer operations that are better positioned on the cost curve versus our assets. Perhaps just worth touching on the one exception as you look at this cost curve being that of KwaZera. This was done before we placed the pit, as July mentioned, on care and maintenance, and therefore, Cozela's costs here are still reflective of the high cost pit.
Going forward, we expect KwaZilla's position cost position to improve. Our low cost position coupled with our suite of coal qualities, including high quality coals, Gives us flexibility to be profitable by selling into the various markets as discussed and this is a positive fundamental for us as a business overall. Effective cost management will, however, be important and crucial in order for Tungela to maintain its position on the South African cost curve. Turning our attention to the pricing mechanics for South African export thermal coal. The South African coals are priced off a 6,000 kilocal per kg benchmark basis free on board at the Richards Bay coal terminal.
Average realized prices for export thermal coal, however, differ from the actual benchmark price due to a number of reasons. The first is the relative difference of the calorific value between the products sold and the 6,000 KCal per kg Richards Bay benchmark. Product discounts that are relative to the benchmark taking into account various quality factors of which the two main would be the ash content and the sulfur content. And then the timing differences between the contract price and the spot prices, specifically when contracting on longer term and or fixed price contracts. We will go into a bit more detail on the next slide around the details of the discounts achieved by Tungela relative to the benchmark price.
But as you can see, this has ranged from between 22% to 26% over the last 3 years. That is from over the period of 2018 to 2020. It is worthwhile pointing out that these Discounts are in line with market benchmarks and would be comparable to our peers. Turning to the 2020 realized prices versus benchmark. On this page, we have the components that contribute to the approximately 26% realized discount to the benchmark price in 2020.
For 2020, the average calorific value discount was at approximately 10%, which is representative of the average quality of coal exported by Tungela, which, as pointed out by July Earlier, average is at around 5,500 kilocalcals per kg. The product quality discount is driven by market Supply demand factors at the time of contracting and accounts for the lower quality parameters and in the main for the higher ash and sulfur content in these products. The marketing margin is the fee paid to Anglo American Marketing To market Tungela's coal and Tungela will continue to pay Anglo American a marketing margin on its export coal. This margin is market related. Turning our attention to a brief overview of our domestic Contracts, our focus as has been mentioned is on the export market, but we do have a number of secure term domestic market contracts With good prices, which secures further revenue for Tungela over the next 2 to 3 years and these contracts provide options albeit by mutual agreement to extend the term of these agreements.
Whilst this is not the core business of Not the core of our business, it does provide Tungelo with an established market for our products and price arbitrage opportunities. Having optionality in a sales book is always attractive. On the mineral residue deposits, This refers to the historical deposits from coal, which was previously washed to a high quality coal as well as roof coal. Turning our attention to the supply chain and the logistics. One of the attractive propositions for Tungela is our 23.22 percent ownership in the Richards Bay coal terminal, which secures via the rail network from our mines to loading on board vessels and on to final market placement.
RBCT is also supported by The port services provided by the National Port Authority over a 2.2 kilometer quayside and Six birthing slots. Numerous expansions have increased the nameplate capacity of RBCT from 12,000,000 tonnes in 1970 6 to the present capacity of around 91,000,000 tonnes. The total RBCT stockpile capacity At peak is around 8,200,000 tonnes and Tungelo's capacity at peak is around 1,600,000 tonnes. Tungela's ownership entitles us to 19,800,000 tonnes per annum export capacity At the 91,000,000 tonne nameplate capacity and the present operating capacities, This equates to between 17,000,000 to 18,000,000 tonnes per annum. In summary, the outlook For thermal coal and hence, Tungela continues to remain positive with the price recovery in 2021 and forecast prices stabilized at these levels, which is supported by the overall demand supply balance as discussed.
It is again important to note that the placement of Tungela's quality export products will be into markets That continue to develop and hence require continued increase in power generation and thermal coal imports. The South African market and related coal supply agreements provide both market, in other words, price and product optionality and further secures revenues. The export market focus, which is key and a key focus for Tungela, It's all bought together through the well established logistics infrastructure of rail, terminal and Port Facilities. I would now like to hand over to Leslie, who will present and discuss the Tungela reserves and resources, And I thank you.
Thank you, Bernard. So My name is Leslie Martin. I'm the Executive Head of Technical for Tungela, and I've been associated with KAL South Africa for the last 25 years. In that period, I've served in various positions from operational and project side, so a real coal miner at heart. For me to start off, I think in the rest of the Dave, there's probably three phrases that you will come across that I just want to explain in a bit more detail.
The first one is the various coal seams that we mine. The second one talks around the Midlands product that It's one of our secondary products that come out of the washing plant, and the third one is the mineral residue deposits. So if we start off, I think just what this section is all about, And I think in the slides to follow, I will take you through a summary of reserves and resources as per the Independent Competent Person's Report that was prepared by SRK in 2020. This process includes a review of Tungela's exploration, mine planning, life of mine information data in accordance with the regulatory codes and standards. If we then go into a bit more details around what I've just So the reserves and resources in the basin where we operate our mines are situated Consists out of 4 economic seams, numbered from the bottom upwards.
The thicker 2 and 4 seams make up The larger portion of what is economically mineable, but where it's financially and technically viable, the thinner 15 seams are also included. The next concept around the Middings product, the coal destined for our Export market is beneficiated in our coal washing plant, producing a primary high quality export product. And depending on the plant, also the Meringues product, which is the secondary product derived from the beneficiation process at minimal Incremental cost. If we just quickly talk around the mineral residue deposited, given the improvements that were made in the Beneficiation techniques over the years together with the development of a market for lower energy coal, A concerted effort was made to reprocess some of the mineral residue deposits or shortly MRDs, Which are nothing but facilities containing the remainder previous process material. So hopefully, if we go through the rest of the slides, These three phrases or concepts will make sense.
If we now turn our attention to our This slide indicates the reserve and resources base for the current operating sites And illustrates a well diversified portfolio with further resource optionalities from brownfield developments. The reserve base for all our sites are included in the current life of mine plans That in our case vary between about 3 to 11 years. As can be seen from our reserve base, It's a well balanced reserve between the open cost and underground operations. Whilst our resources on the right hand side It's largely attributed to our underground operations, where Zebulu is the largest contributor to both our reserves and resources, Accounting for about a quarter of the reserve base and about half the resource base with really good future optionality. If we go into the next slide, I would like to highlight the evolution of our reserve base over the last 5 years.
In a very depressed thermal coal price environment, we have managed to convert about 74,000,000 tonnes from resources into reserves, accounting for about half after mining depletions since 2016. In the same time, we successfully developed projects like The Mafuba Lifex and navigation. If we then look at the right hand side of the slide, In that same period, we also continued to critically evaluate the health of our business, which sometimes translate into difficult decisions. I think as mentioned by July and Bernard, by placing mines on care and maintenance where we cannot economically This has resulted in downgrading of some of our reserves, like example, Kweziela. I must be clear that the vision for Tungela is to have a healthy reserve base, and with focused Investment, there is significant potential to bring more reserves to bear subject to completing our feasibility studies And necessary approvals.
If we now turn our attention to Our resource base linked to projects. This slide illustrates a very healthy resource base that It's well understood, well drilled and with considered capital allocation to key projects Which have the potential to add to Tungela's reserves. Our resource base has seen some reductions and changes, And some of that has been converted into reserves. Over and above this, There were also a few transfers to and from our mineral inventory and changes to assumptions, as you can see on the graph. But I must point out that the positives have more than offset the negatives in this category.
Just to highlight A few. The resource base has seen a reduction from some downgrades to mineral inventory, mainly as a consequence of the closure Of Khurub South, the closure of certain mine out pits such as Gromdry and Excelsior and the seeding of our underground portion of our open cast To Tungela mine to Sasol. The transfers of the Bechoni reserves to resources And upgrading over the years of coal from various MRDs as well as recognizing some open cast resources at Kruip North, Just to name a few, I have more than compensated for the reduction that we've seen. Very Key on this slide, you can see that the main contributor to the increase in our resource base is the Dailies Hope project That was upgraded to reportable resources on the back of a commercial framework agreement that in the longer term could unlock Real development opportunities in the Limpopo province. If we then look at our asset overview and reserve and resource base, this slide and just to make reference, I'm on Slide 13 now.
The table is a summary of what we've spoken about, but it also highlights the run off mine and the saleable reserve at the operating mines And also the 2 greenfield projects that reflected on this table. As mentioned to Bernard, the indicated calorific value at most of our Assets are of high quality and really supportive of a premium export product. It's also worth noting that The primary portions of the reserve base are even higher quality if the secondary products We exclude it from the averages. The two examples here is, for instance, If we exclude the MRDs at Kruip and in Greenside, the calorific values that is reflected at Kruip sits at 6,300 kilocal per kg and at Greenside at over 6,000 kilocal per kg Gross has received. This concludes the section on reserve and resources, and I now hand over to Johan to give you a view of our operating assets.
Thank you, Johan.
Good morning, everybody. My name is Jan van Skalpraig, and I am the Chief Operating Officer for Tungela. Just a bit of background on myself. I have 25 years of mining experience, and I started my career back in 1996 in the very same portfolio of assets that we will be discussing today. I have held various operational management roles with my first general manager appointment in 2009.
From 2013 to 2016, I was General Manager at Sesham Mine in Kumba Iron Ore and return to call with my appointed as Head of Open Gas Operations at Business Services in 2018. In this part of the presentation, I will be providing you with a high level introduction to the various Tungela Mining operations. But before I do so, please note the outlook information that I'm about to present is extracted from the competent persons' reports and it's intended to provide a consistent view across the portfolio. So a quick introduction to the mining operations. July has already mentioned that Tungela operates a portfolio of high quality operations, delivering a range of high quality products.
The map on the slide indicates that geographically, the assets are located fairly close to each other, allowing collaboration, benchmarking, sharing and logistics amongst the operations, which is a major advantage. The various operations are listed on the right hand side of the slide. The underground operations are the Zebulu, greensite and Kuruwap Collaris And the open cast operations are the Mafubi, Koizela, Isibonelo and Ridge Flake colleries. And you can see on the map how they are relatively positioned according to each other. I will be providing more detail on each of these mining operations in the following slides.
I'm going to start with the underground operations, beginning with Sibulu Colore. Sibulla Colliery is our flagship operation. Tungela owns 73% of Sibulu and Inyorsikol owns 27%, But the operation is managed by Tungela. Zebulu is a large scale underground mechanized board and pillar mining operation targeting 2 seam extraction. There is also a small open gas operation targeting 4 and 2 seam extraction.
The mine has attributable run of mine reserves of 48,000,000 tonnes and a life of mine of 9 years with significant life extension potential. Run of mine coal produced from the mine is processed at the Paula Coal Handling Processing Plant, which is a fifty-fifty percent joint venture between Tungela and South32. This is a 2 stage plant producing a high quality primary product as well as the secondary on Middlings product, with both currently dedicated to the export market. The General Manager is T Man Mpokane with 20 years mining experience. T Man joined the group approximately 5 years ago, And he is originally from Sasol Mainen.
Timan has extinguished himself as a very capable and mature General Manager and has achieved a series of successful safety and productivity interventions. Looking at the Zebulu plan. From the graph at the top of the slide, you will note that the saleable production profile for Zebulu is Fairly consistent over the life of mine with an increase from 2021 to 2022, mainly as a result of productivity and efficiency improvements. The beneficiation process results in the production of a primary and a secondary salable product, with the latter being produced at no incremental mining cost. Sibula produces a primary product of 6,000 kilocal per kilogram with a yield of approximately 50% and the secondary product produced in the process results in a total yield of over 70%.
The yield graph in the bottom left of the slide indicates that the primary and total yields remain flat over the next 3 years. Sustaining capital includes stripping and development costs in 2021 for accessing the northern reserve at the underground operation as well as a new box cut at the Open Cast operation. I've mentioned to you that there is significant life extension potential at Tebulu and the life extension study is progressing to the feasibility phase. If the project is approved, It will add an additional 10 years to the current life of mine of Zebulu. The project focuses on the underground extraction of Toussine, And the estimated production profile will be approximately R8,400,000 tonnes per annum.
The decision point on the life extension project It's required by the end of 2022 in order to produce the first coal in 2026. Going on to greenside colliery. Greenside is 100% owned and managed by Tungela. It is an underground mechanized board and pillar mining operation targeting 4 seam extraction. The mine has run a mine reserves of 31,000,000 tonnes and a life of mine of 6 years, which includes a mineral residue deposit that is presently being exploited.
Run of mine production from the underground operation is processed in the Foresim coal processing plant and conveyed to the rapid loading terminal, which is approximately 2.5 kilometers away from the mine, from where it is then railed to the Richards Bay coal terminal. The Minerals residue deposit material, on the other hand, is processed in the Fyresym coal handling processing plant and trucked from the mine to the rapid loading terminal. The General Manager is Nea Monarang with 19 years mining experience. Naya started her career in Anglo American, and over the years, I've had the privilege of seeing Naya grow, Develop and progress through the ranks until now where she has established herself as a very ambitious and talented General Manager. Looking at the greenside plan, you will note that the primary saleable profile in the top graph as well as the primary yield for greenside In the bottom left graph is declining over the next 3 years as the operation moves to the East Block reserve, which has an inherently lower seam height and lower coal quality.
Greenside produces a primary product of 5,800 kilocal per kilogram from the underground operation and is expected to produce a secondary product of 4,800 kilocal per kilogram over the next 2 years. Domestic production drops off in 2022 as the mineral residue deposit is depleted. With the secondary product, flexibility exists to sell the product in both the domestic and the export market. But currently, the strategy is to pursue the higher margin gained in the export market. The yield graph also indicates that the primary product is achieved with a yield of approximately 60% as the mining operations advances into the East Block reserve.
The sustaining capital includes stripping and development costs required for accessing the East Block reserve. Going on to Huduap Colliery. Hudlup is 100% owned and managed by Tungela. It is an underground mechanized board and pillar mining operation targeting 4 and 2 seam extraction. The mine has run of mine reserves of 27,000,000 tonnes and a life of mine of 5 years, which includes a mineral residue deposit that is currently being exploited and sold raw to the domestic market.
Run of mine production from the underground operation is processed in the Geruab Coal Handling Processing Plant, which is a 1 stage plant producing a primary export product only. There is a rapid loading terminal on-site from where the primary export product is railed Today, RBCT. The General Manager is David Taliard with 31 years mining experience. David Talyard also started his career in Anglo American, and with the bulk of his experience, was spent in the underground operations and currently is deemed as one of our underground mining experts. Looking at the Huduwa plan, the top graph indicates That the primary saleable product profile for Huduwep is fairly consistent over the next 3 years, noting the drop off in production as the mine reaches its end of life.
Tukhulu produces a primary product of 5,700 kilocal per kilogram with a yield of over 50%. The domestic production sees us in 2023 as the mineral residue dump is depleted. The stand business capital relates largely to equipment overhauls for the remainder of Hudwebs' life. This now concludes the introduction to the underground operations, and I will now continue with the Open Gas operations, starting with Mafubi Colore. Mafubi is 50% owned by Tungela and 50% by Exxaro.
The Mafubi Neutraddak pit was commissioned in 2018 Following the successful completion of the Mafubi Life Extension project, it is a multi seam open cast operation targeting 4, 21 seam extraction with a low strip ratio, allowing it to deploy a lesser capital intensive dozer fleet for primary waste stripping activities. The mine has attributable runoff mine reserves of 28,000,000 tonnes and a life of mine of 11 years with significant life extension potential. A run of mine production from the operation is processed in the Mafubi coal handling processing plant, a 2 stage plant delivering a primary product and a secondary product, both for the export market. There is a rapid loading terminal on-site from where the product is railed to the Richards Bay coal terminal. Very important to note is that each shareholder, both Tungela and Exxaro, is responsible for the marketing sale of its own share of production.
The General Manager is Sheppard and Karimeng with 17 years mining experience. Sheppard also started his career in Anglo American And as a very dedicated mining professional and also one of our more diversified general managers with extensive experience in both underground and Open Gas Operations. Looking at the Mafubi plan, the saleable production profile for Mafubi is consistent over the life of mine And shown on a 100% basis in this graph. Mafubi produces a primary product of 5,850 kilocal per kilogram with an average primary yield of over 40% over a life of mine. The yield graph indicates that with the secondary product, A total yield in excess of 60% is achieved.
The primary and secondary products are currently dedicated to the export market, But optionality exists with the secondary product to sell it into the domestic market depending on where the best margins can be achieved. The sustaining capital includes stripping and development costs required for pit and surface infrastructure development as well as capital for additional equipment as the mining strip ratio increases over time. I now move on to KwaZela Colliery. KwaZela is 100% owned and managed by Tungela. July has already mentioned that the navigation pit was commissioned following the successful completion of the Kwezela Life Extension project and is currently in a ramp up phase.
It is a multi seam open cast operation targeting the 5, 4, 2 and 1 seam extraction and has a fairly low strip ratio with one dragline deployed for primary waste stripping activities. The mine has run of mine reserves of 37,000,000 tonnes and a life of mine of 8 years with further life extension potential. Run of mine production is processed in the navigation coal handling processing plant, delivering a primary export product, which is conveyed to the rapid loading terminal approximately 3 kilometers away from the mine and then railed to the RBCT. The General Manager is Luctor Rueda with 26 years of mining experience. Luctor joined our group approximately 1 year ago from Petro Diamonds, where he was the Chief Operating Officer.
And since then, he has established and settled in extremely well in the coal mining industry And established himself as a very capable and mature general manager. Looking at the KwaZayla plan, The top graph indicates that production at Kozeila produced between 2020 2021. This is mainly due to the Bokhoni pit being put On care and maintenance, as Lesios already mentioned, as well as the closure of the Mlalazi pit. From 2021, the navigation pit is the only operating pit at Koizela and in a ramp up phase. It is expected to achieve steady state rates by the end of 2021 with a stable salable production profile over a life of mine from 2022 onwards.
Navigation produces a primary product of 5 1700 kilocal per kilogram with an average yield of approximately 50%. The sustaining capital includes stripping and development costs related to the establishment of additional bedroom in the navigation mine. I have mentioned that there is Further life extension potential at Kwazela, and the life extension study is progressing towards the feasibility phase And he's targeting the Clydesdale area as an open cast operation. Clydesdale will be contiguous to the navigation pit, So there is potential for cost optimization through the use of existing navigation infrastructure. If the project is approved, it will add approximately 10 years to the current navigation pit life of mine and is planned at a rate of approximately R4,600,000 per annum.
A decision point on this project is only required in the latter part of 2025. Going on to Isibanela Colliery. Isibanela is 100% owned and managed by Tungela. It is a single seam open cast operation targeting 4 seam extraction, consisting of 2 main pits and deploying 2 draglines for primary waste stripping activities. The mine has a run of mine reserve of 27,000,000 tonnes and a life of mine of 6 years.
Isebunelo Collari is the only mine in the Tungela portfolio where coal production is exclusively dedicated to Sasol Synthetic Fuels under a coal supply agreement, which ends in 2025. The run of mine production from the mine is only crushed and screened and then conveyed to the Sasol Sinfuels refinery in Secunda over a 22 kilometer overland conveyor. The General Manager is Dirk Miller, with 33 years of mining experience and in the team of General Managers, by far the most experienced and Distinguished General Manager. Looking at the Icybanella plan from the graph at the top, It can be seen that the Isibanelo saleable production profile is consistent over the next 3 years. Very important to note Is that the saleable production in the second half of twenty twenty five and also for the whole of 2026 is not committed to the coal supply agreement with Sasol And therefore, product optionality exists in terms of product sales during this period.
The same business capital relates to machine overalls for the remainder of Isibonelo's life. Lastly, Ridgela Colliery. Construction of the Ridgela Colliery was started in November 2018, And Tungela holds an effective 34% interest in Ridfilai. Ridfilai is an independently managed small scale truck and shovel open cast operation where mining is undertaken exclusively by contractors. Rid Flay produces a domestic quality product, supplied under a coal supply agreement to Eskom, which expires in February 2024.
There is sufficient resources to extend current operations. However, this will depend on whether an extension to the current offtake agreement can be negotiated with Eskom or alternatively, if other markets for this production can be found. Looking at the Tungela production potential. On this slide, it is important to note that the information for the outlook period is sourced from the competent person's reports and may differ from management's guidance. The first graph on the left hand side indicates how the saleable production from its operations stacks up over the next 3 years, and I will explain the variance between 2020 and 2021 in the following slide.
The graph on the right indicates the saleable production market split over the next 3 years, And it can be seen that Tungela is becoming progressively more export market focused. The Tungela portfolio evolution, a number of changes have taken place in the portfolio, and this has had an impact on the Tungela saleable production into 2021. Consequently, overall saleable production for 2021 is expected to be lower than what was achieved in 2020, primarily due to the Kweziela Bokhoni pit that was placed on care and maintenance, the Kweziela Landau 3 Minerals residue deposit operation that was depleted and the closure of the Kwezela, Umla Lazi pit as a result of reserve depletion. There is also an increase in saleable production in some instances, primarily due to the Zebulun navigation operations, resulting in a total saleable production plan of 25,000,000 tonnes in 2021. I will now hand back to Leslie Martin, who will take you through our successful track record of executing capital projects as well as developing and operating our portfolio of assets.
Thank
you. Thank you, Johan. So me again, Key to the future of Tungela is the ability of this team to deliver on successful greenfield and brownfield projects. As per this slide, I would like to highlight 3 projects that were delivered on time and on budget in the last 10 years. First of that being Zebula Koli that was completed in 2010, Mafube Koli which was developed as a greenfields project In 2008, which benefited from another investment in 2016 to extend the life of that operation to 2,031.
And lastly, navigation, our latest project that was completed and is still in the ramp up phase. The project team that did these projects is well experienced and has remained largely stable for the duration of these projects And he's ready to successfully deliver on key future developments for Tungela. It is also important to point out how the business reacts to market conditions and its determination to act decisively To close sub economic assets, we'll place them on Querra maintenance when required. The two recent examples being Bechone and Hurup In 2019, Tungela will continue to review the operating performance and market conditions And make these decisions necessary to sustain this business. If we go over to the next slide, very important to the success of any business is to continually review And improved productivity, which is 100% in our hands.
At Tungela, this is part of our DNA, And our mindset of innovation is well entrenched in our operating teams. Just to mention a few of these examples, We have successfully converted a conventional underground continuous miner section into what we call a prime section by including additional coal cutting and roof bolting machines to reduce the production time losses associated with waiting for support and logistical constraints linked to the traditional continuous miner cycle. On the right hand side of this slide, you would see that this has resulted in a 54% increase in output from a single underground continuous miner section. This has also now been successfully rolled out to 3 of our underground mines and is currently operating with 4 prime sections at the 3 underground mines. On the Open Cast site, we have implemented technology and to mention 2 of these initiatives At Mofube, one was the CAS system on the dozers and Trimble on the drills, and that has enhanced the productivity levels After dozers by 10% into moving overburden and improve the blast game, which is also very key to moving overburden by another 8%.
The next lever that we pulled in this Business was to standardize on our key production equipment across the sites, and that provides us the flexibility at our open cast and underground Sites to redeploy equipment from site to site or from operations that we close, thereby maximizing the efficient use of our assets. Just for reference, we're now on Slide 54. Just to further illustrate the evenness of our operating teams to innovate, I would like to mention a couple of examples That have changed the efficiency of our mining and beneficiating processes. The first one It's APC or what we call advanced process control, where we have enhanced the level of digitally monitoring key processes in our washing plants To a point where a computer makes changes on a real time basis and optimizes our product recovery to levels that would never be possible in an operator controlled environment. Just to mention some of these enhancements.
First of all, increased plant run time, Improved throughput, improved yield and very importantly, improved energy efficiency and thus reducing The carbon emissions that we see from our washing plants. The next piece of technology, we installed geophones both at Kruip and at Greenside, where we use seismic intelligence to enable us to access mining areas underground that would normally have been sterilized due to underlying workings. We initially tried this technology at Kurub South where we were able to increase the life of that mine by 18 months and are currently using that at greenside to access Areas that would probably not be impossible to mine in the past. Taking our attention to the open cars mines, The draglines are really the prime movers. So at the draglines, we fitted Integrated strain monitoring on the boom sections of the machines to enable us to increase the payload of these machine Buckets by between 12% 25%.
This is achieved through continuously monitoring and analyzing the data that Comes from these sensors to optimize the load based on the operating conditions that the machines are working under. And then lastly, probably very close to my heart, to sort of manage our environmental liabilities into the future, We have intertrial technology where we can sustainably Managed decan from old operations by using passive water treatment technology. We have installed a full scale passive treatment plant at 1 of our closed mines where we use biological processes to neutralize acid water and remove heavy metals from the decant. That concludes my section. I now hand over back to Ryan to take us through the Q and A section.
Thanks, Ryan.
Thank you very much, Leslie, and thank you to all our presenters from the first session. We will now move to Q and A. A reminder that if you wish to ask a question directly, please join the conference call facility using the link you'd have received upon registration.
First question is from Jason Feickell of Bank of America. Please go ahead.
Yes. Good morning, everybody, and thanks for the teaching. Very interesting. I'm just wondering, it looks like you've got a lot of opportunity here To do projects, to do life extension. And maybe you could just talk to us
a little bit
about how you're going to be making that Decision. When do we need to make those decisions? And then how will you be making that decision? And I guess tied into that, How do you think about your cost of capital as a coal company?
Perfect. Thank you very much for that question. I'm going to ask Dion Smith, our CFO, to respond first.
Thank you very much, Ryan. Good morning. My name is Dion Smith, and I'm the Finance Director for Tungela. Thanks for your question. So whilst you are right that we have a number of options, Clearly, those options need to be evaluated against a number of uses of capital.
A bit later today, we will refer or reflect on those capital allocation Criteria and decisions around payback returns to shareholders and alternatives. We at the moment are studying a number of projects in parallel in order to be in a position to make those type of decisions Around 2023 or early 2023, there are no immediate expansion or life extension capital Requirements as the business is well capitalized and therefore no key decisions in the very short term. We will clearly have to evaluate that over the next year or 2 before we have to make those type of decisions. In terms of your question on our cost of capital, Clearly, we will be a newly listed single commodity, single geography business, so clearly anticipating the higher than Usual beta compared to what we've had in the past and therefore, signaling a requirement for us to carefully evaluate An appropriate cost of capital to evaluate it. But I want to reiterate that it's not only about an NPV or an IRR return.
Any project would have to compete for capital against returns of shareholders, but importantly also be competitive relative to other supply in the market, both in cost curve and in capital intensity perspectives. Thanks, Ryan.
Thank you very much, Dion, and thank you for that question, Jason. Sorry, please go ahead.
Sorry, Yes. Can I just ask a quick follow-up question? So would you consider inorganic growth options, So M and A, do you feel like that's in your mandate today, Dion?
We don't believe that that's in our mandate, if you use the word today. Clearly, July will add to this to the extent that he feels the need. But Jason, our mandate today is to Successfully demerged List this business. Our mandate today is to operationally focus on The efficiency drive, the cost and the capital efficiency drives that we've set ourselves to settle this business and to earn the operational credibility that comes with that journey. That does not mean that we will never look at any inorganic opportunities, but those would have to most certainly be evaluated at the appropriate time, which certainly isn't today.
The only additional point to make To the question that you're asking, as of today, obviously, we are de merging and setting these assets and want to operate these as best as we can And making sure that each asset is delivering its full potential. The decision in the future, however, is a far broader question, not just about what assets we hold, what Reserves and resources we've got, but also to look at the megatrends in terms of what is happening in the market and whether, in fact, the profit pool is sufficiently attractive For us to continue to make investments and or in fact the question that he just asked whether there is opportunities for consolidation, But we are nowhere near there as we sit here today. As we sit here today, we only got approval yesterday To become a stand alone, and we are thankful for our shareholders doing that, our first priority is to set this as a stand alone business, which is sustainable, Making sure that we're delivering attractive cash flows for our shareholders, and only then do we then step back and say, what do we do going into the future? [SPEAKER JEAN FRANCOIS VAN BOXMEER:] But that's not a question that we're grappling with as we speak today.
Thank you very much, Julien.
Thank you for that.
And thank you for your question, Jason. Operator, if we can take our second question on the line.
Of course. The next question is from Tim Clark of SPT Securities. Please go
ahead. Thank you. Good morning and congratulations on the demerger approvals. I just got a couple of questions maybe towards the assets And the discounts. So if I look at it, you've got your primary product is of a higher calorific value than some of the average product.
And then the MRD tends to be winding down across most of the assets. And I guess what I'm trying to understand is, will that mean that discounts will narrow to the benchmark because on average you're selling a higher quality product As those MRD deposits wind down or will those MRD deposits be replaced by Other lower grade or lower calorific value production. And then I just wonder, don't know if it's going to fit in the finance section, so apologies if it is. But perhaps if you could just get some idea, you've shown us the SIB for each of the operations coming down As sort of specific projects upfront come to an end, I wonder if you could give us just an indication of what your sort of longer term across the portfolio SIB expectation would be Without any life exclusives, just keeping the current ball rolling. Thank you.
I'm going to ask Johan to respond to both of those.
Tim, thanks for your questions. So Tim, your observation around the product mix in the portfolio is correct. On average, currently, our portfolio mix last year Was around a 5,500 CV. And correct, that's spread across high grade RB1 material all the way down to a 4,800 material or washed mineral residue deposit type material. It's important to note a number of factors when we look at our product mix and portfolio.
We determine the output in the portfolio mainly on optimizing our full cash revenue. So therefore, the market most Certainly determines our ability to sell some of the lower grade material, and the discounts that we observe in the market determine that also. There's clearly also a number of tonnes that we put into the market that's essentially rawish, so unwashed MOD type material. And for that, we earn a very modest margin from a cash perspective. The reason, however, we quite often continue entering into those short term contracts where it makes sense is because where we have historic MRDs, so deposits, That also come with a longer dated environmental obligation.
Selling those off to a user that has value and use Obviously, also optimizes our longer term liability. So our mix is therefore determined primarily, so our product mix, by where we are able to earn a margin And where we have other benefits such as that environmental benefit or a capital benefit where it avoids us having to extend or grow A footprint of a particular MRD environment or area with the necessary permits and the like required to do that. So that's sort of on the product mix. We do not anticipate a material change in that product mix in the short- to medium term, but clearly, market forces might Tweak that for us on the edges. The decline in that MOD in the medium to longer term is therefore more A lack of visibility on whether the market would or wouldn't need or require that type of material medium to longer term.
So that's on the product mix. I have included a section on capital, and I therefore beg for your patience. And I'll get to that a bit later on. But last year, we spent around ZAR93 Tonne on Steen Business Capital, so that's per annum on that 16,500,000 tonne export salable as a denominator. We clearly see that in the shorter term, there's a bit of stripping in development capital to be spent across some of our operations.
But Absolutely. From 2023 onwards, we see that number moderating and reducing down. And that's not only as a result of the life of the assets, but also as a result of our own internal plans and the targets we're setting ourselves to go and review The efficiency and the prioritization of our capital spend. Thanks,
Thank you very much.
Thank you very much for that question, Tim. Operator, if we can go to the next question.
Next question is from Brian Morgan of RMB Morgan Stanley. Please go ahead.
Hi, good morning and thanks for the opportunity to ask questions. Can I just ask, Greenside comes to end of life very soon, that's 3,000,000 or 4,000,000 tonnes of export tonnes and doesn't seem to be a life extension Option is as far as I can see and nothing in the presentation? And then coupled to that, the rail So, Copay contract comes to an end within the next 3 years. Can I read into that that you guys would be willing to not Your full rail allocation in the next contracting period, would you allow your would you be willing for your export volumes to decline in the next contracting period?
Thank you very much for that question, Brian. July, I'm going to ask you to respond to that and then maybe give over to Benuru as well.
So seeing that the question is marketing related, I'll deal with the life extension, then I'll talk about the I'll ask Bernard and Dion to comment on the take or pay, how we're thinking about that. When you think about greenside and where it is, Greenside is contiguous to navigation actually as well. They're all in the same geographical area. The way we try to think about the mines in that region, we actually call it the South African Okay, South African Colli States. I just got the name right.
And we tend to treat Kwezela greenside as one complex sharing the same amount of infrastructure. So when we think about the Life extensions in that region, what we're trying to do is to evaluate what makes the best use of the infrastructure that we've got in that region. And we may not necessarily always talk to this being a greenside extension or KwaZela extension. You David, Johan actually said something quite subtle. He said the Clydesdale pit, which is also continuous, Contiguous to greenside in mine, some of greenside reserves is contiguous to navigation.
So what we're trying to do is to optimize our capital by utilizing the full infrastructure in that region, mining infrastructure, Rapid loading terminals, water treatment and all that infrastructure in that region will do what makes more sense. What we're not planning to do is just to say we'll replace volume for volume exactly, Even if it doesn't make sense, we only do capital projects, as Dion said, which protect our position on the cost curve, Our value accretive, utilize our existing infrastructure most efficiently and our short payback. And that's why quite often we don't tie one life extension to necessarily that specific mine. And Leslie made an important point if you heard him talk about How we standardize our equipment to be able to share and deploy it across the whole portfolio, that's part of the reason why we think about it that way. Dion or Beladigas want to comment on the take or pay and the 2024 date?
Yes. So thank you very much, July. So it is common knowledge that the industry have around A 10 year agreement with Transnet, which comes to an end early, so Q1 2024. As I mentioned earlier, Brian, those projects that Julyon has just referred to Include a number of options to add export tonnage into our portfolio given the right economics clearly. We, between Bernhard and I, are planning to start those engagements with Transnet early given that the Transnet expectations Provide another input into the viability and into the merits of switching on any of those life extension projects.
Your observation, however, around the life of mine profile of the total export tonnage It's correct that if we switch on a number of those projects that we have in our Armoury and in our sights at the moment, we could potentially replace all of that export tonnage, but July has Sort of moderated expectations that we believe that we would only do so and therefore might have a lower profile in export tonnage post that point. And clearly, that will be a discussion that we will have over time with Transnet and as we evaluate the viability of those projects.
And maybe if I could add something, Dion. In addition to what you said, I mean, we've actually started engaging with our Colleagues in the Strategy and Business Development functions within Tungela, and a renewal of the TFR contract is one of the high priority projects. We haven't engaged with TFR yet. We will, As Dion mentioned, do that shortly, but it is a high on our priority list.
Thank you very much. Dion Berdon, thank you. Just a
follow-up question.
Yes, please go ahead.
Could you you haven't spoken about Elders. I don't know if you're going to during the course of the presentation, but could you give us a little bit more color On that mind, in terms of conceptually what you're thinking about that?
I was hoping that you You would not have picked up on all my projects. So you noticed that I said we will utilize our infrastructure which way it makes sense. Elders is a reserve and resource, which is contiguous To Kuribok, and again, our thinking, both in terms of sequencing and capital efficiency is how do we develop that resource In the most capital efficient way and what would be the most appropriate timing. But also more importantly, what kind of products should we be Producing out of that mine and for which market channels? It's one of those resources that is Both suited to providing coal for the export markets, good quality.
But equally, we could, At the right price point, supply the local markets if we needed to. And that study is currently ongoing. But we're nowhere near A position to make an imminent announcement about what we're going to do there.
If I could add to what Gerard said in terms of The Elders opportunity and resource, it is immediately contiguous to an existing operation. So whereas it is arguably an unmined and undeveloped resource, it has the potential benefit From synergies with the complex, which it sits next to, which is the Huduwab complex. But again, Elders would have to pass muster and stand up scrutiny relative to all of the other project options that we have, Brian. So we're not today sharing details as to the shape and size of that opportunity given that we continue to study it and refine our thinking on it. And in order for us to compare those with the other options in our portfolio.
Thanks.
Perfect. Thank you very much, and thank you, Brian, for those questions. At this stage, before we go back to the lines, I do want to read out a couple of questions that have come through the webinar. The first question actually, we have two questions from Gavin Rabelini from PSG Asset Management. Gavin, I see that your first question was related to When is the Transat Take or Pay Federal contract up for renewal?
I think that's been addressed. But your second question, I'm going to read out. And Bernard, this one will be for you. So again, from Gavin Rabelini at PSG Asset Management. What are the tail risks we should monitor that could materially derail the medium term Asian demand forecasts from SA over the next 10 years.
Ben, if I could ask you to respond on that.
Thanks, Ron, and thanks for that question. So what we need to monitor and watch carefully, clearly, at the moment, would be COVID. A further breakout of the spread of COVID could have an impact on the demand side in Asia. So that is hard to watch and monitor. And I guess there could also be a second, and that would be mounting environmental But as we explained during the presentation, given the economic development in the Asian and South Asian countries, The need for new energy and the need for low cost energy, we believe that we there are Adequate options in that market to cover that environmental pressure, likewise with COVID as well.
So again, we're not reliant on one market and have various market options available to us.
I guess one additional
comment to that is, wearing my World Coal Association yet, I think there are a number of other factors you need To look at, which are not just specific demand factors, with a depleting Base of production globally, one of the things we're going to have to monitor is how much investment is actually going into Building new mines globally, because that's quite important because if there is no demand if there are no new mines being built, That can only create a bigger supply gap. If there is investment that could change the supply Demand dynamics for us. The other megatrend we need to watch is Whether global tons, which traditionally don't compete in our markets, are able to compete in our markets, What we have seen with the switch off of thermal coal demand in Europe, for instance, 1 would have expected a lot of the American tonnes, which traditionally serve that market, South America, to switch to our markets. That has not happened because Of freight rates and it just can't compete. And we need to watch all those flags To determine whether, in fact, the supply market dynamics continue to be supportive, not just of South African coal, But actually of the seaborne traded markets.
So there are broader trends that we're keeping very focused on.
Thank you very much, Shlai. The next question that we've got through the webinar is from Alexander Kozak from T. Rowe and Price. The question, and Bernard, this one's going to be for you. Does the cost curve you show incorporate the discount you historically sold the coal at.
Thanks for that question. So just as a reminder, the cost Curve that we showed is a Woodmac cost curve, just as a reminder. And no, that cost curve does not show the discounts. It is a Cost curve for the benchmark coal and benchmark price, which is a 6,000,000 cal, so it would not be reflective of the discounts that We worked through during the part of my presentation.
Thank you very much, Bernard. The next Question is from Liam Fitzpatrick from Deutsche Bank. And Leslie, it's a question that I'm going to ask you to respond to. Question on Zebulunifex extension. Can you provide details on when you expect to approve licensing challenges and how would approval impact the production profile?
Thank you, Ryan. So maybe just to start off, Liam. In the short term, we are developing towards the north of that reserve, and we're going through the Graber, which will give us access to the northern portion In that same region, as you would have seen from the Resource statement is quite optionality around Foursim and Tousim in the Zornoxvontane West area. But I think we've got time to complete that study around accessing the rest of that resource, And we'll be in a position to interrogate the licensing requirements for that area. And I think from a timing point of view, we would then consider how do we need to sort of phase in The potential from that area into the broader portfolio mix, not sure, July, if you would Would you like to add?
I would rather get that the COO who owns this mind to comment if there's any additional comments.
Yes. So Liam, just from my side, just a couple of key highlights from my presentation. So I mentioned that And this project will add approximately 10 years additional life to Cebulu and that the Rana mine production profile will Slightly 8,400,000 tonnes per annum. Now like Leslie has mentioned, the Cebula resource, it's Immediately north of the current operation. And then secondly, it's also an underground operation.
So what you will find is that licensing requirements Between underground and open gas operations, they were slightly in that underground operations licensing processes are I don't want to say less frisson, But it is usually less of a challenge than for open gas operations. So from that perspective, we don't really foresee any major Licensing challenges. Then as far as the production profile is concerned, so Currently, we don't envisage a major change to the current Cebula production profile, but obviously, we are still in the So we are considering our options. We are optimizing. So there might be changes once we get to a better level of detail.
But at this point in time, we're not envisaging any changes.
Thank you very much, Johan, and thank you for that question. The next I'm going to take another 2 questions from the webinar before we go back to the lines. Dion, the next question is going to be for you. The question is from Andrew Snowden at Sunlam Investments. I'll read out the question.
It was suggested earlier that costs will be flat for the next 3 years. Is this target not too optimistic given rising mining inflation? Please give more detail why you are comfortable with this aggressive guidance. Thanks for that question, Andrew. And Dion, I'll hand over to you.
Yes. Andrew, it is a relevant And we are setting ourselves a couple of ambitious targets as a team. However, you have to recognize that I think when July said we're setting a Target of flat cost, let's say cost per tonne. So he was referring to the ZAR833 a tonne FOB cost. And I'll unpack a bit later Today, how we get to that 833 number.
In real terms though, we think that we have Sufficient productivity and efficiency programs in place to counter the bulk of geological inflation. I think you refer in your question Geological inflation is mining inflation, so those should set itself off. The second one is that you also would have noted When you unspoke and also July that we've recently developed what we call the navigation pit project within the Quizela complex. And if you put that in context of the cost curve slide that Bernard showed with Quizela On the Q4, so the only asset not in the lower half of the cost curve, you'll recognize that there's a denominator shortfall in that we only started To ramp up navigation, and therefore, we would benefit on a cost per tonne basis as that denominator improves. So 1, efficiency and productivity improvements 2, navigation denominator ramp up.
The third issue is around A strategy we've set ourselves around buying better and spending better, which essentially is a Cash cost efficiency lever. We believe that we should be able to focus our procurement spend On a more appropriate basis, given the shape and size of our assets and where we locate it. And clearly, That is an important lever for us to bring the actual absolute cost that we spend down by buying the same but buying better And using the utilization of that as best as we can. So we think through those three levers, whilst it is an ambitious target, it's flat in real terms, though. It is achievable.
Thank you very much, Dion. I'm going to take one more question from the webinar before we go back to the lines, and my apologies, I do see a large number of questions. We might not get to all of them in this Q and A session, but if we don't, we'll pick up on the second Q and A session. So another one from the webinar, and again, Dion, I'm going to ask for you to respond to this one. The question comes from Luvoye Boie at NOA Capital.
Congratulations on the approval of the demerger. Is there a possibility for extension of the coal supply agreement with Sasol at Isibonello? In the absence of that, what will this do to the realized price as the mine will be forced to seek other markets for this coal production? Thank you, Louis Vuijer.
Thank you, Louis, for that question. The agreement with Sasol has customary Confidentiality provisions, so I won't be able to give you all of the details on every single scenario. Safe to say the following. Isibunelo is a very Good quality coal into the Sasol Synth Fuel business. It is a very important coal for Sasol's processes, And we are a very important ingredient of its total coal sourcing strategy.
And as a result, I believe that there Could be if we felt that it's appropriate and commercially attractive extension options at mutually acceptable terms. However, we also recognize and whilst I wouldn't want to speculate around the timing of this That Eskom continues to face should the country's growth resume post COVID, That Eskom also faces a potential coal cliff and the requirement or demand for similar type quality coal. And if you look at the geographic location of Isibonelo close to Secunda, you will note that there's, for example, krill across the road. There are Eskom options also. In addition to that, clearly, there could be other industrial market offsets for that coal.
So it's not something that we are concerned about today, recognizing that agreement runs until mid-twenty 25 from memory. And therefore, we have enough time to reflect on what to do with that coal at the end of that current CSA.
Thanks, Bill. Thank you very much, Dion.
Operator, at
this stage, if I can ask us to go back to the questions on the conference call.
Of course. The next question is from Ben Davies of Liberum. Please go ahead.
Thanks. Yes. Just a quick question on life extension opportunities. How should we is there any sort of rough guide we can use, Particularly for Xebelo and also Quaiseyo in terms of capital intensity to reach those resources. And also, Is it should we be thinking about conversion loss at all?
Or is that not a factor going from resources to reserves? Thanks.
Thank you very much, Ben. If I can ask you to start, and I might ask 1 or 2 of the others to chip in as well.
Yes. Ben, if you will, I will definitely pass the conversion Factor and a loss to Leslie or Johan to answer at the risk of getting that 100% incorrect. In terms of the capital intensity, we have done only early studies on these options. And we've also only done studies from an Anglo American lens. What we really would like to do is to dust these off I'm using a Tungela lens.
So I would love to be drawn right now on the capital intensity, safe to say that it is our ambition To ensure that we only switch Lifec's projects on where it is very competitive from a relative capital intensity perspective. So apologies, Ben, for not being able to give you dollars or pounds and cents today, but bear with us whilst we press the reset button And think through what those capital projects could look like wearing a Tungela hat. On the resources and conversion into reserves, clearly, The capital intensity plays mathematically into that equation and so does the cost per tonne and a number of other factors, As you would well know, given resources is only about geological confidence and reserves about the economic extractability. So it's difficult to answer your second question without having the answer to the first, but I'm going to just pass to Leslie to see if he's got any perspectives on What we've observed historically in that conversion or the loss on that type of conversion from resource to reserves?
Yes. Thanks, I would say in terms of Zebulu, I don't foresee, I think, from From a resource point of view that those conversions will be to the negative side. I think as you're very well aware The CPRs do take into account economic factors, but I think what sits 100% in our hands is that in The next couple of years, we've got the opportunity to drive those productivity and cost savings that can also, when we do those projects, Can actually unlock some of those, and I think that's what we'll focus on in the next couple of years As to really drive those efficiency projects so that we can actually have a better economic View of some of these resources.
Perfect. Thank you very much, Leslie and Dion. We've got time for one more question on the line. So operator, if you can go ahead.
Thank you. The next question is from Sylvain Brunette of Exane BNP Paribas. Please go ahead.
Good morning, and thanks for the presentation. Maybe one Question for me on the marketing side. Curious to know if you guys have looked at the coal gas priority, If you've done some math flexing CO2 ETS in there, where would that leave The coal price switching points at current gas prices, please.
Perfect. Thank you very much for that question.
I can take a first stab and hand to July to the extent. So thank And I think you're asking a question that probably the whole world has and continues to grapple with. And there are a number of unknown factors and assumptions, as you well know, in particular, around the carbon pricing and taxes Across the different jurisdictions, we don't have particularly strong views on that. Our primary view is obviously that we are a coal miner and that We want to produce the best and lowest quality coal most efficiently and clearly place that into the markets that we know and understand to prefer high quality imports of coal. And in those markets, typically, there are variable degrees of efficiency on gas extraction And clearly, those technologies are evolving also.
That isn't our primary focus at the moment. As you can imagine, we've got A high quality suite of assets, which we will mine as efficiently as we can in order to be as competitive as possible in those type of markets. I don't know if July has any perspectives on that.
I guess, yes, the only comment I'll add is that in the game that we play, 1st and foremost, you want to know If there's demand for your products or not, and the answer is we've done a fair amount of work that says there is robust demand, certainly in the next decade and maybe beyond. And we have got the right quality assets in the right part of the cost curve to be able to take advantage of that. I did say that we do watch Broad trends and the one that is scratching it, which is what will the cost of gas do to the switching from Temocco to gas. In fact, it's a broader question, not just switch from Temocco to gas. It's actually switch from Kimo call to other energy sources.
We think about this from an energy complex pricing point of view, But we don't take a far more detailed look at it. We look at it from a megatrend point of view, Insofar as it informs our view about the long term dynamics, there will be some switching happening as we saw in the Americas, for instance. But what we found and that's why I made that comment about that although the American market, for instance, in the U. S, Where Epiq was producing roughly 1,500,000,000 tonnes of coal, when the switch from thermal coal power Stations to Shell Gaspar stations happened. What would ordinarily have expected that coal to start trading In the seaborne trading market, it didn't happen.
In fact, that production will close down. So those are the kind of broader macro trends that we would watch To inform whether the industry into which we supply remains attractive and therefore, Where do we position our assets within that competitive environment?
Thank you very much, July. Thank you, everyone. Unfortunately, that is all we have time for in this session. We will, however, try to pick up on more of your questions in the second session, and I can see Both on the webinar and the call, there are a couple more questions. We will pick up on those in the second Q and A session this afternoon.
We will now have a short break, and we will resume proceedings at 10 past 11 South Africa time when we will kick off the second part of today's schedule. Thank you very much for your participation, and we'll see you back in about 15 minutes. Thank you. Good afternoon, everyone, and welcome back to the second half of the Tungela Capital Markets Day. To start this session, I'm going to ask our CFO, Dion Smith, to lead us.
Thank you very much, Ryan. So as I introduced myself earlier, I'm the Finance Director for Tungela, been with the Coal division of Anglo American as the CFO since It's worth sort of reminding you that the entities forming Tungela did not exist as a single company previously. So what we're presenting It's essentially an aggregated view of the entities as if they were under one group for each of the 3 historical periods in the PLS. We also presented pro form a financials in the PLS that show how the business would have performed Had the demerger taken place effective 1 Jan 2020, we've not made any material changes to the accounting policies in separation of Tungela from Anglo American. So on this page, we've essentially outlined a buildup of how we look at the business, and we hope that this will provide you with a base to assess the economics on a go forward basis.
The results of this page at the bottom, referred to as adjusted operating free cash flow, which is more fully defined in the PLS, It was €4,000,000,000 positive in 'eighteen followed by €1,700,000,000 negative in 'nineteen. These results were off the back of a much softer price, which Bernard and July set out earlier, In particular, in 2019 2020. We start off at the top with production So during 2020, we produced around 16,500,000 tonnes of export salable production, which represents around 80% of our revenue. The 2020 benchmark export price, which was in 2020, dollars 65 a tonne, results in a ZAR price of about R82 a tonne. During 2020, we observed an aggregate discount, as Bernard set out earlier, of around 26%, Which, if you apply that, gives you a net realized price of ZAR798 a tonne.
If you look at Anglo American Q1 2021 production report, you will note that on a mine to market basis, The realized price was $74 a tonne. So comparing this to the benchmark price of $90 a tonne in Q1, the discount narrowed To around 18% compared to 26%, albeit the latter is on a mine to port basis. We then move on to the FOB Cost per tonne, which I will set out in more detail a bit later in this presentation. But in short, if you take your total operating costs, Which includes both export and domestic operating cost, and you then deduct domestic revenue, Given that domestic is mainly a secondary product, you arrive at a total export operating cost only. And if you take that total export operating cost and divide it by the export salable production of 16.5 You'll get to the $8.33 a tonne in 2020, and there's a bridge later on in the presentation, which I'll take you through.
The other costs of R29 a tonne relates To corporate cost studies and demurrage, so everything beyond FOB. And then the delta between the realized export price of ZAR 798 and the FOB cost of ZAR 833 and obviously the ZAR 29 a tonne then gives you that negative margin of ZAR 64 a tonne And in turn, the €1,000,000,000 negative adjusted EBITDA in 2020. So adjusted EBITDA is Clearly very sensitive to production and sales price as well as foreign exchange movements. And for example, in 2020, and this is mathematically, if you Assume a $10 a tonne higher realized price, that would result in improvement of about ZAR2.7 billion in earnings. So using the adjusted EBITDA, we then remove various cash flow statement adjustments, and these are set up more clearly in the PLS, but So working capital movements, profit and loss on disposal of PPE and so forth as well as sustaining capital to then get to an adjusted Operating free cash flow, which in 2020 was negative ZAR1.7 billion.
So we will cover the sustaining capital, as I said earlier today, As well as look at the next couple of years of capital later on in the presentation. On rehabilitation, I will also set out the balance sheet position a bit later as well as the future funding. But as an indication on this slide, you can that we would continue to fund a minimum of 5.5 percent of the guarantee amount in cash per annum. The corporate tax rate in South Africa is currently around 20 Percent and you would also note from the PLS that we've incurred losses across the last 2 years. As mentioned, You would have also seen in the pre listing statement that adjusted operating free cash flow, so the results on this page, is the number that we will base our dividend off.
And it is therefore a key number that we have and we'll continue to monitor going forward. Other than the Employee and community participation at a South African coal operation level, which we'll talk about later on as well, there's no meaningful participation Of minorities in the adjusted operating free cash flow line, given significant debt in the structures and most notably, in AAIC, so [SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] And Yossi Cole, which owns Zebulu. I will now step you through the key financial drivers and considerations for Tungela, including revenue, cost, capital And our day 1 balance sheet. So in order to establish Tungela as a focused mining company for the 1st 3 years With the requisite level of operational focus that this will take, we have entered into an export offtake arrangement with Anglo American. So the Anglo American marketing team clearly has the expertise to access the most appropriate markets in order to optimize the realized price for the kinds of products that we produce Given the expertise and knowledge of our assets in the markets, Tungela will manage the mine through to Port Logistics from day 1, and we clearly have the opportunity to expand into a stand alone marketing business over time.
And as mentioned earlier, Bernard will lead the development of our marketing business for Tungela. So prices Paid by Anglo American for coal sold by Tungela will be market related and with reference to the benchmark price as well as independent broker quotes for inequality discounts, which were not set out earlier. Our team will also be monitoring this price realization, which we expect to improve from historic levels and that you would have seen in Q1 this year already. So in addition to the upfront cash injection of ZAR2.5 billion, which we'll get on to, we sought to develop A capital support structure to protect Tungela from adverse market conditions in the short term with an additional capital support mechanism, Which will be in place until the end of 2022. As set out in the pro form a financials in the PLS, had this structure been in place Since the 1st January 2020 until the end of 2020, it would have resulted in a further ZAR1.5 billion cash support in 2020.
For the period up to the end of 2022, the price support at which this price support would kick in It's a price of about ZAR11.75 a tonne, and that's the benchmark price, which will then be adjusted in accordance with the quality discounts That Bernard stepped through earlier. So based on the 2020 product mix, the realized price in accordance with that capital support agreement Would have been ZAR 894 a tonne. Capital support earned up to the end of 2022 is not repayable To Anglo should clearly Tungela benefit from it. Given recent market volatility, this is a good Arrangement to have in place, but at current prices, we clearly do not expect the capital support to be required. So clearly, Tungela is robustly capitalized with CHF2.5 billion cash balance from day 1 And the additional capital support, if needed.
Reflecting on day 1 for Tungela, all cash and debt We'll be extinguished on 31 May 2021 ahead of the demerger, which allows us to start with a keen slate and a strong balance sheet. The ZAR2.5 billion cash injection is not repayable and can be used as Tungela deems fit in an unconstrained manner. Absent external liquidity on day 1, the upfront cash clearly provides us with balance sheet flexibility In order to manage our working capital requirements, but it's clearly very meaningful in the context of the current stripping and development capital cycle that we're in as well as providing further comfort around the business' ability to fund future rehabilitation obligations. Capital support, as indicated in the light bars on the slide, which are potential amounts that we could get In 2021 2022, it provides us with full downside protection around ZAR4 1,000,000,000 until the end of 2022. We look at our working capital over 3 Components.
So firstly, trade payables. These have recently increased, in line with the increase in some of the operating expenditures, such as consumables and production input costs But also due to efforts to constantly optimize payment terms, trade receivables on a go forward basis, Around 80% of this will accrue from Anglo American Marketing given that new arrangement. Inventory is valued only once it's washed, And the numbers on the screen clearly reflect inventory volumes and coal prices at the end of each respective reporting periods. And you may recall that spot prices were strong at the end of 2020. So given the new arm's length marketing arrangements So Anglo American, we are rebuilding physical stock levels during 2021.
And you also see from the slide which represents year end balance sheet numbers that working capital as at the end of 2020 was historically low, And it's likely to increase to historic levels in 2021 in addition to the inventory rebuild that I've mentioned. Further to the discussion we had on CapEx earlier, we look at our capital through 2 main components: 1, expansionary CapEx, which is essentially Extensions to the footprint of an asset or a Lifecks project and 2, sustaining capital, which is made up of sustained business CapEx on the current asset base as well as stripping and development at these assets. Stripping development includes, for example, box cuts in the open cast mines, such as Mafube and navigation or extending ventilation and infrastructure in an underground mine, such as greensight where we're currently mining to the east or Zebulun to the north. We have continued, notwithstanding the challenging environment in recent years to invest in our assets, and this results in us not needing to spend any material expansion in CapEx until at least 2023, as I said earlier. Sustaining capital is aimed at maintaining the integrity Of our installed infrastructure and assets for the duration of the life of mine.
I mentioned earlier that during 2020, we spent ZAR93 a tonne, So per annum SIB CapEx per export salable tonne. So whilst guided to be slightly more elevated in 2021, mainly due To capital deferrals off the back of COVID deferrals in 2020, we expect SIB to gradually moderate to below 2020 levels from 2022 onwards. And this is as we carefully review the efficiency of our spend And our plans with a Tungela lens, coupled, of course, with the ramp up of navigation and the concomitant increase in the denominator, so export salable production. We have around ZAR6.45 billion $440,000,000 of rehabilitation costs, that's on an NPV basis, as at the end of 2020, which will be incurred into the future. When we unpack operating expenditure for 2020 a bit later on, you will note that this provision was increased In 2020, buying around ZAR1.3 billion.
We constantly reassess our liability numbers Through engagements with independent third party consultants to ensure that we are fully compliant with applicable legislative provisioning requirements. We currently also use a combination of NEMA and the existing legislation. And water treatment, for example, is provided based on the combination of active and passive treatment. Given the nature and extent of these liabilities, we're also focused on developing technologies to mitigate the future cost, for example, to enable us to shift to passive water treatment only. As set out on this slide, we have ZAR2.9 billion in Trust currently.
We also have around ZAR3.2 billion of guarantees in place, and these will be provided through insurance products. As part of those arrangements, we will contribute 5.5% of our guarantee amount to a green fund. This contribution, coupled with the other efforts such as, for example, the improved water treatment technologies I referred to, should help us to fully fund with cash collateral this liability over time. So employee costs remain broadly flat, if I look at this graph starting from the bottom, over the last 3 years. And this is as wage inflation Around high single digit, which is commensurate for South African labor market, have been offset by lower headcount in mines that no longer are in operation As well as some broader restructuring of the business during this time, input costs such as consumables and maintenance, notwithstanding local inflation, have also stayed flat Due to lower production footprint in 2020 as compared to 2018, logistics Costs are largely related to TFR costs to get coal to the port.
As mentioned before, in 2020, there was a large increase in the rehabilitation provision that went through the income statement as a noncash item, And that was to ensure that we adequately provision based on current legislation. In real terms, we will aim to keep our cost Base flat over the next 3 years and we'll have a number of operational efficiencies, which I spoke about a bit earlier on in Q and A that we've identified to execute on this. If I sort of just pause on 1 or 2 elements around this Cost momentum. Looking at the cost base on a go forward basis, there are 2 key drivers that we envisage keeping our costs Relatively flat in real terms in the next couple of years, in addition to what we spoke about earlier. So we've retired higher cost production by replacing or placing Bohoney, which is a pit in Krizela, on care and maintenance in early 2021.
And we'll continue to ramp up navigation in order to improve the relative competitive position of that Kwezela mine. In terms of recharges from Angola, we've entered into a series of Transitional services arrangements to enable a seamless transition to a stand alone business. So these TSAs represent around onethree of Current recharges. And in addition, we are also replacing around onethree of those recharges with stand alone services. We have also envisaged the ability to improve our cost base by reducing the total cost of this bucket of spend over time.
I said earlier that we'll talk a bit about the 833,000,000. So we've spoken about a simplified financial model as well as our aims Keep those costs flat in real terms, so let me step you through how we get to the ZAR833 a tonne FOB. On the left, we start with our total operating cost base, which includes costs pertaining to oil production, export and domestic. We then subtract domestic revenue to get to our FOB export costs. So by and large, domestic production is a secondary or a byproduct in this equation.
The FOB export costs Divided by export salable production of that 16,463,000 tonnes in 2020 gives you the 833. To get to an all in sustaining cost, which on the graph for 2020 is the ZAR 894 a tonne, we add other costs, Which is around 204,000,000 and that mainly includes sustaining capital, expansionary capital but also the corporate And project study costs as well as the Marich I mentioned earlier. We then remove noncash costs, That's the 143,000,000,000 bar, which is included in the total operating cost of the €2,350,000,000 And that includes mainly depreciation, amort as well as the movement in the rehabilitation liability. And this gives us Our total all in sustaining cost per export tonne of ZAR894, and this is for the business compared to a realized export price of ZAR798 for 2020. So perhaps another reminder On this slide of the capital support agreement, which is in place till end 2022, which would have resulted in that 1,500,000,000 Given a realized price below the ZAR894 a tonne, We recognize that we have a responsibility to think carefully about the business' ability to generate cash but also then how to allocate Those cash flows, we will continue to have a disciplined approach to our capital allocation.
Maintaining the health of our assets With efficient, sustained business capital remains a priority. We will focus on funding our closure liabilities. Currently, approximately 45% of our environmental liabilities are funded by cash collateral in the trust with a balance supported by guarantees. Our intention is to gradually increase this coverage from 45% to 100% through contributions to the Green Fund and other initiatives such as water technology. As we believe that this is a critical element of being a responsible operator, we We're absolutely committed to delivering strong cash returns as July said to shareholders with a minimum dividend payout ratio of 30% of net cash flows from operating activities after funding sustaining capital and taxes.
We will, however, Continue to review the payout ratio in favor of a gradual increase over time should our performance allow us to do so. Each of our mines have value or life enhancing investment options, but it's important to again I highlight that we are taking a conservative approach to managing capital, preserving cash flow for shareholders and therefore would only invest in low risk, Quick payback, value accretive projects where we have a high conviction that our investment criteria and hurdles are met. Whilst I covered this briefly as we went through, absent further TFR and COVID disruptions, Export salable production will be at the upper end of the 15,000,000 to 16,000,000 range for 2021, Growing organically to produce over 16,000,000 tonnes for 2022 2023. Tungela's FOB costs per export tonne are expected again to remain relatively flat in real terms going forward With those productivity improvements offsetting mining geological inflation, the intention is to sustain and organically develop the portfolio of existing Well invested assets with only critical sustaining capital expected for the next 3 years. Let me now turn to regulatory matters.
We've observed encouraging progress over the last couple of years, mainly around the clarity and the stability from Department of Mineral Resources and Energy And in particular, government's commitment to the mining industry recognizing its importance in a South African economic context. We remain confident in the security of tenure of Tungela's rights as a result of this increased stability and clarity from the regulator. Whilst the MPRDA or Mineral Petroleum Resource Development Act contains many objectives Aimed at exploiting the country's resources responsibly and sustainably, the transformation of the industry in South Africa by mineral license holders It's clearly a very important consideration. To this end, Tungela is fully empowered and has been involved In the establishment of many meaningful BEE entities across the South African mining landscape, the implementation of the community and employee Partnership plans, which Poonmi will unpack in a bit more, is accordingly not a regulatory requirement but will clearly further contribute to Tungela's empowerment credentials. We also believe that as a listed South African Mining Company, we are well positioned to continue to contribute meaningfully to empowerment and transformation of the industry and indeed our country.
Our mining rights expire between 2,030, Approximately 2,048 is set out, which is beyond the current life of mine of all our assets In relation to the life of mine plans as set out in the competent persons report, Tungela owns or has access to all land required to execute on our plans. In addition to the core surface land, Tungela also has access to noncore surface land, which is the land in or around the group's operations that provide ancillary benefits to us such as security and safety. With that, I will now hand back to July to introduce us to the ESG section.
Thank you, Dion, For that wonderful detail and rejoined on our financials and how we're looking going forward. At the beginning, I said I'll come back and talk to you about our ESG. And what I'm going to do in this section, as you can see, It's a tag team with my 2 executive colleagues, Garina Fenta and Pumi Stole, to try and unpack This robust ESG framework. So to start off with, Our ESG vision supports our purpose to responsibly create value together for a shared future. Establishing and committing to a comprehensive ESG framework and associated targets is one of Tungela's 5 strategic priority Areas which include the elimination of mining fatalities, operational excellence, A lean organization in fast decision making, supply chain optimization is, supply chain optimization, which Dion spoke to earlier.
So after considering major trends in the external landscape, existing activities and the ambitions of our employees and stakeholders, Tungela developed a fit for purpose ESG framework to prioritize those areas that are most salient to our work communities and broader stakeholders. So ESG framework focuses on 3 pillars, which is environmental stewardship, Create shared value for our stakeholders and responsible decision making and leadership. Within each of these pillars, We've identified further three core priorities most relevant to our employees, communities and broader stakeholder universe. Underpinning these priorities are robust management systems, open and engaged leadership and a commitment to effective In transparent stakeholder engagement, reporting and disclosures further supported by our values And ethical code of conduct. So let me turn briefly to our governance principles.
We embrace strong corporate governance principles to deliver our strategic outcomes and engage the trust in Tungela as a corporate citizen. Our governance pillars and priorities are reflected in the Board Committee structures that we've established, Which is ethical culture and that we will conduct our business ethically in line with good corporate governance practices With 0 tolerance for corruption, we shall ensure strong governance to deliver operational excellence And report transparently and consistently to remain accountable to our stakeholders. We commit to proactively identifying and assessing the risks and opportunities to the business and then to developing And implementing strategies to address these particular risks. So let me come back to the comments I made about our board earlier on. With a majority of independent non executive directors, Commitment to make to maintaining an inclusive and diverse Board, What we intend to do in terms of that commitment is that we're going to add another black female director just to broaden the diversity of our board.
We have, as I said, a very experienced, a diverse board, which brings broad experience, And most of these people are actually well proven in their own right. I'm now on Slide 77, just to make sure that we are all following, and I'm going to talk to our committees. And our Board committees are mainly populated by non independent Executive Directors with relevant experience to maintain the governance that I spoke about. And these committees comprise Prominent professionals that are distinguished both in South Africa and in an international context. Our committees have responsibility to the board to deliver on the broader ESG outcomes, And the committee structures and mandates reflect best practice requirements from both the South African and U.
K. Corporate Governance. So with that, what I'm going to do now is to hand over to Karina Fenta to take us through the next element. Karin?
Thank you, July. I'm Karin Fenter, Executive Head of Safety, Health and Environment in Tungela. I've been in mining, in fact, coal mining for 21 years, predominantly in safety. Having started my career at Sasol Mining, I later joined Anglo American Coal South Africa And I've worked across the business in various positions. Today, I will be talking to you about safety, health as well as the environment that we operate in.
I am committed to 0.0. We are committed to the principle of 0.0.0 to our workers. In order for us to achieve 0.1, we are focused on the elimination of fatalities as well as the Be Well program. The elimination of fatalities is a combination of 3 pillars. These 3 pillars were arrived at after an intensive 5 day safety stoppage, during which we interviewed all of our employees and all of our business partners.
We analyzed the feedback and developed a robust program to ensure Safe production. The first pillar is back to basics. We define this pillar as the 6 essentials for safe production. It addresses aspects Such as rigorous planning, safe work area design, systematic change management, effective supervision, Correct tools and equipment and a trained and competent workforce. The second pillar is around work management to ensure that all the work we do is not only planned but resourced and executed to the plan.
The 3rd pillar addresses our culture, transforming our safety behavior, aligning the behavior with the back to basics fundamentals as well as our work management pillar. But we can only achieve these results with healthy people, and that is why our Be Well program is critical. This program manages initiatives across our business such as human immunodeficiency, better known as HIV Body mass index, blood pressure, glucose levels as well as smoking cessation. I will now touch on Tungela's objectives, which are: having 0 loss of life incidents Decreasing the total recordable case frequency rate. Focused leadership interactions.
More familiar to the mining industry is the term visible felt leadership or VFL. As part of our back to basics pillar, We changed this program to be a focused leadership interaction where attention, especially given to the 6 essentials, which I've mentioned earlier: A robust risk management system, which includes a 4 layered approach, knowing our risk status And managing our critical controls, in addition doing inspections and verifying compliance through a system we call assurance execution, effectively planning, executing and monitoring our work, which includes high risk activities. Our key health objectives are to increase knowledge around our HIV status, to provide treatment to those affected and focusing our attention on preventing conversions from HIV negative status to HIV positive status, Decreasing occupational health hazard exposure while ensuring we do medical surveillance and, as I've mentioned, managing the Be Well program across our business. We have shown continued and consistent improvements in safety and health as indicated by the 29% total recordable case frequency rate improvement over the 2018 to 2020 period. You can see the graph to the left.
In terms of health, we've been able to know the HIV status of 90 2% of our employees. We treated 93% of affected employees and achieved 100% in health surveillance during 2020. Notwithstanding the tough COVID year that we've had, this is on the graph to the right. We will now move to our environmental stewardship using resources to ensure sustainability. Tungela uses our resources, including water and energy, efficiently.
We minimize waste generation and air quality impacts. But how do we do that? Through consumption improvement projects, reducing waste to landfill, reuse and recycling of water with a target to reuse 75% of mine affected water that's abstracted from the pit or underground workings and reducing the import of portable water to our sites. We understand and we manage our climate risks and opportunities as well as the impact on air quality through reducing our Scope 1 and Scope 2 emissions by identifying mitigation adoption plans and disclosing our good practices. We have targeted a 15% reduction in carbon emissions of our 2016 baseline by 2025, But I will elaborate more on greenhouse gas emissions in a later slide.
We ensure our land stewardship and biodiversity Through our commitment to apply mitigation hierarchy to our biodiversity management and closing our mines responsibly. This enables sustainable future land users while managing residual environmental impacts. Regional biodiversity plans as well as Mine closure plans are in place and reviewed annually. Mine closure plans are updated to include the latest life of mine views And any new regulatory changes and requirements. Closure liabilities are adequately provided for through trust and guarantees, and Bjorn elaborated a lot more on those.
We are targeting 0 reportable incidental incidents. But I will not be doing Tungela, just as if I do not take the opportunity to share with you some of our flagship environmental initiatives. The first flagship that I would like to share with you is on our Imola Sleni water treatment plant. This plant was established in 2,007 At a cost of about CHF1.4 billion, the plant augments drinking water supply to the Malaseni local municipality. It supplies clean, treated water into the water stressed Ulyfonds River catchment and provides fit for purpose water to the operations to reduce freshwater obstruction.
Our second flagship initiative is the wetten rehabilitation at Isibanillo. This initiative is a world first in wetland rehabilitation and return degraded wetland systems to their pristine natural condition. The initiative formed part of an integral component of Operation's ongoing wetland offset project and an enabled reintroduction of wetland bulb species. Isebunelo has been nursing them for 15 years. The project includes local employment opportunities and skills development.
Our 3rd flagship initiative is the Mafube Irrigation Trials. This project involved government, Mining and Academia are partnering in a crop irrigation. More than 30 years of research indicates mine water Can be safe for use in agricultural. The research project involves Mafuba's establishment of 2 90 Nektar trial sites with saline tolerant crops to be planted on a rotational basis. The first crop was irrigated with water from the Mafube pit, And we are very pleased that it has since been harvested, delivering maize and soya.
But with that, I would like to touch on reducing our greenhouse gas emissions. We will continue to drive emissions lower. Tungela has achieved 16% reduction in CO2 emissions since 2018. So this includes asset disposals And assets on care and maintenance. We were able to achieve this reduction through various projects such as So there are plants installed at our Ifood Hospital, greenside and at the training center.
Lightweight truck piles installed at Ise Benelu, Contributing to diesel savings: heat pumps for change houses at Isibunelo, KwaZelo and Kruip optimizing our ventilation fans at the underground operations. And as Leslie has mentioned earlier, Huduwip North plant upgrades. Tungela, excluding the care and maintenance and disposed assets, are still on track to achieve the 2025 target, which is a reduction of 15%, as I've mentioned, of the 2016 baseline. The 2020 number is influenced by a lower production number, which was directly related to the COVID pandemic. A number of projects are in place and being considered in order to meet the carbon reduction targets, such as cycle reliability management and payload optimization, offset of diesel usage with lower carbon alternatives such as gas and processing plant direct operating hours.
With that, I conclude the safety, health and environment presentation, and I will hand over to Npumi on community partnerships. Thank you very much.
Thank you, Karina, and good afternoon, everyone. My name is Mpumi Sitole. I am responsible for the corporate affairs Fang Xin within Tungela. I have been with Anglo American since 2011 and spent most of those years in the platinum business. I move to Coal in February 2019.
Now July has already introduced the Tungela's Robis ESG Framework. And I have the pleasure to take you through some detail of the work that we do in host communities, which underpins Our license to operate. Tungela is deeply committed to the upliftment of the communities where we operate. And through our community partnerships, we continue working towards building an inclusive environment where communities and stakeholders collaborate with us to create and deliver on the shared value. Our stakeholder engagement strategy is guided by our purpose, which is responsibly creating value Together for a shared future, and that is supported by our values ensuring that we conduct proactive, Transparent and Inclusive Engagements.
We proactively engage our stakeholders while upholding human rights In line with the United Nations' Sustainable Development Goals, National and Local Development Goals as guided by our social policy and other international standards on implementation, disclosure and reporting. Our initiatives actively address community needs in various areas, ensuring socioeconomic development through a systematic an integrated implementation and delivery of initiatives within the regulatory framework. This active participation in social development has seen many youth educated, Many health care facilities built and supported to provide primary health care services, Inclusive procurement in host communities and employment of local labor. Now I'm going to take you through our partnering with our stakeholders for the shared value that I've mentioned before. Tungela has created an empowerment structure that is inclusive to ensuring meaningful contribution to the lives of both our employees and host communities through an employee partnership plan and the community partnership plan.
Our employees and host communities will hold a direct equity stake of 5% each With a minimum dividend of €4,000 per annum per employee and dividend direct contribution of £6,000,000 per annum for communities from 2011. As Tungela, We believe in the implementation of these plans as they will create a long lasting legacy and make a meaningful impact To our partners, our employees and host communities. The partnership plans have not been implemented for compliance purposes, But we are doing it because it is the right thing to do. I'll take you through to the next slide, which is Slide number 87. At our Mofuba joint venture, we have partnered with the Department of Health and constructed a clinic to service the local community, ensuring ready access to primary health care, Maternal Care and Specialist Services such as Dentistry.
This clinic has now brought services To close proximity as opposed to previous situations where the community members would travel over 50 kilometers to obtain Basic Medical Care. Our health care initiatives, which include infrastructure development, The provision of supplies and equipment such as obstetrician, ambulances have benefited well over 60,000 community members Across the Emalahleni and Stift Charter local municipalities. Karina has already spoken about Emalaseni water reclamation plant, We supply clean water to more than 90,000 citizens of Emelahleni. We also run a scholarship program, which is only awarded to learners born and bred in communities where we operate. This is very close to my heart, and you'll get to find out why.
We have a very strict selection process to ensure that only deserving students Who come from severely financially constrained environments receive these scholarships. The students are not compelled to study in fields related to mining. And over the years, we've seen students excelling in a broad range of Academic disciplines, including medicine, marketing and actuarial sciences. Over 100 of these students have benefited from the scholarship Since 2014 to the tune of €40,000,000 I'd like to share a slide Right at the bottom of Slide 87, Dineo Muhasho there with her Penguin friends. Dineo grew up in a township called Mfuzi in Middleburg.
She was raised by a dad who worked as a cook and a mother who sold lunches at schools in the community. She is one of the BASAs to graduate from our community scholarship program And has had the opportunity to be among a team of scientists to be stationed on the remote volcanic Sub Atlantic Marion Island as an assistant researcher with the Sarafcan National ACTEC Program. This opportunity of a lifetime for this young researcher would not have been possible were it not for the community scholarship program. Over and above the scholarship program, Tungela supports just over 23,000 planners Through a holistic approach to improving education and learner outcomes through the education program, We will continue to impact the lives of youth through our education where we operate. I'd now like to draw you to Slide 88.
Our employees as well as our communities are at the center of the business. During this pandemic, we embarked on a coordinated approach Towards collaborating and assisting host communities and authorities in the fight against COVID-nineteen where we operate. Our comprehensive approach was premised on prevention, response and recovery, and it Tried to address all potential issues host communities have been facing. Through a We Care program, we provided much needed Communication and awareness, educating our employees and communities on new behaviors required during the pandemic and ensuring the constant flow of validated information about COVID-nineteen. We provided food packs to vulnerable families that were carefully identified, who are child headed Families, families headed by the elderly, families with disabled members where we operate, And we provided also water and sanitation to 3 municipalities.
As we preach the message of washing hands, We needed to make sure that there was water available for communities to do this. At our Hyfeld Hospital, we made the necessary changes to effectively manage the pandemic by establishing a COVID-nineteen testing laboratory, which was fully equipped with a PCR machine and installed 50 new bed units. In addition to this, 8 clinics received personal protective equipment, Medical supplies, clinical support and training of health care professionals. Over and above this, We made sure that there was human resources available in the form of clinical associates who could support the clinics with their screening and Testing endeavors. During the national lockdown, 50 of our students who are coming from our scholarship program, which I've already The students that form part of our education program received online access.
We made that possible To ensure that they could interact with tutors, they received study guides, calculators, which They also could use during their holiday support program, which we conducted and hosted for the students to help them catch up with the amount of time that they've lost. I am pleased to confirm that these efforts have yielded great results for the students. The class of 2020 delivered satisfactory results despite the devastating disruption with schools in the education program, obtaining an 87% pass rate, exceeding the national pass rate of 76.2%. We have continued to be intentional about increasing our spend in host communities. Over the last 3 years, we have almost doubled our procurement spend in local host businesses.
Direct host community spend has increased by 67% since 2018. Working together with the original equipment manufacturers and suppliers, we disaggregated Some of the services to make it possible for local suppliers to provide goods and services into smaller parcels to our operations. Our strategic focus is to build a more inclusive and diversified supply chain, Ensuring that historically disadvantaged South Africans, women and youth owned businesses from our host communities Play a measurable and meaningful role. Thank you for your time, and I would like to hand over to Lisa Gomez Davoke, who will take us through the Human Resources section.
Thank you very much, Mpummi, And good afternoon, ladies and gentlemen. My name is Lesey Homadaboke. I am the Executive Head of Human Resources for Tungela. I have been with Anglo American for the last 24 years in the HR field. We have a stable and experienced workforce across our operations.
The total number of employees across our mines and head office Functions is 7,500, of which 64 percent or 4,800 are permanent And 36% or 2,700 are contractors with an average age of 41 years, which demonstrates the maturity and experience of our workforce. We also have sound employee relations practices that help us maintain strong relationships with organized labor. This is particularly helpful given that most of our workforce is unionized with the terms and conditions of the employment governed by collective bargaining agreements. To put this in perspective, ladies and gentlemen, 86% Our employees are governed by collective agreements, and the National Union of Mine Workers is the majority union. We are focused in creating a culture that values inclusion and diversity.
This is also supported by our new values that are carefully chosen to help us embed the new culture. And we have made significant progress over the years with representation of historically disadvantaged persons sitting at 59% 33% at senior and executive management levels, respectively. Our target is to significantly increase female representation in senior management to 33% by 2023. Finally, we are developing talent through intentional interventions Such as leadership development programs, career development panels and mentoring and coaching sessions To ensure that they are not only technically ready, but their leadership skills are also refined to cope with the transition to the next level. In addition to that, we also have a market aligned approach to remuneration to enable us to attract and retain key talent.
Let me now hand over back to July.
Thank you very much, Lesejo, and thank you very much, all my ex co colleagues. What I'd like to do now is just to try and tie everything together that you have heard this morning. I guess the best way to do that would be to remind you of our investment proposition and part of that you'll find in the PLS. But let me just make a few remarks first about what you heard this morning. So I started off by talking about we've got a purpose, we've got values, we've got an ambition, And ambition being to generate cash flows through the cycle.
And as I said, we do have the plans, we've defined the priorities And the supporting values that ensure that we can do that. We just spent quite a bit of time talking about the market dynamics. And that's quite important because ultimately, it's about making sure that you've got the you are working in an industry where there's demand for your products And that industry is sufficiently attractive to allow you to participate in the profit pool. We then move to talking about our assets. And what we sought to do was not only to give you a broad understanding of the results and reserve base that we have got and the optionality thereof, But I should spend a bit more time talking to the unique potential of each and every single one of those assets.
What was quite interesting in that discussion is, I hope you heard that, is the notion that each of our assets are led by Very credible, very experienced competent leaders. In fact, the way it came across from Johan is reminds me One of our mottos that our business is about people. Then we wanted to unpack in a bit more detail And give you some guidance around the financials that you'd have seen in detail in the PLS. And then we moved on to the key priority of ESG And really just sharing with you how we're thinking about our ESG and our responsibility to society and that we have put together a board That is capable to guide us into that future. Then my colleagues spoke about 2 subjects that sometimes we don't talk about enough, which is the impact In our communities, among our employees, Karina talking about safety and health and really just saying to all of you that for us, When we talk about 0 harm, we're thinking about the lives of people that in fact, no one needs to die In our operations, just trying to earn a living for their loved ones.
I guess the only message I will leave you when you listen to Mpumi, Apart from the fact that what we're doing is the right thing with the community partnership forums, I hope you will hear the story of Dinell. And remember that name not because of Dineo herself, but about many other young people and children in our societies That I like here, that companies like ours, Tungela, are the only source of hope. What we do is more than just mining. I hope when she spoke to you about the difference we did during the pandemic and in fact, the fact that Many people who live around our mines are among the poor of the poorest and relied on us to provide Not only basic services such as water, medical care, but we even had to supply food. So let me bring all of this together and recap with our investment proposal.
Our singular mission really just simply being To generate cash flows through the cycle, making sure that our assets, each every one of those assets It's performing to its maximum potential. We want to remain the leading, thermal South African thermal coke exporter. We have the assets. We have got the infrastructure. It's efficient.
It's mature. We are located contiguous To the Transnet railway network, our mines are equipped with very efficient A rapid loading terminals, which allows us to be able to have unfettered access to the markets. We spoke In a fair amount of detail about how competitive our assets are and that we've got the plans to continue to improve them. We do have a low cost Position on the global seaborne thermal market. I hope you didn't hear that as us just saying, oh, no, no, we compare Very favorably against South African peers.
In fact, we compare very favorably globally. And our plans are designed to ensure that we protect that position. There were several questions about the life extensions. I need to be clear. We do have the optionality, both within the existing mines.
We do have greenfield optionality. These decisions are medium term decisions. We said to you, we don't need to make any rush decisions over the next 2 to 3 years. It gives us time to study this. It gives us time, as Dion was at pace to explain, that we look at these with the Tungela lens.
We bring the best of our parent, but actually we've got to look at these with our own eyes being a single commodity, single country business And make sure that these are the most competitive from a capital point of view and that they deserve to be allocated Capital. So we do have the options to extend the life of our mines. I hope you also heard us talk about we've designed the right operating model, we've got the right culture, we've got the right management processes To be able to deliver on all these ambitious goals, so when you talk about wanting to keep our costs Flat in real terms over the next 3 years, this is not merely a hopeful Proclamations almost made out of blissful ignorance. These are backed by very rigorous plans, very clear understanding of our operations. And lastly, we do have the people.
We've been together as a management team through some of the toughest times. We've been through some of the most difficult negative cycles of this industry. And together, we've continued to deliver superior operating performance and good cost performance. We've got the right culture. We've got the teams on the minds.
We are ready to deliver on that aspiration to absolutely deliver attractive cash flows going forward. That's our singular mission. So let me pause there and hand back to Ryan, whom I suspect has got quite a few questions.
Thank you very much, July. We will now move into our second Q and A session. And as July said, there are quite a number of questions online. Operator, please could I ask you to open the line for our first question.
First question is from Alan Gabriel of Morgan
Yes. Hi. Thank you for the detailed presentation. My question is on the innovation and which has been part of the Anglo American DNA for the last 5 or 6 years, what are your thoughts about running a similar program like the P101, for example? Are there any opportunities for automation or efficiency gains that Have not been fully exploited yet and that are not reflected in our cost guidance.
And if so, can you give some concrete examples? Thanks.
Perfect. Thank you very much, Helane. I'm going to ask our Head of Technical, Leslie Martin, to respond on that.
Yes. Thanks, Alan. So I think we've really set a good basis with where we started as Anglo Coal, and we will continue So I think similar to what you've mentioned, what Angelo is following the P101, we were part and parcel of that innovation. And we will continue to drive innovation. I think that's key to our business model.
And we will make sure that It is fit for purpose for Tengela. Maybe to mention some that was not in the presentation, We're using drones to do survey mapping. We use drones to do survey where we take people out of harm's way. And quite a few of these things will continue to be very key to Tungela's success, and I think our teams at the sites are Well equipped to deal with innovation and the implementation thereof.
If I can just make a quick addition to comment. Yes, we intend to continue to innovate absolutely because Our competitive position is dependent on us being able to drive productivity and take costs out. You can't do You can't achieve what you want to achieve without doing both. But we also have to be very thoughtful about what we choose to do. Given our size, there are things we simply won't be able to invest and amortize over the long term like 20, 30 years, which in Anglo can afford to do.
They've got the base in life of assets, which are 20, 30 years, which will allow them to amortize over time like that. We're going you're going to start seeing a slightly different shift. We're going to be chasing innovation that gives us Quicker results. It's important for us because what I can't afford is for my technical teams to spend Time on things that will only pay back in 30 years. In fact, I don't think Dion will fund it would be the one.
The second one is making sure that is Fit for the type of assets that we run. I mean, that's part of the advantage of being a single commodity business. You can be a quick follower By customizing what you have learned, even within an Anglo context, into only your circumstances. So yes, we will be much sharper, much more focused on What is most relevant and fit for people to our business?
Perfect. Thank you very much. Thank you very much, Cielo. Operator, if we can take our next call.
Next question is from Brian Morgan of R. B. Morgan Stanley. Please go ahead.
Hi, guys. Thanks very much. Two questions on environmental rehab, if I may. First one is, gathering from the CPRs that Kwazila has the largest unfunded environmental liability. So if you're able to add on 10 years of life there, would you be able to reduce The 5.5% green fund contribution as a result.
And then the second question is, I assume that most of the trust fund cash is in DMR trust fund. Can you confirm that? And then under what circumstances are you able to Access that cash as those 3 big operations come to the end of their life in the next sort of 5 years or so.
Perfect. Thank you very much for that question, Brian. I'm going to ask Dion to respond on those.
Hi, Brian. Thanks for that. So on your first question, that's correct, Of that CHF 6,450,000,000, around CHF 3,000,000,000 from memory relates to that Kwezela or the broader complex in that area, so you're absolutely right. In terms of the LIFX projects, Clearly, there's an element of the €3,000,000,000 that would that we might be able to address if we do Extend the life of that operation, but clearly, that's an NPV outcome rather than necessarily less Tungela. So that's sort of on the first bit.
But to the extent that, that NPV number reduces, Mathematically, you are correct that in the absolute amount under the 5.5% arrangement that we would Allocate into the green fund would also reduce. That is a correct deduction. The ZAR2.9 billion that we've Showed on an earlier slide is indeed in a, as you term it, a Demre trust fund. However, the incremental contributions, so the Green Fund 5.5%, which is ZAR188 1,000,000 in the 1st year, is not within that DMRE Fund. So that would be not linked to those same terms and conditions of the DMRE fund.
And clearly, given our history and relationship with the DMRE, to the extent that we Pursue any closure activities in and around our existing mines, we will also pursue extracting The equivalent amount in relation to that €2,900,000,000 in trust. Does that answer your question, Ryan?
Hi, Doug. Thank you.
Thank you very much, Dion. If we can go to the next caller on the line.
Next question is from Tim Clark of SBG Securities.
Thanks very much. I've got a couple of questions. Just the first one on timing. Just this Anglo sale arrangement, I was writing and I might have missed what you said. Just in terms of working capital, when you get the cash, you deliver free on board.
My impression and I could be wrong, but my impression is that You're going to receive a sort of average price with lesser discounts as checked and agreed, but there is then still an opportunity for Angla to extract further value Somehow through sort of marketing means. I just wonder if you could confirm that. And you haven't given us the margin, but It would really help us to have some idea of where that is. And then sorry, my second question is a little bit of an odd Just as we model Tungela and we look at the company going forward, I wonder if you could give us some idea of what kind of segmental Information you're going to give us, at what level? Are you going to go down to ROM tonnes of yield?
Are you going to report mine by mine? Because it's always with new listings a problem when we over model and then start trying to beg information from you that the companies don't Necessarily want to give post the IPO. So I wonder if you could give us some high level of that. And then my last question is just I wonder if there are any sort of residual assets in the portfolio that you think you could sell To reduce this environmental liability, my sense is that from a market's point of view, from an investment Criteria, though, from an investment case point of view that the rehab liability is quite a significant concern to the market, especially if Tungela. Prices are going to be a little bit lower at points in time, and it's going to add a lot of leverage to the company.
And is there anything you can do to accelerate the funding and reduce that liability? Thank you.
Perfect. Thank you very much for those questions, Tim. Dion, if I could ask you to respond to Tim.
Yes. Thanks, Tim. I'll tackle them in the same order as what you've asked them, and I'll circle back To Bernard on your marketing question, if he thinks I've missed out on anything. The term of that marketing arrangement is For 3 years, commencing June 2021 with a further 6 month Roll off period at the end of the 3 year period. It's essentially on Export coal sales.
The terms also include, and we've included an appendix Slide for ease of reference, Tim, but some of this is also clearly in the PLS that Tem, Anglo's preserved the option to accelerate the termination of that offtake agreement. So The 3 years plus 6 years is therefore the upper end of that. And at their discretion, should they do ESG or other pressures, they might Ask us to take over the marketing function earlier, and that's why Bernard and team have started building their And getting ready to take any marketing activities over at an appropriate time. The Whilst we haven't disclosed the percentage of the so called marketing fee, at spot today, it's around $1 a tonne. So you can calculate broadly what that is, which we believe is absolutely arm's length in market related terms.
The actual price realized price per tonne that we get It's not based off an Anglo American assessment but rather the benchmark price. So that's An observable price that we will monitor clearly. And it's also based, Tim, off a where there are discounts of a combination of broker notes, so independently verified. And in order to ensure that we and Bernard I can keep a tab on exactly that price realization to ensure that, that truly reflects what the market has on offer. Clearly, there is some value for Anglo American in trading off the back of our equity coal by adding third party coals and the like, But that's outside of our asset perimeter, so to speak.
In terms of reporting, We have, in our HFI, disclosed to you our intent to continue to show underground An open cast as 2 segments. And you would have seen in the presentation earlier, July stratified clearly our minds into those 2 categories. And we intend to continue to report financial accounting outputs On that basis, you have to also, however, recognize that a number of our products are sold on a portfolio basis. So therefore, for us, We focus not only at each mine level and optimizing that mine, we also focus at a portfolio level. So whilst naturally it is an underground and open cast segment is a reportable View of our business, clearly, a mind by mind view, but more importantly, a portfolio view is where we optimize value.
The in terms of your question on asset sales in order to mitigate that environmental liability. In the South African context, we certainly do not want to pursue such a path without Absolute careful consideration in that it's a responsible thing to do to mitigate and close Assets in the context of a polluter pays. But clearly, where there are potential opportunities of a contiguous Or synergy of a different operator to more efficiently either continue mining or consolidate and Mitigate some of that closure liability, those will absolutely be explored. And I think you are correct. There are definitely opportunities to potentially optimize that in the future.
But as I said earlier, Tim, there are also other opportunities Optimize that and also some risks. The other opportunities to optimize it is on the water. I said that we provide For what the environmental legislation or provisioning requirements are, but also Samnema. So for example, the current Applicable legislation does not require us to provide for water treatment, yet we have Because we are aware that the new regulations from NEMA will include that, and it's highly likely to include that into the future. But we haven't provided necessary for elements in NEMA that we don't believe is going to survive into the final regulations.
So my point is that through a number of other initiatives in technology, we think that we could manage some of that longer term environmental abilities So that we don't have to resort primarily to selling any of those necessarily. Thanks, Tim.
When will the cash flow from Anglo on sales?
It's on the 2nd end of the 2nd week of the month. So the first revenue check That Tungela would receive from Anglo American would be mid June 2021 In relation to sales in May 2021. Therefore, every month, we would get 80% of our revenue roughly mid month.
Thank you.
Perfect. Thank you very much, Dion, and thank you, Tim, for those questions.
If we
can take the next call the next question on the call, please.
The next question is from Ian Rousseau of Barclays.
Just on the mining rights you mentioned in one of the And just sort of thinking in context of some of the life of mine extensions. What is the I mean, if you look at some of those life extension options, what is the current BE ownership sort of excluding some of the historical credits you've received for some of these options. I'm just thinking, my understanding of the sort of legislation is that you would Need to, I guess, re empower these assets back to 30% of BEE if you were to renew mining rights. So I just wanted to get a sense on that.
Thank you very much for that question, Ian. I'm going to ask Ian to respond on that.
Yes. Thank you, Ian. Clearly, the mining charter and the DMRE's position on that is an ongoing But a robust but healthy discussion. At the moment, if you look at Tungela and you had to, for a minute, ignore The historic empowerment that we have completed, our direct equity ownership, and I might remind you that's not the measure under the charter that we elected to empower our assets. We elected the units of production, which gives us A much higher percentage clearly.
But under the direct ownership, at the date of demerger, we would be at around 36%. And that includes clearly in your seat Karl's ownership through the AIC structure of Zebulu, but also it includes What Mbumi spoke about the 10%, which is spread between the community and the employee participation, Which is a net net new introduction on the demerger of Tungela. So we believe that we are fully empowered and we will remain fully empowered and that Those aspirations in the charter, we would have exceeded in any event in order to qualify for the extension of those rights where we require them.
Okay, great. That's useful. And then Just a couple of follow ups. Just on this Eskom coal cliff, I mean, it's obviously something that's been talked about for many years. And Maybe if you could just give us a sense of when do you think that happens?
I mean, to what extent does that fall? And maybe just in relation to that, I mean, have you seen What sort of S. Comp spot prices for, I guess, tonnages you sell on a shorter basis and your view of what Those prices will do in the future, I mean, do you expect that to reach export parity prices at some stage? Or is that a bit optimistic? And And then maybe just a last question on your climate strategy.
I mean, I guess there's been some questions previously around Scope 3 and just maybe want to Clarify your intentions, but obviously, investors are under increasing pressure to line their portfolio with Paris benchmarks. And in turn, they are pressuring companies to align their emission targets with Paris Agreement. And for fossil fuel producers, that obviously includes total emissions, including Scope 3. And you're also seeing a similar trend in banking, in bank lending and insurance. So I mean, you've obviously given us Scope 1 and 2 emission reduction targets.
But on Meinekels, that's only 2% of your total emissions. So Just wanted to get a sense of I mean, do you plan in the future to give us total emission targets to align your Strategy with tariffs benchmarks? And if not, do you think that's not perhaps the right strategy given the pressure investors might be under to sell your shares?
Perfect. Thank you very much for those 2 further questions, Iain. I'm going to ask Bernard to respond on the question around Eskom coal cliff. And then with regard to Scope 3 and emissions, I'll ask July and Kieranen to respond. But Bernard, if we can start with the first question for
All right. Thanks for that question, Iain. In terms of the Eskom coal cliff, which is a subject that's been spoken For a number of years now, in fact, before almost my first, call conference down in Cape Town, there was already talk about that, and that was a number of years ago. But if one considers that Eskom has a number of long term Contracts tied to collaries, which are coming up or terminating pretty soon, Eskom will be forced To go back to the market to buy coal, whether that's on a shorter term basis or a longer term, we'll still be decided. But definitely that coal cliff is coming.
I think one needs to also be aware that generally during the winter months, Eskom is looking to buy larger volumes of coal, so we could in fact given we are moving into the winter period in South Africa right now, we could see Some shorter term buying from Eskom. And in terms of pricing, interesting question, Ian. We believe Eskom will be forced to pay higher prices for the coal given mining costs inflation. What may or may not add to that price as well is where they buy the coal from. So what I'm saying is If it's a tight colliery across the belt, you avoid a logistical cost, but we do know that there are a fair number of contracts where coal is being transported over fairly large distances.
Will the coal be at Export parity, that's difficult to answer, but as I said, I do believe that Eskom will be forced to pay higher prices versus What they've had in the past. I trust that answers your question, Ian.
Maybe just I mean, do you have a sense of how much The supply and demand gap would be, let's say, by 2,030 in terms of the I mean, when exactly does this gap start to emerge in terms of Eskom demand versus contracted and sort of short term supply or at least from a mine reserve life perspective?
Yes. Iain, we in terms of when that gap starts appearing, so if I look at where And obviously not providing too much detail, right now Eskom is sitting on relatively good stock levels, so they're not Absolutely forced to go into the market right now. My overall sense is that we're definitely going to see that gap Starting to emerge in the next 2 to 3 years. They will be forced, given certain contracts, to start buying in and contracting on a longer term basis.
Thanks, Ian, and I'll take the first part of The scope 3 emissions, I think as per the other companies in our position, we're keeping a close eye on scope 3 emissions. Our focus has predominantly been on Scope 1 and 2 emissions and projects that we've put in place to manage and mitigate those emissions, but we will collaborate as
I guess We are in that unique position given the nature of our D Major that we are in a transition. We've got a 3 year marketing agreement with a single customer who themselves then also to Hopefully, direct consumers of coal. And it will be quite tricky at this point in time to start thinking about how do we mitigate our scope free emissions, Given that construct, so we've got we probably have got the next 18 to 24 months to wrap our minds around this subject. But I guess I prefer to step back because quite often we reduce the ESG conversation to only carbon emissions. Ryan, we have been very intentional and thoughtful about crafting an ESG strategy because I think It's absolutely at least that's our firm belief that you've got to get all these three elements in an integrative Wei, if you want to be a sustainable and successful business going forward, it's not just about emissions.
We've got to think about the social Aspect, we also got to think about the governance aspect. So the way I'm thinking about it at the moment is Set up our business over the next 2 to 3 years to be successful. Yes, we'll think through what we need to do from a scope 3 Point of view. I mean, as you probably know, there's even debate about what is the most accurate way of measuring those and who is accountable for doing what In the value chain, we have got time to wrap our minds around that, but we're going to do that from an ESG integrative thinking point of view.
Thank you very much, Julien.
Maybe just sorry, just one last, if I may. Just on the Asset Mine Drainage. I mean, I understand there's some membrane distillation Technology some of the coal mines in the U. S. Are looking at actually extracting some of these heavy metals into, I mean, quite attractive sort of rarest metals, for example.
I mean, have you looked at that at all?
Thank you for that Additional question, Ian. I'm going to ask Leslie to respond on
that. Yes. Thanks, Ian. So I think We've been using reverse osmosis at our water treatment plant probably for the last 10 years to deal with the majority of Water in the sales complex quite successfully. I think the next sort of step for us is to look at the byproducts So the reverse osmosis plants, which we're in advanced stages of looking at.
And then probably the next step because you can imagine that reverse osmosis and we're in this carbon debate is very energy intensive. And the next steps need to be to look at biological, what we refer to as passive treatment technologies, We can use novel technologies to actually deal with the water, and we I think we're well set up to look at that in the next 5 years.
Thank you
very much. Just to add
to you
Just to add to you On reearth, visavis, the acid mine drainage and whether We're finding metals in those. There's been a number of project studies. In fact, I had the technical team look at it Some time back, there's been a number of studies in South Africa which suggested that, yes, there is some rare as that leach, But hardly in economic recoverable levels, At this point in time, in the, Hartfield core basin or Woodbank core basin, it's probably currently An area of academic study rather than something that has moved to economic exploitation yet.
Perfect. Thank you very much, Julien.
Thanks, Julien. Thanks, Julien.
Thank you very much, Jien. I'm going to ask first to take another 2 questions from the call before We go to the questions that have come through the webinar. I suspect some people might be nervous that I haven't received their questions, but I have. But operator, if you can take another question from the call.
Thank you. The next question is from Sylvain Brunette of Exane BNP Paribas. Please go ahead.
Hi, again. That's more of a reporting and maybe disclosure question. Do you intend In the future to disclose the profitability on your Eskom contract so we can get a better sense of The performance of export versus domestic on an EBITDA per tonne or EBITDA basically disclosure in the future, please? Thanks.
Perfect. Thank you, Sylvain. I'm going to ask Dion if you could respond to that.
So The domestic arrangements, and just for clarity, we do not hold any direct contracts with Eskom, But the domestic arrangements are of a sufficient confidential nature That we are not able to necessarily unpack the profitability of each of those arrangements or contracts in isolation. So unfortunately, we will not be able to split that out in the manner that you're scratching at. Thanks, Ryan.
Perfect. Thank you, Dion. If we can take one last question from the call, and then we'll move to questions on the webinar.
Thank you. The next question is from Jason Fairclough of Bank of America. Please go ahead.
Hi, guys. Thanks again. Look, a couple of quick ones. Just first on the listing. So you're going to be main board listed Here in London and then also down in Johannesburg, have you spoken to the exchanges about the potential for index inclusion?
And I guess along with that are particularly for the London end, are you anticipating behaving like a London company, so road going, doing results So that's the first question. Second question, just in terms of the capital return policy. So You're saying greater than 30% of the operating free cash flow.
How do you think about
it if you've got surplus free cash flow? Is it Just more dividends? Or do you bring forward retirement of some of the environmental liabilities? How would you prioritize that?
Thank
So Your assessment of the listing venues are correct. So we will hold a primary listing On the JSE and a standard but mainboard listing in the LSE. And indexation is clearly on our radar but hinges on a number of elements around the shape and size of market cap and the like. But given our categorization, certainly, primarily on the JSE, there will be some level of indexation. In terms of capital returns to shareholders, we've said that we want to Commit to a or we have committed to a 30% payout of operating free cash flows.
The cash flows that are surplus to that Clearly, provides us a level of balance sheet flexibility in the near term. But in the same breath, Jason, we also said that On balance, we would like to grow that 30%. And clearly, that might not be day 2 post demerger. But soon after Tungela settled. We would like to review that.
Then one also needs to consider that the LIFX Options, opportunities are around 2023, which therefore means that we would want to reflect On the capital required to potentially develop that and trade off, as we've said earlier today, Between further returns, so additional returns to shareholders and potentially developing those projects. None of those decisions have been made. But at a minimum, as I said, the 30% is there, and clearly, We're focused on growing that, if at all possible, in the short to medium term.
Perfect. Thank you very much, Dion. At this stage, I'd like to read out a couple of questions that have come through the webinar. Our first question, and July, this is going to be for you, It's from Bruce Zungu at Cornerstone Capital Partners. In addition to a number of key action plans in place to drive growth and sustainability of Tungela, It seems that demand and supply, together with life of mine extension, will be key determinant to the success of the business.
Are there any issues that management foresee that will impact the company's ability to further extract value in the assets and Increase the Life of Mines.
I guess, the way to think about a business like ours is quite simple. There are things that we can The things we can't control. Supply and demand for us is an uncontrollable demand is uncontrollable. We need to understand it to inform the decisions we take internally. But ultimately, it comes down to the things that we can control, which is Our strategy to improve our productivity, to improve our cost position, to improve our capital intensity, making sure that we've got the right people in the right place, Driving our business forward.
Beyond that, there is not much uncertainty. Yeah, there are regulatory issues and all those kind of things. But those are all things we believe we can manage. But ultimately, we want to focus on the things that we can control to become a far more competitive business because it is in that context that we're able to go and perform through the cycle.
Thank you very much, Julien. The next question is from Thiban Klaue from SBG Securities, and it's a 2 part question. Bernard, the first part is going to be for you and Leslie, the second for you. I'm going to read both of them together. The first part, what is Tungela's strategy remain competitive in the Pacific Basin.
And then the second part of Stavang's question, does Tungela coal also have trace elements which are unattractive to the Chinese market? If so, is there a solution to reduce these stress elements to take advantage of the current geopolitical tension between China and Australia? Brendan, I'm going
to ask you to start. Yes. Thanks for that question. I think the first point I'd make is that And as I indicated in the presentation that we gave is that certain of Tungela's coals actually have been qualified For import into China, I'll ask Leslie maybe when I'm finished to answer the question Whether you can remove trace elements out of coal, I'm not a technical expert, but I'll leave that to Leslie. The but again, I'd just like to reemphasize that, that ability to now again export into China is a big advantage for Tungela, And it's an advantage that we're working closely with our Anglo well, soon to be ex colleagues in Anglo marketing.
So that is a big marketing advantage.
So I think just to reflect on the price elements, I think this has really come to the forefront in the last Sort of while with tensions between the Australian coal and China, I think we've started Making this analysis of trace elements part of our exploration and quality control drilling regime, but We're really at the start of this, and we're setting up our labs to actually give us a view and then establish, do we Sort of we see any risk and the markets that we want to play with, but I think to Bernard's point, we have put some coal into the Chinese Market without any concerns. And to the question, is there any sort of Current or viable method to get rid of trace elements in a coal? Unfortunately not. I think that's inherent, and it's where we would find these resources. So that's, I think, where we're at early stages, but it is, I think opportunity in the future to have a good understanding of trace elements in our coal fields.
Perfect. Thank you very much, Bernard. Thank you, Leslie. The next question is from Liam Fitzpatrick from Deutsche Bank. Question on the dividend and leverage levels.
Should we expect a dividend to be announced with the first set of results in July, August? Or are you targeting a larger cash buffer? Once the targeted cash buffer is reached, should your base dividend not be much higher than greater than 30%? Dion, I'm going to ask you to respond to Liam on that one, please.
Thanks, Ryan, Liam. So the what we've said is that The economics up until the 31 May 2021 is clearly extinguished, so therefore, For Anglo American's account. And 2, we have also said that the dividend policy would be We're committing to that 30% payout ratio. So therefore, in Tungela's economic existence Practically starts from the 1st June 2021. And accordingly, Our first interims would whilst it would reflect a full 6 month of activity, would only really reflect Economics of the June month.
If I can add to that, the 30% is also based on an earn it first Principal, so therefore, we committed to the 30%, but we would want to earn that first before we Fund a dividend. We would, as a result of what I've just said, need to carefully reflect on the interims and the June results, So that 1 month result. And we would also clearly reflect on the current pricing and the trading activity throughout the rest of this year. Your question around whether there is a cash target or buffer, there is no such target or buffer set, And there's certainly no leverage target buffer currently either given that we are not envisaging external debt and that will be cash positive. But you are correct that it is that the board would carefully look at potentially a higher percentage in FETI If all conditions remain positive and the outlook remains positive, and that could be expected as an outcome, But we certainly haven't committed to that, mainly as a result of where we are in our thinking processes.
Thanks, Liam.
Perfect. Thank you, Dion. Thank you, Liam. The next question is from Tinsuala Mukanzi at Sunlam Investments. You have repeatedly referred to relooking at capital allocation options and other important future decisions through a Tungela lens versus the Anglo lens in the past.
Please unpack what you envisage to be the key future differences between this Tungela lens versus an angular diversified miner lens, where S. A. Cole typically only made a minor or marginal contribution to the overall Anglo Group returns. Dion, I'm going to ask for you to start on that then, maybe if you want to add anything on there.
Thanks, Ryan. And in addition to July, Leslie might also want to add perspectives. So what we mean by a Tungela lens is that you have to recognize that we would look at opportunities That might be smaller in absolute size compared to what Angla might have considered in its context of a capital allocation So there are definitely different opportunities that we would also add into our fuller mix of options. And the second important one is that of a technical standard. Clearly, Anglo American continues to own and operate a number of Assets with different features.
One feature, for example, is the life of where some of its assets have a 50 to 100 year life. And as a result, some of the decisions one would make in the technical standards that you implement at an asset that has a 50 year life is different From a capital project with a 10 year life. We have not yet reviewed all of those standards, and that would be part of looking at these from a Tungela lens. But from experience, we are convinced and confident that there are opportunities to optimize that quantum of spend into the future And get the same coal output and therefore a potentially superior economic output from those investments. Let me however ask July and Liz to add to that.
I think, Dion, you're broadly right. I mean, that's the issue. The issue is, if you have got a different view about and ownership of type of assets that you've got, The decisions you would make are very different, that's 1. Secondly, you also got to accept that Anglo American is a global diversified, And therefore, certain standards are required for a global diversified that actually when you're a single commodity, single country, There's less there is some simplicity, not because there's anything inherently wrong with what Anglo does, but they have to manage that complexity It would be the one observation. The second observation is this point that Dion is making about, if you've got shorter life of assets, In certain instances, even the type of equipment you invest in, in those assets Could very well be different.
It would be quite okay, for instance, to buy the latest and greatest, which is automated, Knowing that I can afford to have 10 year payback and it still makes sense in a 30 year life asset. But if I've got a 10 year Life of asset, then I'm thinking very differently, could very well be acceptable to relocate some of my used equipment, Which serves significantly on capital going forward. So when you talk about looking at things from a Tungela lens, what we're saying is We intend to look at things very differently to the way we've done it to optimize our cost, to optimize our capital intensity of the projects going forward.
Thank you very much, July. The next question we have is from Livoye Boi from Noah Capital. Question for Dion. Can you please explain the reason for reducing total operating costs by domestic revenue to get to FOB export costs on Slide 67. By doing this, It looks like you're reducing operating costs by profit margin included in domestic revenue and other.
Therefore, it seems Costs are understated by the profit element included in the domestic revenue line. Can you please provide clarity on this?
Yes, certainly. Thank you very much for that. So there are various methodologies to display and disclose cost per tonne. What we sought to do in that particular slide and unpacking it in that manner for our annual benefit Is to try and get as close as possible to an export only cost per tonne. A different methodology could be to take the total operating costs and divide it by a higher denominator, so therefore, including Domestic tonnage alongside the export tonnage, that would mathematically give you a cost per tonn Rather than the 833, below ZAR700 a tonne.
However, what would you compare the ZAR700 a tonne to? And therefore, we sought to exclude domestic revenue. Now last year in the domestic portfolio, that profitability margin Was not necessarily as high that the benefit you're talking about is material. And the methodology we're therefore displaying or showing assumes that domestic production is a byproduct And that we try and strip it down to a comparable export cost and export volume in order for us to compare that 833 As well as the buildup to the 894 most appropriately to the benchmark price of the export tonnage that is our primary business. Perfect.
Thank you very much, Dion. We've got about 5 minutes left before I have to wrap up. I'll see how many of the questions I can get through, but it might be that we might not get to all of them. The next question is from Tyler Brode from RBC. Thanks for the presentations.
Will the internal marketing team work alongside Anglo Marketing for the 3 year transition period? What are the costs and potential risks with this transition? Is there any infrastructure that will need to be brought into Tungela for this? Bernard, if I can ask you to respond to that.
Thanks. Thanks for the question, Tyler. So I'm going to answer your question on the infrastructure first. There's no Structure that needs to be bought in by Tungela. We have access to the rail, as we discussed earlier, through to 2024, And we remain the 23.22 percent shareholder in RBCT.
In terms of working with Anglo Marketing, I Absolutely, I can confirm that. The way I look at it is that there's a Phase 1 and a Phase 2, as I'm calling it, period. The Phase 1 period we're actually in right now where we're working extremely closely with them to set up All the necessary arrangements such that we can both execute the contract come June and also ensure that at the end of June, We can actually invoice them and get the money into the bank account. Otherwise, the gentleman sitting next to me is going to be jumping all over me. Phase 2 would be working on Tyler, Phase 2 would be working on developing our marketing strategy Once we take over the frontline export marketing, whether that's at the end of a 3 year period or earlier given an ESG termination.
So we will be working on that. It's one of those requirements That I know is sits in my area of responsibility. I have started giving it some thought, Having, as I mentioned in my introduction, previously set up a marketing arrangement for a separated company, We're not ready to talk about that yet, but we will do so into the future. Maybe just important to also mention that part of The period that we'll go into post June, July is also setting up within marketing and other parts of our business, Our own marketing intelligence, we need to have that for a whole host of reasons, Price forecasting, supply demand overviews, check on and ensure that we are getting the right price for the coal that we would Be selling to Anglo Marketing, as Dion mentioned earlier. And also, it would be part of the Preparation for that eventual transition from the single offtake agreement to an arrangement where we're doing the frontline export marketing.
Tal, I hope that answers your question.
He's not on the line.
We are so glad. Thank you very much. I'm sure that it does. I think we'll have time for one last question on the webinar, and apologies, I do see that there are a number of other questions. The next question is from James Corken at Steyn Capital Management.
On the RBCT operating licenses, in the PLS, it is disclosed that after the various renewal extensions, The license on the land, buildings and infrastructure on the RBCT terminal assets comes to an end on 31 December, 2,000 and 38. Under the current arrangements, what happens on that date to these assets? Do they just transfer back to Transnet? Dion, if I can ask you to take that one.
Yes. Happy To answer that, we are unable to necessarily answer questions on behalf of RBCT, albeit that we have a 23% shelling in RBCT. Safe to say that those that infrastructure and assets are no different 2 other similar assets in the country where they serve a very important purpose. And in 2018, as you might know, generated through that port 1 of the large, in fact, the largest, owner of foreign currency for the country through the coal exports. It is therefore not only important to us but also important to the government that those assets are most optimally utilized.
It's therefore a bit of a mute point in that the most beneficial use of that infrastructure will no doubt include An element of exporting, utilizing the rail attached to it and whether that's multipurpose or coal only, only time will tell. Fortunately, it's 2,038 rather than 2023, so we have a bit of time to think about that.
Thank you very much, Dion. Thank you, everyone. Unfortunately, I will have to wrap up the Q and A session here. If we were not able to get to your question today, and I can see that there are some questions we weren't able to get to, Please do get in touch with me via email. My email address is ryan.
Africaanglamerican.com, and I will get back to you. With that, Please allow me to hand back to July to close out the day.
Thanks. Thank you very much, Ryan, and thank you very much, everyone, who joined us, Whether through the webinar or through the phones, it's been an absolute pleasure for us to be able to share with you this new pure play that is coming onto the market. Clearly, there might very well be some questions that you have got and continue to engage with us, and we look forward to our continued engagement as we deliver Value that will meet your expectations going forward. Thank you very much. Have a wonderful day.