Ladies and gentlemen, good morning. I'm Tony Hayward, the chairman of your board, and it's a great pleasure to welcome you to Glencore's annual general meeting for 2019. As always, I'd like to begin with a few housekeeping matters if I can, please. In the case of an emergency, if you can leave the forum through the main door behind you and follow the emergency exits, leaving the building the same way as you came through the main entrance. Headsets have been made available to everyone. The instructions are detailed on the packet. Please set the headphones to 1 for German and 2 for English. Can I take this opportunity also to remind everyone to turn off their mobile phones or at least put them on silent, which is what I'm just about to do. The conduct of the meeting is, of course, important.
I will provide details of the exact procedure for asking questions at the appropriate time. Let me begin by introducing my fellow directors to you. Starting on the end of the podium to your right, we have Martin Gilbert, who is our senior independent director. Next along is Lenny Fischer, who is the chairman of our audit committee, and then Gill Marcus , and then next to me, John Burton, the company secretary. On the other side, we have Peter Coates, the chairman of the HSEC, Health, Safety, and Environment Committee, Patrice Merrin, and of course, Ivan Glasenberg, our CEO. The other member of the board, John Mack, is unable to be with us today, he is joining us by phone and I hope, John, somewhere in the ether you can indeed hear us.
I can, Tony. Thank you.
Thank you very much, John. Before Ivan gives a short presentation on Glencore's financial and operational performance during 2018, I'd just like to say a few words if I can. As one of the world's largest natural resource groups, it's our role to source responsibly the commodities we all need for everyday life. For us, that means an ongoing commitment to health, safety, environment, communities, and human rights for the benefit of all of our stakeholders. As chairman, I'm proud of your company. It is a significant investor and partner in the developing world. Wherever we operate, we make a commitment to create value in an ethical and sustainable manner. We employ tens of thousands of people, support local businesses and service providers, and invest in local education, healthcare, and infrastructure.
Beyond this, the impact we have through infrastructure development and the procurement of goods and services from local companies contributes to economic resilience and stability. We believe that this is critical to improving living standards in developing countries. We estimate that almost two and a half million people around our operations have benefited from our community investment activities. These activities are focused on healthcare facilities, education programs, and enterprise development. We also recognize that fiscal transparency forms a key part of encouraging the responsible management of revenues from extractive activities, as well as fostering economic stability. Last year, we paid almost $6 billion in taxes and royalties to our host governments. We welcome fiscal transparency through our support of the Extractive Industries Transparency Initiative and through the annual publication of our payments to governments report.
Our community development programs are an integral part of our community and stakeholder engagement strategy. We design our programs in partnership with the communities in which we operate to help reduce dependency on our operations, encourage self-reliance, and contribute to sustainable growth in our host regions. In 2018, we invested more than $95 million on these programs. The success of your business is dependent on a safe and healthy workforce. This is our top priority. In occupational health, we saw an overall reduction in new cases in 2018, and we continue to support a number of public health programs across the group. In safety, it is clear that we still have much work to do. We're deeply saddened to report that during 2018, 13 people lost their lives performing their duties across the group. Every single fatality is a tragedy and is unacceptable.
Our condolences go to the families of the deceased. We of course, provide support to the families in a number of different ways. Your board and management are committed to our ambition of having a workforce free from fatalities. We believe that we have a key role to play in enabling the transition to a low-carbon economy. We do this through our well-positioned portfolio that includes copper, cobalt, nickel, vanadium, and zinc, commodities that underpin the energy and mobility transition. Throughout last year, we engaged with investor signatories of the Climate Action 100+ initiative on the additional steps we're taking to further our commitment to this critical transition. Earlier this year, we announced our intention to ensure that our major capital expenditure and investments are aligned with the Paris goals. This included committing to a cap on our coal production at broadly current levels.
We seek to maintain a culture of ethical behavior and compliance throughout the group. To support this, we have an ethics and compliance program that includes a wide range of policies, procedures, guidelines, training and awareness, monitoring, and investigations. Earlier this year, we established a permanent board ethics, compliance, and culture committee to provide oversight and leadership of the group's key ethics, compliance, culture, and governance matters. In July of last year, we received a subpoena from the U.S. Department of Justice to produce documents and other records with respect to compliance with the Foreign Corrupt Practices Act and U.S. money laundering statutes. Your board has established an investigation committee with a remit to provide management and oversight of the investigation. I chair the committee, which is completely separate from the group executive. When we're in a position to provide a further update, we will.
We recognize that robust relationships are essential for our social license to operate. I've already outlined the engagement with the Climate Action 100+ shareholder group. There were two other important examples amongst many which I'd like to highlight today. Here in Switzerland, the country that has been our home for almost 50 years, we've participated in a multi-stakeholder advisory group led by the Swiss government that collaborated with the Institute for Human Rights and Business to prepare guidance for the commodity trading sector on implementing the UN Guiding Principles on Business and Human Rights. We're fully cognizant of the debate around the commodity industry in Switzerland. We want the country to be proud of the role this industry plays, not only here, but also overseas. We also recognize the fundamental role that our workforce plays in contributing to our success.
We're committed to treating all of our people fairly, upholding their rights, and rewarding them competitively. We've actively engaged on a number of workplace-related topics with IndustriALL, a global union federation. As some of you may well recall, members of the federation have attended previous AGMs, raising a number of concerns regarding our operations. The engagement did not stop at the AGM, but carried on throughout last year, including a meeting in Johannesburg with representatives from our African operations and culminating in a bilateral visit to our DRC operations earlier this year. The purpose of the visit to the DRC was a fact-finding mission to review the concerns previously raised by IndustriALL, as well as an opportunity for Glencore and IndustriALL to discuss the numerous challenges of operating complex assets in such a challenging environment.
The mission was constructive, recognizing the strong practice in place at the operations, but also identifying important areas for further improvement. We will continue our dialogue with IndustriALL on these important matters as we make further progress. I believe some members of the IndustriALL team that took part in the visit are here today, and on behalf of the board and the Africa Copper management team, let me just say thank you for playing your part in making the trip such a successful one. Your board recognizes the challenges and opportunities that come from operating in geographically diverse locations. We're committed to maintaining and promoting a safe workplace and operating in a responsible manner at all of our assets. We are reflecting that commitment through our focus on integrating sustainability throughout every aspect of our business. We have many success stories in this area.
We recognize that we will only achieve our aim through collaborative partnerships with all of our stakeholders. Glencore does not just play an essential role in supplying the commodities that make everyday life possible, but also in strengthening and empowering the communities around their operations. All of us at Glencore are personally committed to this goal. The board would like to take this opportunity to thank all of those working at Glencore for their efforts to drive the success of our business, which in turn delivers meaningful benefits for all of our stakeholders. Before I hand over to Ivan, whilst I have a captive audience, both online and in the auditorium, I'd like to show a brief film that gives you a sense of some of these success stories and how we're putting our sustainability strategy into action.
For Glencore, this process is a journey, not a destination, with a key aim of continuously improving our performance wherever we operate. As you watch the film, and particularly the clip on the coffee, the coffee that you're drinking this morning is the coffee that's referenced in the film. Let's just proceed to the film if we can.
Glencore produces commodities that we all need, as the world gets more advanced, we're going to need more of these commodities. The material's in the ground, but to get it out of the ground and get a mine to process it with all the plant and equipment that has to be built there costs a lot of money. Glencore goes to these new territories and does this. We spend billions of dollars in these countries to ensure that you get this commodity that ensures your life gets easier. What happens when you build the mine? You build the mine, the community around the mine get the benefit because you employ thousands of people, more taxes to the states, governments in which we operate, more roads, more schools, more hospitals. The life of the people throughout the country improves.
Companies such as Glencore with such an enormous footprint and such an important role in today's society have an enormous opportunity to make a very real contribution to the countries where we operate. We deliver products that are needed in everyday life, we also bring the countries in which we operate into the global economy. I think that's an extraordinary responsibility and a great opportunity to deliver a very real change that can, if done properly, can last well after we're no longer there.
We had a fatality in September 2015, where one of our diesel mechanics was doing fault finding on a machine when the operator accidentally reversed and pinned him to the foot wall. It's absolutely heartbreaking, you feel responsible personally. That was the moment where us as a leadership team had made the decision that we cannot continue with just the awareness system, we had to go and look into the markets and find a better solution or new technology that will stop the machines from interacting or making contact with our employees. When something doesn't exist, it's a question of going out into industry and asking the questions. What we did discover is that it existed, but not from one OEM. We combined all the experts and the expertise to find a solution.
The collision avoidance technology consists of basically three companies, Lamp Room Solutions, which is responsible for the management side of the lamp rooms, and Embedded IQ, which is responsible for the time of flight or collision avoidance side of the technology, as well as NEUROSPEC, which is the company that developed the interface unit.
When we are on 10 meters, the tap lamp will warn you. That tells you you are close to the machine, you must watch out. When we are on critical zone, you are five meters from the machine, the machine will stop. When someone is doing something that is unsafe, we stop him, we coach him, and make sure we discuss it in our meetings so that each and every person don't do the same thing. Safety is important to me because I'm a mother, I'm a wife, so I make sure each and every day I'm working safe.
[Non-English content]We are at our demonstrative point of Café La Victoria, where we will attend visitors and people from the community. It is a strengthening to our company, all the associates that we have worked with to make this happen, and the accompaniment of the CODECO group in all the strengthening in the line of Café La Victoria. Member of the Association of Professional Technicians in the province of Saravia, Peru, ASOTEP. We generate 10 direct jobs here on the farm. Coffee farming in the region of La Victoria generates around 1,200 direct jobs during the three months. We see that coffee harvesting is a good economy that generates employment in that area.
I'm sort of looking after the areas of environment, safety, and people, really, I want to leave all of those areas better than I inherited them. I take my job really seriously in terms of delivering for the environment and the local communities as well. We know that we're not only looking at things from an environmental perspective and through that environmental lens, but there's also a cultural significance to the landscape.
My role here at McArthur River Mining is mainly water sampling. The surface waters are my favorite because I get to travel around the rivers here and get to see how they're developing and how they're growing and changing every year. To see that the mine's not really making an impact on the major river system. It's forever growing. It's getting thicker. I look after it as best I can, and I want this to be staying pristine and it's for everyone to enjoy.
We are lucky to have great teams in the operations across the countries in which we operate. We have professionals that come from lots of very diverse backgrounds. Most of the teams that we work with come from the community in which we operate, they're local people who really understand what it means to have the mine in the area, what are some of the concerns of the local people, and they're able to work with them directly. Our work is probably never done. We do continue to strive to make progress.
Thank you, Tony Hayward. Okay. Where is the control? Talking about the highlights of last year, 2018. As you can see, it was a record year for Glencore on an EBITDA basis. We made $15.8 billion, which is 8% up on the previous year. Net income, pre significant items was $5.8 billion. That is 5% up on the previous year. What we were able to do in Glencore, because of the cash we generate, we were able to have a compelling return of cash back to the shareholders. During the year, we returned $5.2 billion back to the shareholders, $2.4 billion by the way of dividends, and $2 billion with share buybacks. As you can see, it's a strong return of the cash flow with 75% cash flow return, with a $6.9 billion free cash flow return back $5.2 billion.
An extremely high amount being returned back to our shareholders from the cash flow which we generated. For this year, we've announced in 2019 that we will continue doing share buybacks and continue returning large dividends to our shareholders. We've announced a $2 billion buyback plus another $1 billion from potential asset sales, which will ensure a $3 billion buyback. Plus, we'll be declaring a dividend similar to the previous years. We should have a return to shareholders of $4.8 billion-$5.8 billion, which is a good cash return story, this will continue. Sustainability performance, Tony Hayward mentioned it. We had a poor record, 13 fatalities during the year, that is a concern to the company. We continue to work in this area to have zero fatalities throughout the group.
You saw in the presentation, we're working on a lot of equipment, not just the equipment you saw in the presentation, to take danger out of the people's lives who work at our operations. We're working on various different technologies around the world, electric vehicles underground, remote vehicles underground, we're really trying to grow in this area, which should ensure we have 0 fatalities at our operations as we move forward. Responsible sourcing of the commodities that underpin everyday life of ourselves. You can see we are members of all the different communities, the EITI, Extractive Industries Transparency Initiative, ICMM, where all the miners are members, the OECD. We're a member of all these various communities around the world. Talking about 2019, the existing year, what is the investment case for Glencore and where do we sit and how does it look for this year?
We believe we're in the right commodities. Our commodities are fundamental for the growth of the world and where the world is growing, the demand growth that we see in electric vehicles and what is required in that area. We have cobalt, we have nickel, and we have the right end copper, which is required in this area. We continue. We have good supply in those areas. We're the leading supplier of both cobalt and copper in the world, and we believe that is where a large amount of the demand growth is going to continue. We have quality assets. Our assets are extremely low-cost producers in most of the commodities that we produce. We're in the lowest quartile in production, and we have good long-life assets that will sustain this company for a long period going forward.
If you have a look at that diagram on the bottom there's an interesting diagram to show if you look at the supply-demand in various commodities across the world during the year. Before we start drawing down inventories, you will need, because the supply is not matching demand during the year, you would need in nickel, to give you an example, you need a 1% decline in the amount of nickel consumed during the year before you draw down inventories. You really have to have less nickel consumed this year in order to avoid drawing down the inventories that exist around the world. As we all know, nickel is required in many parts of our lives, and we continue to get growth in demand in nickel.
With the battery industry, the amount of nickel that is consumed in the battery industry, it's very unlikely that you're going to get negative demand growth. If anything, you should get 4% demand growth at least, which means we will have a large drawdown of inventory taking place in 2019. Similar story for zinc. In fact, zinc, you'll need a 2% decline of demand growth in zinc, we don't see that happening, no doubt you'll have an inventory drawdown. Copper grows at about 4%-5% every year. You will need only 0.9% growth in order to avoid drawing down inventories. You got to understand, in copper today, the inventories are extremely low around the world. You only have about 1 million tons of copper inventories around the world, where the world consumes around about 23.5 million tons of copper.
Therefore, looking at that scenario, we should be generating strong, sustainable cash flow this year. As I said before, depending on what commodity prices do, we should generate at least $5 billion-$10 billion free cash flow. At the upper end of the scale, if commodity prices increase, as they could be, and we've seen them at those levels before, we should have $10 billion free cash flow. If they go towards the lower end, it should be around about $4.9 billion free cash flow. At current commodity prices today, we believe we should be around about $6 billion-$7 billion free cash flow. As I said before, it's a compelling return of cash to shareholders. We should be delivering, as we said last year, we delivered $5.2 billion back to shareholders. This year is likely a minimum distribution back to shareholders of $5.8 billion.
Looking at the current market cap of the company, you can see that gives a high cash yield on your dividend and share buybacks. You should be getting at least a 10.6% return yield in the company. As you can see, that makes us the fourth highest cash return yield out of all the FTSE 100 companies, and the top 10 average is 8.5%. The top 20 average is 6.1%, really a good cash flow return to shareholders going forward. I believe 2019 should bode well with those numbers and hopefully even getting better going forward. Thank you.
Thanks very much, Ivan. Let us now then proceed to the formal part of today's meeting. Copies of the notice of the meeting in English, German, French, and Italian are available in the auditorium. If anyone does not have a copy and wants one, please raise your hand and an attendant will bring you one. Before proceeding to take a vote on the resolutions, I'd like to invite questions from shareholders. Questions should be asked in English or German. I'm afraid we don't have translation facilities available for other languages. When seeking to ask a question, please raise your hand and poll card to show that you're a shareholder. Before I open questions to the floor, can I please ask you to wait to receive a microphone before you begin asking your question?
I'd also be grateful if before asking your question, you give your name and if you're not a shareholder, which shareholder you're representing. If you're a German speaker and wish to ask your question in German, then please do so, and a translation will be broadcast to everyone in English via their headsets. Please may I also remind you before we start that this is a shareholders' meeting, therefore I would ask that questions are kept short and relate to today's agenda. I'm not intending to take questions which are repetitive of previous points or issues that have already been raised. With that, let me begin by asking who would like to kick things off, and I can see there's a friend of mine over in the corner here. Carlota, would you like to get proceedings underway this morning?
Yes, good morning. Good morning, Mr. Chairman, members of the board, fellow shareholders. My name is Carlota Garcia-Mañas. I represent the Church Commissioners for England and other long-term shareholders. We are supporter of the Climate Action 100+, which as Mr. Hayward has mentioned, is a climate change engagement initiative supported by over 300 investors with $33 trillion in assets under management. We are very encouraged by your statement of 20th of February describing your new position regarding the Paris Agreement and long-term ambition to contribute to a lower carbon future. We commend your progress towards the development of a strategy consistent with the goals of the Paris Agreement. In this context, we seek affirmation from the board on the following two issues. Mr. Chairman, will you make sure that the 2020 reporting of the alignment of investments with Paris will be included in your next annual report?
We're particular interested in the disclosure of methodology used. Second, will you make sure your 2020 set of emission targets and Scope 3 projections fully reflect the need to reach net zero emissions by 2050 or as soon as possible after that date? Thank you very much.
Well, thank you very much. Let me begin by thanking you for your constructive engagement with us and your recognition of the progress that we've undertaken. As we said in our climate change statement in February, so in response to your two questions, we recognize the importance that investors place on ensuring that the material capital investments and expenditures for Glencore are aligned with the Paris goals. As we've said, and you've just reiterated, and I will now reiterate again, from next year, we've committed to report in our annual report the extent to which, in the board's opinion, this has been achieved, and that will clearly include a reference to the methodology which we've used.
I think on your second point, again, as you know from our dialogue, we committed in our climate change statement to develop new long-term targets based on policy and technological developments that support the Paris goals, and we intend to make those public again in our annual report next year. Starting next year, we also intend to disclose longer term projections for intensity reduction of our Scope 3 emissions, including efforts that we may take with respect to mitigation. As I say, thank you again for your constructive engagement, and let's keep the dialogue going. Can I move on to the next question, please? I'd say this gentleman down the front here.
Good morning, Mr. Chairman. Good morning to the board as well. My name is Julien Jarmozko. I'm here on behalf of ShareAction, U.K. charity promoting responsible investment. On their behalf, they're pleased, as with the Church Commissioners, to see your progress in your commitment to cap coal production to the current levels. This is a commitment you took last year. As we saw in your presentation, coal is very important strategically for Glencore. It's one-third of your cash generation. Your board has a heavy history with coal because a lot of you have built some coal business. What we see, though, is that in 2018, coal production was up 7%.
In your guidance for 2019, coal production will be up 10%. You point out as well that there is a lot of demand for coal in Southeast Asia, with more than $120 billion of power station being under construction, and which will be fired with coal. Yet there's a high risk of stranded assets in the future. The think tank Carbon Tracker estimates that half of these investments may be stranded within 10 years. As a mining company or yourself, Mr. Chairman, as an oil executive, you know that overinvestment can lead to significant share price damage in the future. In light of those risks, financial risks, stranded asset risk, will Glencore in the future commit to reduce coal production rather than keep it at the current level? We welcome a meeting with the company to discuss that further.
Well, firstly, we're very happy to meet you at any point. I think for the moment we've said we cap our coal production, and I think it's important to understand the dynamics in the company. We're investing to grow our renewable businesses, effectively copper, zinc, nickel, vanadium, all the things that I talked about that are fundamental to the energy transition. We're investing to sustain our coal business for the time being, and that's the position we've taken. We're happy to engage with you, but that is our position today. Ivan, I'm sure you'd like to add.
Yeah, I didn't understand. Did you say there will be stranded coal assets or stranded power stations? Oh, power stations could be stranded.
Power stations.
Yeah. How do we alleviate the problem of the stranded power stations?
Okay.
Like I say, our position today is our position. We're happy to engage with you in a future dialogue. Who else? The lady next to you.
Good morning. I'm Anusha Wassman, and I'm here as a proxy on behalf of ShareAction as well. The recent IPCC report showed that a failure to limit global temperature rise to 1.5 degree would affect the jobs, livelihoods, and homes of millions of people across the world. Communities in the Global South, as well as low-income communities in the industrialized north, will be the most affected despite contributing the least to the problem. These findings highlight the necessity of transitioning to a well below two degree world in a way that aligns with the Just Transition. A Just Transition has two components. First, managing the impact of the transition away from high carbon industries on workers and communities, and second, ensuring climate action improves existing jobs and creates new decent jobs in the sectors that will have a key role to play in a low-carbon future, such as mining.
As Glencore points out on page 27 of its annual report, many analysts believe that demand for coal will reduce sooner than previously expected. This could significantly affect the profitability of Glencore's coal projects, which could lead to similar mass layoffs of workers like at Glencore's Mutanda mine in the Democratic Republic of Congo. This leads me to my question, which is: will Glencore commit to publishing and act upon a just transition policy by its 2020 AGM, and to doing so in collaboration with unions representing workers that will be the most affected by the transition to a low-carbon economy? Thank you.
I think I'm not quite clear what exactly is you're asking. Let me just say again, after an extensive dialogue, we have agreed on our approach to this matter over the next several years, beginning in 2020, when we will make the publications that I've already referred to alongside others. We can continue the dialogue. We have a very clear position now, and that is what we are going to proceed with for the medium term. Now, I am going to come to you, sir, I promise. I do know that you have a long list of questions. I promise I will get there. The gentleman in the baseball cap. Baseball cap man.
Thank you very much, Mr. Chairperson, and thanks for the opportunity. I speak on behalf of IndustriALL Global Union, which represents more than 50 million workers in mining, energy, and manufacturing industries in 140 countries worldwide. As you correctly point out in your chairperson's remark to this AGM, we deal with numerous workplace issues and concerns raised with us by our union members. This is more of a comment than a question. Needless to say, a delegation from the steelworkers in Canada, Local Union 7085, is here precisely because of these concerns that are raised with IndustriALL Global Union. We hope you'll give him an opportunity to address you. We want to thank Glencore for agreeing to meet with this delegation after the AGM. We also want to bring to our attention other issues that we are dealing with.
We have just been informed that there's a strike in Peru. There's just been a vote for a strike in Peru. It's an issue that we will deal with your team after the AGM as part of the issues that we continue to raise with them. Thank you very much.
Well, look, it's great that we have a constructive and ongoing dialogue. I would encourage you to continue that. I think the process that we went through from, as I said in my remarks and the last AGM through the course of the year, the visits to the sites were very helpful. I think they were helpful in us understanding where we're both coming from. I think we learned a lot from you, and I would hope that you learned a lot about how we're trying to conduct our operations. Thank you. Is there anyone else over there that would like to ask? Yeah. Let's stay in the, if I can say, the union space for the time being.
I thank you very much, Mr. Chairman. I'm Kevin Furlott. I work for Glencore in Belledune, New Brunswick, at the Brunswick Smelter. I've been there for 27 years. Right now we are on a lockout since April 24th. In your video earlier, you showed a lot about safety and safety concerns. What scares me is at my plant, safety is not a factor at all. Just recently in 2019, we had three near fatalities, which hasn't been reported at all. They haven't spoken to the employees ourselves about it. WorkSafe New Brunswick has got involved. To what capacity, we don't know. These are untrained people doing these jobs. One young fellow went through a conveyor belt, fell down a chute 10 feet and into another conveyor belt.
I guess my question is, with your code of conduct, do you agree with this type of safety that our manager is allowing to happen at our plant?
I think you know our position on safety very well. We take it very seriously. If there have been high potential incidents, which you assert there is, I have no reason to doubt that that's the case, I would have expected them to be reported. We have a very rigorous reporting process in place in Glencore. I don't know the answer to this, but I'm very happy to take it offline and understand what is going on and understand whether or not this has been reported and how it was reported.
Well, it has been reported, like I said, but he will not talk to any of the employees at work about it. Wouldn't it be better for him to take everybody aside and say, "Listen, we almost had these fatalities. Can we go forward with this and try to?
Yeah. Well, look, I know none of the details, but I would expect that the leadership on the site, if there had been a near fatality, would not take everyone aside, but would bring everyone together and engage with them. I can't talk about the details. I'm very happy to follow up with you later to ensure that we're doing the right thing. I know Peter Coates, Chairman of the HSEC Committee, will be very interested to have a chat with you later.
Love to. Thank you.
Okay. We might as well stay in the same zip code, I think.
Mr. Chairman. My name is Rick Bouchard. I'm also employed at Brunswick Smelter in New Brunswick, Canada. I am an electrician there. I just wanted to ask what Glencore intends to do about the employees found with high levels of mercury in their system and they're not able to go back to work. I'm just wondering, are you planning on terminating these employees like other employees have been terminated before?
Well, again, I'm not aware of levels of mercury. I do know that we've looked at the levels of lead in people's blood, and they are well within the established public health policy guidelines. I'm not aware of the mercury issue. Again, I think, let's take this offline. I can't answer the question about mercury. I know we've looked at lead, and lead we're well within the established public health policy guidelines. Okay?
Thank you.
Anyone over this side of the auditorium? Gentleman in here.
My name is Walter Kühne from Switzerland. I have now heard the discussions about coal and so on. We have to be aware that the human race is getting bigger and bigger. It needs more and more resources. Technology needs better and better resources. There is only one thing we can do: also offer resources. What we can also do is help reduce CO2. It might be a suggestion to Glencore to buy lands and plant them and employ people to look after them. It has been shown in projects that when people are given the responsibility and the task, they do it, and that would be a better idea than just complaining here. You cannot avoid accidents anywhere. [Foreign language]
Okay. Thank you very much for your comments. I think on the fatalities, whilst they are a small percentage, we will not be satisfied as a board and as an organization until we've eliminated them. I think on your point on demand for resources and particularly coal is well made and it is the big challenge that the world faces. How does it on the one hand supply the energy that's needed and the other hand deal with the challenge of climate change and CO₂ emissions. It's something that more than just Glencore are looking at in terms of mitigation and offsets. It's something, planting trees, basically. It's something that we'll consider, but I'm not certain that we are going to get into a very large-scale forestry program, if I'm honest. Thank you for your commentary.
If I can see if there's anyone else on the left here. Okay, gentleman here.
Mein Name ist Björn Herse. Ich bin Kleinaktionär mit 47.000 Anteilen. Ich hätte zwei Fragen zu Katanga. Erstens das Uranproblem. Da ist meiner Meinung nach noch nicht klar, was die Ursachen sind. Ist das in der bestehenden Kupfermine entstanden? Haben Sie Kobalt extern dazugekauft oder was ist dort vorgefallen? Und können Sie das in einer vernünftigen Zeit beheben? Das ist ein zentraler Punkt. Und das Zweite ist bilanztechnisch. Katanga wurde ja meines Wissens saniert. Und zwar, wenn ich das richtig gesehen habe, war das ausschließlich Glencore, die da das Kapital eingeschossen haben. Also Kamin ist, glaube ich, immer noch mit 20 oder 25 % Aktionär und hat dann auch noch eine Entschädigung erhalten. Ist das korrekt so? Das wäre es eigentlich. Danke.
Okay. I don't know if I can answer this.
Okay. To address your uranium issues, what occurred is it's in the ore in the ground. When we first processed the ore and we were making metal, it didn't show itself, the uranium, because the uranium was washed out. However, when we started producing a cobalt hydroxide, the uranium didn't wash out as we expected it to. There is a certain amount of uranium left in the cobalt, which doesn't meet the limits to export it from the country. What we did is we're building an ion plant which will remove the uranium and therefore we can export the cobalt clean. In the interim, we're mixing, we have a phosphorus solution whereby we can reduce the uranium and we will be producing at least 1,200 tons of cobalt per month.
By early next year, when the ion plant is built, we will be exporting 35,000 tons of cobalt free of uranium. It's an issue that occurred in the ore body. We weren't aware of the level it was in the ore body, but we've got a solution and it will be solved. Already, as I say, 1,200 tons is being removed. Regarding the balance sheet of Katanga, I think what you're referring to is the recapitalization of the balance sheet, where Glencore owns, in fact, 75% of Katanga. We own 85% of the listed vehicle, but that vehicle owns 75% of Katanga and Gécamines own the balance 25%. We had to do a recapitalization of the balance sheet at the asset level, which Glencore did. The company, I mean, Katanga Mining Limited, had to take a write down of the debt down to $3.5 billion.
The company was sustainable with a low amount of debt. Yes, Glencore did provide the capital to sustain the company in a very profitable way that it should be able to repay its debt very easily.
Great. Thanks very much, Ivan. Let's carry on. I'm going to come to Mr. Herse, who I'm delighted to see here again. I know you'll have a comprehensive list of questions for us. No, this gentleman here.
Thanks, chairman. Compliments to Mr. Glasenberg and his team for a solid set of results, especially in terms of the cash flow. Chairman, my first question relates to page 29 of the Glencore report, which states that the Ontario Securities Commission approved a settlement in regards to Katanga, a public listed company being 75% subsidiary of Glencore. Mr. Chairman, could you explain to shareholders what was the intention of the material misleading disclosure by the individual respondents relating to the results of Katanga operations in regards to overstating total copper by incorrectly recording contained copper in 2012 to 2014, improperly capitalizing impaired and overstated inventory, overstating 2014 copper cathode and misstating the 2015 copper cathode and contained copper? I just like to get an understanding. Why did the respondents do this?
Well, I'm not one of the respondents, I'm afraid. I don't think I'm able to answer the question. The facts are the facts. They're pretty well clearly documented, as you say, in the annual report. As to why it was done, I think it would be speculation. I can speculate, but I'm not prepared to. Without having them in the room, I can't ask them.
Mr. Chairman, if we look at the nine individual respondents and we analyze who they are, we've got Mr. Mistakidis, who was a Glencore nominee director of Katanga from January 2008 to 2017. We've got Mr. Henderson, who was a Glencore nominee director of Katanga from May 2016 to November 2017. We've got Mr. Gallagher, who was a Glencore nominee director of Katanga and a member of Katanga Audit Committee from November 2012 to November 2017, as well as an employee. You have got Mr. Best, Mr. Blizzard, Mr. Lubber, and Mr. Caldwell. Sorry. I'll get to the question now. Was Glencore Xstrata aware of this? These were nominees that were appointed by Glencore to sit on this board.
I don't know.
Yeah. Glencore Xstrata was not aware of it. The reason they did it is hard to understand. The amounts are not significant for the Glencore group, as you can imagine, looking at the numbers. They're very hard to explain. Maybe performance. It's hard. I cannot get into their heads why it was done. There's been many discussions about it, many reasons that they can give you. I cannot sit here and analyze their real motivation.
I'm just asking from a shareholder perspective.
Yeah
lesson.
Far to analyze.
Mr. Chairman, there was also a corporate governance deficiency and misleading compensation and reporting structure disclosure. Certain members of Katanga management received additional compensation directly from Glencore, and that was not previously disclosed. The compensation was paid in cash and equity of Glencore. Such compensation should have been disclosed in Katanga's executive compensation disclosure in Katanga's management information circular during the material time. My question, Mr. Chairman, as Glencore is the majority shareholder in Katanga, surely this company, as well as the chairman of REMCo, should have ensured that its listed subsidiary adheres to all regulatory requirements of the TSX in terms of REM disclosure issues. Why was this overlooked? We're a holding company of a subsidiary on the TSX, and they've got certain rules and regulations in terms of making disclosure. Surely our REMCo should have actually seen that disclosure should have been done.
I think it's not reasonable to expect this REMCo to have done that. It's very reasonable to expect the Katanga REMCo to have done that, and it clearly failed in its fiduciary duty, which is what this is about.
All right. Just following on there, Mr. Chairman. In terms of the findings, Mr. Gallagher failed to exercise the impartial judgment necessary to fulfill his responsibilities as a member of Katanga Audit Committee and failed to disclose to the other members of the audit committee such knowledge as he had. From 2009 to 2017, Mr. Gallagher was an employee of Glencore and held the position of an asset manager for Katanga. From 2013 and onward, Katanga was the only asset that Mr. Gallagher managed for Glencore. In the asset manager role, Mr. Gallagher managed Katanga as a financial asset of Glencore. His responsibility as the asset manager included, in particular, the review of monthly financial results from the viewpoint of Glencore.
My question, Mr. Chairman, and this is to the Audit Committee, if this is the corporate behavior of a Glencore employee, then surely there's concern in regards to the function of the Glencore Audit Committee, as vital information could easily be withheld from members of Glencore Audit Committee. I'd like to hear from the chairman of the Audit Committee what checks and balances has he put in place in regards to mitigating this risk.
Do you want to say a few words, Alain?
We have put a number of actions in place, including stronger separation of the reporting lines for the finance department. We also have strengthened the role of the compliance department, and we also have strengthened the role of the internal audit in order to secure that an incident like that shall not happen again in the future.
If I can just add, obviously, when this came to our attention, we obviously took action in the copper department, but we also used it as an opportunity to look broadly across the company and assure ourselves that we had the appropriate separation of line and function, as in business line, CFO line, compliance line, et cetera. We did. This was an isolated case within the copper department.
We've also, as Tony said, we've ensured that the CFOs of each of the divisions report direct to the CFO of the company, and there's direct line of reporting, which should alleviate any such issues in the future.
Thanks. I know you have more questions. I just want to check if anyone else has a question before we-
No, he's done.
We're happy to continue as long as everyone else is getting a go. Does anyone else on the left have a question? Anyone else on this side of the auditorium? Okay. I'm happy to give you another couple of questions if you Okay. We'll have two more questions from Mr. Birter, and then I think we probably are in a position to wrap up.
You're now capping it, Mr. Chairman.
I'm sorry?
Capping the questions now to two.
Yes.
Come on, Chairman.
Okay.
Let's see how we go.
If you can keep your questions brief rather than prolonged statements, we might get to a few more.
Just trying to set the background a bit, Chairman. Sometimes asking these questions, if you don't actually set the background, you're not going to really get to a good answer.
No.
I'm sorry, Chairman, thank you so much. Appreciate it. In regards to Katanga paying royalties to Gécamines, it was instructed by Gécamines to make payment to Gertler Associates, being African Horizon Investments. This fact was not disclosed. Just making payments to a third party raises red flags. It is my understanding that Katanga relied upon and paid Gertler Associates to maintain relations with the DRC government and for a variety of other services which required interactions with DRC government. The services provided by Gertler Associates through their offices and employees of the DRC included legal, tax, customs, and clearing services. My question, Mr. Chairman, could you please explain to shareholders what legal, tax, and clearing services were provided by Gertler Associates?
Yeah, they ran an office. They headed the office in Kinshasa. We didn't develop an office in Kinshasa, to negotiate, working with a tax office, which is a regular daily basis, you need people in the office. We took the decision, instead of having Glencore do it, we would utilize the services of an office which he had in Kinshasa, I think of about 40 people. We did that. Today, since we bought him out, and we bought him out in 2017, we run that services ourselves.
Right.
We have a big office in Kinshasa, which has daily discussions with the various offices of the government, whether it's tax offices, mining offices, dealing with Gécamines, which needs a lot of work, et cetera. We have an office of about 25 people there, 20 people, I can't remember the exact demand, sitting in that office doing it ourselves directly.
Super. Thank you so much for that.
Yes.
My next question just addresses the issue of the recapitalization of the $5.6 billion.
It was quite interesting to note, you said here to ensure Gécamines' 25% interest was not diluted, $1.4 million of the total debt converted to equity was effectively gifted by KML to Gécamines. Just like to understand the word gifted.
Exactly what it means. You know the situation.
An aberration.
This is the problem we have in various countries where you have a partner, and we all experiencing this in the mining industry. That's a good point. All of us, when we enter into these countries, these poorer countries, the government gets royalties and taxes as part of the deal. The third thing they like, they like to be a partner. They partner alongside us, and Gécamines was a partner alongside us. They own 25% of the company, we own 75%. However, to build these mines in these countries, and as I said in the report, takes a vast amount of money and contribution of capital. The partner does not wish to be diluted in that process. Therefore the finance is done by the way of loans.
We had put, I think, I can't remember the exact figure, but I would imagine, overall, we put, I think $7 billion into Katanga, but most of it is by way of loans. When the mine eventually starts producing and starts generating cash, it is set up the structure, I can't remember if we're at 90/10, whatever it is. The vast majority of the cash flow goes to repay the loans, and the 25% partner doesn't get cash for a while until you have repaid the loans and the mine is generating a vast amount of cash. He could wait five, six, seven years while the mine's producing before he sees any cash dividend or a small cash dividend. It depends how you do the waterfall structure. That was the problem with Gécamines, our partner. They said they don't accept this. The asset is in their country.
This is the government, even though they do get taxes and royalties, and as you know, they even changed the royalty scheme on us in the country. They wish to get a return dividend sooner than later. They wanted a structure in place where the debt would be reduced, and I think we wrote down the debt to $3.5 billion, was reduced substantially, whereby there was no capital contribution or anything to reduce the debt. Glencore or the holding company, Katanga, gave a gift by reducing the debt and still leaving them remaining 25%. Yeah, it was a gift to Gécamines.
Just following on that, Mr. Chairman, on page 27, it states that Gécamines received another $150 million to settle various historical commercial disputes.
They received $41 million of outstanding unpaid invoices from contractors, waived KCC's rights to $57 million of exploration and drilling expenditure incurred, which came to a total of $248 million. Is this also gifted?
Yes.
Because it seems to be ongoing.
Gifted
where do you draw the line in this regard?
Yes.
All right.
Very sad, but that's what happens in these countries. Many of my colleagues in the mining industry have similar circumstances. When you invest in these poorer countries, they wish to get cash, their part of the cash back sooner. They don't contribute capital into these big mines. As you know, and as we've said, big mines to build in these countries cost $7 billion-$10 billion. It's all financed by the one side. Once the mine is built and cash is being generated, people want the money. There were certain issues where they owed us money, et cetera, and would reduce the amount of dividend they would be getting because they would first have to repay these loans or these other items you talk about. They said, "That takes too long.
We want you to write those off." Our legal counsel's here, he can sit with you afterwards and give you the exact details why, et cetera, but in the end, it was taking write-downs of loans they owed us.
I just got three more questions.
Three is a lot.
I think you can have one more. Choose which one you'd like. We're happy to answer the questions outside of the auditorium, but.
They're all very close to my heart.
Well, you'll just have to make a decision.
The other one relates to cobalt. Really, it's going to be an extra two minutes. I don't know if that's a lot, Mr. Chairman.
Björn, if you can honor the two-minute rule.
Let me ask, Mr. Glasenberg.
If you can honor the two-minute rule.
Maybe get consensus on.
On timing. You have two minutes.
We're happy to sit with you afterwards and go through these questions.
Quick. It's just on the cobalt, the selling of cobalt. I'd just like to know, do buyers actually come to you to say, "Well, looking at a due diligence in terms of where does the cobalt come from, in terms of corruption, child labor, and environmental damage that can be done where you receive cobalt.
Yeah
Cobalt is a big earner for you. I just want to see whether buyers are diligent in terms of how they buy it and where they source their cobalt.
The buyers are very diligent. The supply chain management in a lot of these battery producers which buy the cobalt, especially the European car manufacturers who are starting to make electric vehicles, it's very important that they have supply chains, understanding where it's coming from, that you're not using child labor, that you're not having corruption, et cetera, that you're not messing the environment, and you're running your mines efficiently. Unfortunately, a large amount of the cobalt does come from artisanal mining, they prefer not to buy from artisanal mining because of child labor. Another vast amount comes from the Chinese producers. We think we are one of the few clean cobalt producers in the world today.
Thank you. Just on the fatalities, it's actually quite disappointing to see that fatalities have gone up from, you did quite good work in terms of getting it down to nine, first time ever, and then it's now gone up to 13. Even more disappointing is that there were a further eight fatalities in 2019.
Sure.
You seem to be going backward.
In this process, a lot of big mining companies are able to get it down.
No, that is a sad part, that we're not getting it down. We thought we were on the right track and we started reducing. We started a particular year as well. During 2019, it's very distressing because six of those eight fatalities did occur at one mine, Mopani. Various different incidents, not just one incident. It's clear a lot of work has to be at Mopani. We have a great training center. We thought we had it on track. I think it had 18 to two months zero fatalities before these incidents. It was on the right track, but as you know, with safety, until you've got your systems in place, the management totally get it, you have these issues. As I think that gentleman mentioned before, not that we believe 13 is a good figure, but we do employ 150,000 people.
They do work in difficult operations in difficult parts of the world. It's no excuse, but we're going to have the missteps, and that's what we're working on, and hopefully the new technical equipment we talk about will reduce the fatalities and a lot more further effort in this area. I hope in a few years' time, we will have zero fatalities.
I'll just add to that. This is not because of lack of effort. There is an enormous effort going into this agenda across the group led by Ivan and his colleagues. All of us, half of the board and Ivan spent the day yesterday in a safety summit with the heads of all of the operations from around the world discussing and debating what interventions we are going to make to make further progress. Can I just check there are no other questions from anyone, and I will try and get this wrapped up quickly. If there are no other questions, let me just move on. When you arrived today, you were given a white poll card and instructions on the voting procedure. Can I now leave you to complete your voting on this meeting's resolution by completing the poll card?
Once we've done that, I'll just wait a few minutes while everyone rustles around with their poll cards and get their pens out. Once we've done that, the meeting is formally closed. Thank you all very much for attending. We have refreshments outside, including, as I said, the Colombian coffee from the video. Myself and my colleagues will be delighted to meet you outside for a coffee, tea, or whatever. Thank you all very much, ladies and gentlemen.