Good morning, all. Welcome to our 2018 full year results. Thank you for joining us here and also thank you to those joining via webcast. I'll now hand over to Ivan Glazenberg.
Good morning. Thank you. So today we're presenting our 2018 results. Okay. And as you can see, we've got a few highlights here on this presentation and you can see we had a record year.
We had a $15,800,000,000 EBITDA during the year, which is 8% increase to the previous year. Net income pre significant items is at 5,800,000,000 and that's 5% increase on the previous year. What we did in 2018, as you are aware, we had big distributions from the company, which gave compelling cash returns and we distributed via buybacks and distributions $5,200,000,000 and that was made up of roundabout $3,000,000,000 of distributions and $2,000,000,000 of the NICE buybacks which we made during last year, early parts of this year. That gives you a 75% implied payout ratio based on 2018 equity cash flow of around about 6,900,000,000. Going forward, we will be doing the same and it's a good cash return story and this should continue and we've indicated we'll be doing roundabout $3,000,000,000 of buybacks during the year, dollars 2,000,000,000 minimum by December 2019 plus we're targeting another $1,000,000,000 buybacks, which will come from some small asset disposals throughout the group during the year.
So overall, including the dividend distribution, we should be making cash returns of 4,800,000,000 to 5,800,000,000 during 2019. Going to sustainability, as you can see, unfortunately, we had 13 fatalities at our operations around the world. We continue working on this area and we're spending a lot of time. However, we still have a large amount of underground mines in difficult regions of the world, which is taking time to ensure that we're running those mines safely and to ensure there are no fatalities to aim for 0 fatalities at all our operations around the year. So it's a continued effort by the group and hopefully we will get there as we move forward.
Following the publication of the new UK corporate governance code, the board has established a new ethics and compliance and culture committee, which will be put in place during the year and that shows you the different committees that the company has and which the new one which is the ECC committee will be installed following the code and the board has decided to set it up as follows. Once again, climate change furthering our commitment to the transition to a low carbon economy, We believe the company is well placed in this area. We have the right commodities and as you're aware cobalt, zinc, nickel, copper, which is a complement for battery supply and we continue to grow and hopefully grow in those areas which we aim to capitalize on that which is as we move the energy and mobility transition into electric vehicles, we will be at the forefront producing the commodities in that area. What we have also done, we will limit our coal production capacity broadly to current levels and as you are aware, we're producing roundabout, we have capacity for about 150,000,000 tonnes of steam coal and we've agreed that we will limit it to amount of tonnage going forward and we will not increase that tonnages of thermal coal produced by the group on a future basis.
Coming to tailings storage facility management amongst the group. We moved in this area in 2014 after the Mount Poli incident. We appointed a team to review all our tailings dams around the world. We had a person who heads up this tailings facilities and the investigation of all our tailings facilities around the world and we worked aggressively from 2014 after the Mt. Polley incident.
After the San Marco incident in 2015, we increased our review of all our tailings dams even further and we worked very closely with the world's leading experts, Clold, Crippen and Burger. And over a period of time, they have reviewed all our dams and alerted us where we have reviewing all our dams on and they will continue working with us reviewing all our dams on an ongoing basis and we'll review every dam and continue to review them with this group over a yearly basis. And we believe over 12 to 18 month period, they'll be able to review each dam again and again over that period. And that gives you an idea of the dams we have, which are upstream dams, which are centerline and downstream dams, which are active and non active. And actually, we are aware the problem dams are potentially the upstream dams.
And you will see if we got the 51%, 31% of those are active and that represents roundabout 22 of our tailings dams around the world, which are upstream and we're working very closely to monitor those and ensure that they are safe. So with that, I hand over to Steve who will go through more of the financial issues and then I'll come back later and talk about where how the market is looking, where we see the market going forward. Thank you.
Thank you, Ivan, and good morning to all of you in the room and those that may be listening in on the line or on the webcast. A few highlights as well that Ivan has spoken to most of these topics as well. So EBITDA, it was a unfortunately, it was a weaker second half than the first half. Industry was pretty was broadly similar period on period. The second half marketing was weak, particularly in the metal side.
We already flagged some alumina and cobalt challenges in December last year. We think we've worked through most of those. I'll talk a little bit about that back in the marketing, but that's it's still it's a higher percentage clearly in the marketing. If it's a sort of $100,000,000 or $2,000,000,000 potential in the marketing over a $16,000,000,000 business, it obviously puts it in the context of what Glencore is today, more like around 1% or so over there. But strong cash flow generation, obviously, as Ivan said, funds from operation up at £11,600,000,000 That gives us the capacity to fund the business, spend the CapEx, do any M and A.
It was a period during last year where there was a handful of announced acquisitions, probably more back in beginning of 'eighteen, almost into 'seventeen. We've sort of gone through all the funding and the commitments associated. So we do start the year now 2019 in terms of cash flow generation that can be applied more generously towards share returns. But I think the M and A, objectively, looking at some of the coal acquisitions, expansions in zinc in a constructive commodity and some of the longevity and optionality that Volcan is going to give us in zinc and some of the downstream plays we've had in oil. I think it sets the business up nicely in terms of its cash flow generation as well, but we start the year 2019 sort of unhinged in terms of any previous commitments on M and A.
CapEx leveling around that sort of 4.9%. That is our guidance still for the next 3 years, averaging around 4.8 percent. There's a level of expansionary around 1.1%, 1.2%, 3.7%, 3.8% at the sustaining level across the business. There'll be a slight no change in any of that. Net income, as Ivan said, it was around CHF 2,400,000,000 what we'd call significant items, most of that impairments, CHF 1,600,000,000 at the time, flagging Mupane, dollars 800,000,000, Mtanda, dollars 600,000,000 is the 2.
There's sort of chapter and verse of that in the financials. Paul means go and have a look at that. We show the reasons, the sensitivity to various macro and micro assumptions have gone into that. Of course, mining codes impacted the margins at Matanda and this and the oxide sulphides, that sort of £600,000,000 impact there, Mopane, even the asset price assumptions, it was quite a big value driver there. It has a smelter producing asset.
We think the regional balance is going to deteriorate in favor of lower prices, including ourselves building an asset plant at Kadango, which makes sense for that operation. But there was a change on a that happened at Mopane. Net debt at 14.7 dollars There's the full reconciliations in the financials, but about $7,000,000,000 is Ivan instead of equity free cash flows. The reason the net debt has clearly gone up is the M and A, dollars 4,000,000,000 which is the accumulation of the HVO Hell Creek Chevron business and 1 or 2 smaller ones Buybacks and dividends around $5,000,000,000 And what we flagged 2 or 3 weeks ago at the production report was a $2,000,000,000 buildup in non RMI working capital, just the balance between receivables and payables, payables going down at a greater rate than what receivables, that GBP 2,000,000,000 has gone down. I'm sure I'm going to get a question later on to say, is this going to reverse?
I'm not banking on this reversing. Clearly, we're in a more conservative balance sheet now than what we were 6 months ago in terms of their working capital position. There is a float there. Can we go and access that again at some point? Potentially, yes.
But by definition, for those saying what sort of what could happen going forward in working capital, we're in a better position around the trajectory there in terms of how that's gone. But let's not assume any sort of further either release of that or necessarily further change in the working capital is what we've assumed. And of course, the large buybacks that we've done as well, and we'll talk about all that later on. If we focus on the industrial part of it, we used to have marketing first, industrial last. We said sort of that's a bit of sort of it's a bit sort of to front these days around that relative contribution between the two businesses.
So we flipped it now into industrial and marketing, now representing 13.3% of that 15
point 8 percent number. So it's well over 80% of the numbers.
If you look at the contribution between 2, that was up 15%. Metals and minerals overall still dominates across the main commodities, the copper, zinc, nickel, alloys and the like. But the big increase has come through has come in the increase on the particularly the coal contribution, higher prices plus the contributions from the acquisitions during the year, the HPO or the Hell Creek. Cash margins, EBITDA margins, mining margins, very healthy, if you can see on the graph on the right, the coal side, which contributes the 46% there, so good buffers around the cash generation there. Metals and Minerals hovering around that 40%, still a good blend between low cost, high margin businesses that we have across the thing.
We'll get to a waterfall on the next slide as you see where the evolution, but generally a good trajectory, and we're clearly about those sort of levels at the moment on a spot basis. This chart would look pretty similar industry. On the industrial side, where did we see the movement 'seventeen to 'eighteen? Price helped clearly during the year. At some point, hopefully, we're sort of mid cycle, and we can see that continue to improve across various commodities.
Copper, nickel, cobalt, we've given some increases there. Cobalt was a tale of 2 halves. We'll speak about that later on as well. The average happened to be 32%, but compared to middle to end of the year, it was still 50%, and that's continuing to be a drag today in a relative sense in the cost structure on cobalt. But from the 2.1000000000, the copper cobalt, 0.6 1,000,000,000 nickel, €0.3,000,000 Coal, €0.9,000,000 contributed the major aspects of the increases.
On the volume side, some small impacts. You'll see some volume trajectory going forward. That will be a tailwind going forward across various aspects of our business. But again, copper cobalt, particularly Katanga, the coal M and A would have had positive contributions. That's cost including inflation.
In the past, we've broken inflation out. Inflation would be about just sort of the sort of automatic CPI linked inflation that tends to apply across most consumer price increases would have been about $500,000,000 of that $1,347,000,000 You've got some relief clearly on currency. Some of the biggest impact is there has been mining code, clearly across both our operations in the DRC that effectively came in from 1 January. So we've had 6 months' absorption there. We are currently both being charged and paying the full effect of the higher royalties, and there is other impasse across the supply chain.
It is something that we have contested. We're paying under protest and hopefully some mining code relief at some point while we're able to engage with the new government there. Clearly, higher energy and commodity input costs. So as much as we got oil price, on the left, you can see up 31%. We're both a producer, but we're actually a larger, much larger consumer than we are a producer currently in the oil business, so that's coming through in the diesel.
Various
other input costs,
reagents, asset prices, these are all out across the different businesses. Lower grades, lower smelting, custom profitability, that should turn around this year, particularly in our copper business. That comes through the cost line as well. And of course, to the extent that there's higher royalties linked to the higher prices, that will flow through that number as well. Also, any higher inflation, we've sort of said CPI in Argentina was particularly when you saw 40% inflation.
It will come through costs, but then we've got 100,000,000 dollars FX benefit through the depreciation of the Argentinian peso as well. If we look at the reconciliations and the detailed buildup of those industrials, we've gone through the various commodities, and there's a reconciliation on Page 31 relative to earlier guidance. It's all pretty much spot on around how our sort of many models would contribute to that business. So copper contributed 30% of the industrial EBITDA, dollars 4,700,000,000 of the group EBITDA there. A few things to flag.
We have had higher production, which clearly helped on the Katanga side. That journey continues. That was the 1st year of a Line 1, 140,000 150 odd 1,000 of copper and a little bit of cobalt as well. This year is the year of taking that operation up to its capacity, close to the 300,000 tonnes copper and around 26,000 tonnes cobalt. So that will have a positive bearing on our overall footprint.
A few factors, too, at the EBITDA, a few opportunity costs was the timing of sales production, both in copper of about 22,000 tonnes, but more importantly, the cobalt currently that's stockpiling with the excess levels of uranium, particularly at Katanga. Just in the year 2018 alone, we got 3,900 tonnes of cobalt, which even at the poor margin, spot margin environment of cobalt at the end of December, had an EBITDA opportunity cost to us of about $134,000,000 So that's just being stockpiled in anticipation of the IX plant and the various other treatment initiatives. Katanga also, if they haven't already, there's going to be their own release before Canadian market goes up, which will clearly go into more chapter and verse around what's going on around cobalt, in particular around suspension and uranium and how to treat that and how that project is clearly going. So all the costs around 'eighteen is broadly where we said at was the end of last year. Copper is $104,000,000 We guided to $103,000,000 at the end of last year, and they all come in pretty close to where we said.
Increases year on year, 2.17 to 2.18 has clearly been impacted by DOC Mining Co, higher energy costs and that sales, the production variance, which at some point is going to catch up. We'll see the evolution more as we go from 'eighteen to 'nineteen as we go across. Zinc business, clearly stable. They're going through production returns at Lady Loretta, and ultimately, there'll be the Jairam expansion within our Kaczynski operation, more 2020 effect will show you the trajectory in costs. And coal was a very solid cash contributor, EBITDA and relatively low CapEx, which is allows good cash conversion.
It came in with a $40 margin against a 39 dollars guidance, as we said last
year.
Marketing. We've spoken about the two factors. The basis risk, they're both in metals and metals. It was the alumina and the cobalt impacts that was flagged and went into a reasonable amount of detail back in early December. It was both those two factors that prevented us from being certainly much closer to where we were in 2017, maybe not quite as good as 2017, but we it would have been sort of middle of the range, but for the factors of those that came towards the end of the previous year.
There was another competitor, as I flagged as well, towards the last year that flagged the alumina distortion in the market where the sourcing and sale of alumina, which previously was a reasonable back to back around percentage of alumina. You've had the index pricing, sourcing having to feed into long term percentage of aluminum prices as well. These are legacy contracts. These are old contracts. Our exposure to that basis risk is slowly grinding to almost nothing.
But with the huge spikes in alumina from the 350, 400 towards 700, that had quite a material impact on the business last year. And cobalt was sort of a double punch, if you like, for us during the sort of from about August, September, October towards the end of the year in a variety of factors. We've had some Chinese nonperformance. We spoke about that as well around certain fixed price realizations on hydroxide. We did have to sit around the table and reset some of those.
Hopefully, the swings and roundabouts around that over a longer term cycle, cobalt is going to have it stay in the sun again, but we clearly had to take that performance risk. And also, as I flagged within the back in December, it's a little bit left and right hand. But within the marketing business, we do have to continuously offtake the material for both Katanga when it's selling costs and obviously, Wotanda under those agreements. So this is coming onto the marketing's books. It's not an easily hedgeable commodity.
It's not a commodity that you can lay off that is the demand strength today. So you will have lag effects of having to take material onto your books, and you will have some length in cobalt today. We'd like to have less length, but we do have some length in cobalt. And just in the month of December, you saw cobalt prices drop 22% on some index. Clearly, this is not all a realization that could turn around as well, but that's what had to be absorbed through the earnings for that particular period.
What we've highlighted is the graph on the top right. I think it's interesting to note that even at 2.4% in some historical sense, excluding agri, which has been a bit noisy from a comparison perspective, and I'll talk about agri as well, at 2.4, It's sort of in the pack last year, particularly good on the energy side, and we should the agricultural side should be at 200,000,000 dollars ish. Obviously, you've got challenges in that market as well. It's effectively contributed 0, which is the green line. But if you look historically, '13, 'fourteen, 'fifteen, we owned 100 percent of that business.
'fourteen was a stellar year, obviously, in that business as well. 'fifteen, 'sixteen was a proportionate business once we'd sold it to the Canadians. We've restated 'seventeen and 'eighteen just to be our share of the net earnings of that business. But on the agricultural point, you can see although 79% down at the net income level, the actual business was 23% down on an underlying 100 percent EBITDA business. We've given those numbers in the financials.
It was 4.84%, 100% down from 6.31%, 23%. That does reflect weaker crops sizes, Australia in particular, and just general challenges that manage. That business should be at 100%, a $700,000,000 $800,000,000 type business. Once that, I would say, should be about a normal operating capacity margin environment of that business. So it is underperforming at that level.
We should have about a 200 net income pickup from the agricultural business. So it is a factor. We are expecting and have confidence in being back towards the middle of the range marketing in terms of where we sit at the moment, and we'll get to the next page. So this page reflects that 2.4% and again, the range and expectations around being, again, towards the middle of the range for this year. And we've given some of the factors on the left hand side as to various elements.
Ivan will speak to some of those things around tight to tightening physical demand conditions. We are seeing that starting to materialize, picking some of the metals commodities. Selective deployment of working capital at the moment, we're not doing much. You've seen the release of Smart Mi, but that's certainly a catalyst if things suddenly presented themselves contango or otherwise. Of course, there could be higher interest rates.
We've sort of paused a bit, but that's obviously depending where you think we are in the cycle. And some volume growth, production growth that's generally occurring also within our business. CapEx, not much to say. It's largely a rehash of where we were in December. We've come in 4.9% against the 4.8% and no changes to guidance around the 4.8% average over the next years.
There's a range of more brownfield developments now averaging 1,200,000,000. Those have all been pretty well flagged. The only one that's still in a not approved phase, but we've put it in highly likely, is that Kalawasi Mill expansion to the 170. Some of you are aware of the site visits We advised back in December that would be a potentially around a 200,000,000 commitment. That's for sort of Glencore share.
That's not an approved project per se, but it's been factored into the as good as, I guess. In terms of balance sheet, finish up before we give you some of the modeling details as well. Still a pretty strong balance sheet in terms of cash flow generation and coverage. Maybe we spoke about the net debt. Net funding was actually broadly flat year on year, notwithstanding the increase in net debt by the 4.5%, and that was that release of the working capital of about 3 0.5% down to 17%.
So that's at a we still have I would say there's still RMI that can be unlocked in the business in the current commodity price environment, but it's always subject if you're going to see some explosion in metals prices and oil prices clearly go up, you're going to see just a price variance there. But I think you'll see more than a positive compensation through the spot cash flow generation, the EBITDA in the business. What we have just flagged as well, obviously, with 0.93 net debt EBITDA, with net debt, I would say, having peaked now between the M and A and the working capital movement. Although we've spoken about a maximum 2x net debt through the cycle, just given some of the uncertain, some of the trades, some of the sort of economics and the geopolitical events, we are running the business at this point in the cycle to try and not let that number having a cyclical management and aiming not to let net debt to adjusted EBITDA elevate much above 1x. So what that would do in our thinking, clearly, if sort of the world fell out of bed tomorrow and suddenly our spot EBITDA was 15.8 percent, now it's sort of 13 percent, just sort of pick a number, We would in terms of that ratio, we would look to get our net debt down to that 13%.
So that's how we would look to sort of keep that 1x in terms of keeping that conservative financial profile. We're obviously comfortably above those levels, trending down for that 0.93%. But I think it's just prudent and appropriate to run the balance sheet in that sense. Just the modeling guidance because that's all looking back. It's arguably more important looking forward.
So this is the detail of what comes out of our spot cash flow illustrative cash flow generation at spot across the different industrial businesses, all the building blocks down the track. Copper is the one that's worth spending a little bit of time. So it's being you can see bottom left, I would point towards a range of outcome as probably being something that's more sensible. So we said 104 is the cost. That's what the actual was, 2018.
Dollars 2019, anywhere between $92,000,000 and $125,000,000 Now the spot cash flow illustrative, $15,800,000,000 is the higher cost $125,000,000 So we've taken the most conservative part of that range. What's driving that range, dollars 92,000,000 to $125,000,000 Cobalt. There's nothing else that's driving that range. So at the bottom end of the $92,000,000 or what we've assumed, let's say, in the $125,000,000 is that we are not selling 25,000, about 25,000 tonnes of cobalt this year of what we're producing. You can say Katanga, okay, Katanga, but just a general assumption to say Katanga will, of course, is producing 26,000.
They've said they will sell some of their production this year, but most of it's going to be 2020. Across that is a modeling assumption. We've seen 25,000 tonnes of cobalt not being sold. We've also run through that particular model on spot prices, the realization of cobalt hydroxide as some benchmark would indicate it might be. It's very low volume.
It's very illiquid at the moment, but we've taken about $11.50 a pound is the price that that's will mark. Dollars 11.50 a pound and 25,000 less tonnes of cobalt is what's driving that $125,000,000 against what would have been a $92,000,000 That's a $1,000,000,000 variance against the cobalt revenue that we were running just 2 months ago at the end of or at the beginning of December, which would have been more sales and higher prices. So you can have your own views as to where the volume and price is going to potentially. And we do speak about the cash flow generation, the 6.8% that Ivan said, that's at the conservative 125%. So I think a range of probably 6.8% to closer to 7.5% is probably more bookended around cobalt realizations at the moment in terms of how we go.
I'll show you how cobalt in terms of the assumptions that we that's the main variable. The other businesses are pretty steady state around its production. And obviously, cobalt, there is the assumption then of the within copper, we have the expansion 46,000 tonnes this year. That's the net of the extra 150,000 tonnes at Katanga and Muthunda being rebased to closer to the 100,000, which we'll see on a slide as well later on based on an optimized plan and optimized cost structure. You would have seen some headlines on that.
Where's all the building blocks for all these numbers? That's the production longer term guidance, unchanged in cobalt and all the other metals. Copper is the only which is a drop of 40,000 across all the years on account of Rotunda. Even 'eighteen to 'nineteen, we've got some reasonable volume growth in cobalt still. So to query the sales impact on that, but physically, you'll be able to go and see the bags of hydroxide there.
And ultimately, it will convert into cash, whether it's a 19 or a 20 storey. We'll obviously wait and see. Zinc, you've got Lady Loretta. There's some further nickel. And coal, of course, is M and A and just general recovery, mostly in Prodeka.
But across on the right hand side, you've got overall that's not an annual growth rate, but it's an overall absolute growth rate, 18% to 21% across the different metals. And I think it's in commodities that should be favorable economically for us going forward. Where does this put us on the this was a slide we introduced also in December. I think it's quite a useful one to understand sort of where free cash flow and returns may look like across various cycles. So we've played a we sort of see a $5,000,000,000 to $10,000,000,000 free cash flow range for this business in across a range of cycles and then what free cash flow yield that, that clearly generates and the ability to distribute cash on those sort of returns.
The downside was the average 2016 prices. We all know that 'fifteen, 'sixteen was not a pleasant period. And on Page 40, we show the various assumptions that underpin all those. So if you sort of quickly glance to Page 40, you can see the downside. That was copper averaging 4,800.
There was zinc 2,000 nickel 9,600. Dollars There was the free cash flow at €49,000,000 So pretty downside from where we are at the moment with that sort of cash flow generation. Upside of €10,000,000,000 that's prices we've had in the last 12 months. You don't have to go too far back into the history to see those sort of prices. There was copper at CHF7000, we were there at Q1 last year.
Zinc at 3,200. Nickel, 15,000. We're not that far away there. Cobalt, you'd need to sort of kick up to 24 dollars a pound there, but not a 1000000 miles away from potentially getting up to $10,000,000,000 of free cash flow in this business. We show some data points.
Where 2017 was CHF7.7 billion CHF18 billion CHF6.9 billion CHF6.9 billion CHF6.9 billion but obviously impacted by some of the delays in production sales. Marketing was a bit weaker. And spot today, dollars 6,800,000,000 to 7, 4,75,000,000 depending on cobalt. I think that's sort of the range at the moment. I think what's based on the commitments that we've made today around mentioned, dollars 2,700,000,000 base distribution, dollars 2,000,000,000 minimum buyback out of free cash flow as opposed to the non core disposals at $4,700,000,000 Against the CHF6.8 billion, that's a payout of 69%.
If the free cash flow was CHF7.5 billion, we'd have a payout of CHF62 billion. So we still have quite a buffer around the potential to top up distributions during the year when we're up in August and see how things develop there. Plus, it gives a 30 odd percent downside buffer against if you do have some contraction in cash flows, you're still not funding these buybacks out of debt. You're paying it still out of free cash flow within the business, which I think is a positive element as well. That shows the, obviously, the buildup, and you've seen all the graphs.
There's the GBP 6,800,000,000 dollars that takes account of full paying taxes across all the business. We do have still a few some tax shields and some tax losses in some countries. So tax may be a little bit conservative, and this is still accounting on the interest rate for potentially 2 interest rate rises during the year. So I think still relatively conservative below the group EBITDA line. If we just go to the capital framework, nothing particularly new there as we look towards the our target capital structure and ratings.
We'll see a slide I'm not going to focus on the slide, but obviously, what's relevant in terms of buybacks and accretion and the likes, we've got some slides towards the end of the slide towards the end of what our share count is. Obviously, it's materially decreased as we've been doing some of the buybacks over the last period. So do build in and do track that within the various modelings as we got as well. And as I've been I think a point just to mention is the CHF 2,000,000,000 buyback that's been put in place now to be topped up automatically by $1,000,000,000 from a target of $1,000,000,000 minimum noncore disposals. There's a range of what we would still say noncore or sort of tail assets.
There's some there's a few process on the go. There's few other targeted opportunities and maybe listed stakes and maybe various other things. We think we'll get there in Acanter, and we'll obviously make those announcements as and when they come. But I expect it's going to be a sort of a sprinkling of various sort of smaller announcements throughout the year, so potentially close to 1 or 2 as well. So if we just finish up before I hand over to Ivan, I think this is obviously quite a powerful slide.
You can see the modeled reduction in share count out till the end of the year based on those analysis. Obviously, there's an assumption around the price, the execution, but we could have close to 9% of reduced share count just executed between 30 June 'eighteen and the end of 'nineteen. And applying those buybacks and the distributions across the price at the moment, we've mapped out that we're the 4th highest within the FTSE now in terms of a not just a free cash flow yield but an actual cash returning entity around 11% or so and well positioned certainly within the mining sphere as well. So some pretty powerful numbers economically as well. So on that note, I'll hand back to Ivan and just to wrap up.
Thank you very much.
Okay, looking at the outlook going forward where we look during 2019, as you can see on this slide, global economic policy uncertainty index is very high. There's been a lot of uncertainty towards the end of last year as we saw. And as you see that has had a drag on the PMI indexes, which have dropped during January 2019. We all know what it's been a lot about the trade talks, macro fears and therefore has had a drag on the economy. However, if you look at the next slide, the good thing about the mining industry, we've cut CapEx expenditure.
As you can see, we're not in the high days of 2012, 2013, we're above the whole industry above $77,000,000,000 we were spending. Today, we're below the average at about $43,000,000,000 So the mining industry is being conservative on their CapEx, is not massive expansionary CapEx, most of it is sustaining CapEx and there's not many large new mines being built around the world. So we have limited new supply coming into the market. And demand hasn't been bad. If you look at the slide on the right, demand has remained solid and if you look at the various commodities, you look at seaborne and thermal coal is up close to 8% growth last year.
If you look at nickel, we're up above 6% growth, copper above 2%. So demand has been relatively good. And as I say, if you look at the left slide with supply tightening up, because no new CapEx expense, no massive CapEx and no new mines coming into the system is definitely limited amount of supply in the market And what it evolves to, as we see in this slide, naturally, we're going to get drawdowns of inventory around the world of the different commodities and that gives you an idea. We've seen it. If you look at Chevy, LME, bonded warehouse, COMEX, etcetera, added together and you look at the world's inventories around the world, we're at record low levels for a lot of the commodities.
And that gives you an idea at copper, we have 13 day supply sitting in the inventories around the world. You have zinc down at record levels of 8 day supply and nickel at 34 days. So what does that mean with demand growth and where do we see demand and with the supply coming in the market during 2019? So what we've tried to do here, if you look at nickel, all we're trying to say to ensure you don't draw down from inventory, we gave the slide during December 2019 and it looks like it's still the same, not many new changes over the last 3 months. But what we're saying, give an example for nickel that you're going to have to have demand negative growth, you're going to have to go down 1.3%.
Last year's demand in 2019, nickel was around about 2.3 2,400,000 tonnes. So and we see supply only being around about 2,300,000 tonnes this year, so therefore, we're going to have a shortfall and therefore, you will need on last year's demand a negative demand of 1.3% to avoid drawing down inventory. So it's obvious, as we've seen with nickel over the last few years, there has been a deficit and we have continued drawing down inventory. I think last year, there was about 1 177,000 tonne drawdown of inventory against the exchanges. The same applies to zinc.
I don't want to go details, but Ryan, you'll need negative 2% demand growth going from RMB14.3 million because there's less supply coming this year of metal. So therefore, you'll have to have that. An interesting one is if you look at copper, we all know, yes, there is new supply coming from various mines, but a lot of mines are losing supply. We know what's happening in Grasberg and various mines around the world where you're going to have supply reduced. So we don't see much supply net net supply over the next 3 years, we don't really see much new supply coming into the market.
And therefore, the little bit that does come in next year, you will need to avoid drawing down inventories, demand supply demand can only grow 0.8% to avoid because what are we talking about? We're talking demand last year of 23,700,000 tonnes. This year, we believe supply most probably 23,800,000 tonnes. So demand cannot grow about 0.8% before you draw down inventory. And as we saw last year, demand will grow at last year, it grew at about 2.3%, 2.5%.
So it's clear if we get the same demand growth this year, we'll start drawing down inventory. And you've seen in the previous slide, inventory supplies at a few days, we said in copper, round about 13 days. So really, if we do have more drawdowns against inventory, could have a very favorable effect on the market. So what is the investment case of Glencore? As I said, we believe we've got the right commodities, we're an attractive part of the commodities talking about the supply side, which I mentioned earlier.
So we believe nickels and copper, we are in the right commodities moving forward. And therefore, with the limited supply, demand, we believe, still being strong, it should be favorable going forward. We generate extremely long cash flows. And as Steve mentioned depending upon commodity prices, we're between the $5,000,000,000 to $10,000,000,000 free cash. We're well capitalized assets.
We have very little CapEx to spend on growth. It's mainly sustaining CapEx. And you've seen our CapEx figures and where we're going to keep the balance sheet. So we're in a very strong position, which allows us to have these compelling cash returns back to the shareholders. And as we said, with the distributions and buybacks, we should have round about RMB5.2 billion, we had RMB5.2 billion in 2018 and minimum distribution we believe in 2019 as we said between the 4.8, 5.8 and we should be there number 4 the FTSE 100 and cash return yield, that's where we should be based and that's where we see ourselves going forward.
And that gives you the amount of cash that the company will be generating and not much to do with the cash other than doing these share buybacks or distributing dividends back to the shareholders. So very, very compelling company going forward in respect of cash returns to its shareholders. Thank you. I think that gives a full summary where we sit.
Ivan, it's Jason Fairclough, Bank of America Merrill Lynch. Just two quick ones. Apologies if they're a little techie. But I'm interested maybe for Steve on the interplay between the RMIs and the working cap. So RMIs are actually going down even as working cap I think has gone up.
And then second just on cobalt, could you give us a little bit more color around your exposure to moves in the cobalt price? I mean, because we've got the cobalt inventory, it seems like you're taking it mark to market on that. And beyond that, you mentioned that you have length in the portfolio in the trading business. So where are these swings in the value of this cobalt actually showing up in the business? Are they showing up in the asset or are they showing up in trading or in both?
Okay. I mean, RMI, net net working capital in its conventional sense reduced during the year. So RMI, obviously, receivables, payables, the net effect of that increased working capital, but that was more than offset by the RMI. So you've had those 2 different factors that have been working in a conventional sense and how we look at net funding and net debt. So in a conventional sense, word GAAP actually reduced.
Word GAAP went up if you just look at the non RMI part, and we've been at pains to show the both the explanations and how that works through the presentation of the net funding line and, of course, the net debt line. But based also what I said around where the non RMI receivables payables, I think that's now got to a point having increased CHF2 1,000,000,000. It's on a more conservative footing now generally around scenarios. You can say what's that going to go do forward. So that's a more comfortable conservative balance sheet position that we're in here.
RMI, we've said it at a high level as well, want to manage through the cycles again being not more than CHF 20,000,000,000 It's been as high as £23,000,000,000 at various times before. It's now comfortably below that. But I still see in the absence of any price explosions across different commodities, there's still scope to bring that down further. And there is some initiatives to bring it down another I'm not saying it's going to sort of collapse on that, but at least the trajectory should even continue to be some further release from that RMI. There's some initiatives in place to do that.
Cobalt. We are obviously, as and when the industrial assets produce, they will sell almost instantaneously to Glencore. And this is we have metal and we have hydroxide. The hydroxide is clearly coming out of the African Matunde, that's about 50 or 1000,000,000,000,000,000,000,000,000,000,000,000, dollars 6,000 more in metal coming out of Murren, out of the nickel business, Murren and sort of iron ore. So that's more of an easier commodity if you look at the sort of metal and how that and that's slightly more hedgeable and there's a more functioning market.
The hydroxide market is maybe a bit more complicated at the moment. So obviously, our assets are exposed to the spot price, to some sort of realization of wood price, so the benchmarks times of payability, and we've assumed here around 11.50 dollars So I mean, that's been significantly higher. It's been a touch lower as well, and that's a market that we think is starting to sort of bottom and find its strength and has displaced some of the higher cost production. There is a lot of swing production. I think as I've mentioned earlier, particularly some of the artisanals, some of the handpicking production that may come out of DRC when prices go higher, so obviously, you see a hub of activity and the buying continues, prices are down here and clearly less of that going on at these sort of prices.
Within the because of a period of oversupply within the marketing part of the business, we can't tell Katanga or that, sorry, we're not buying it or the market's off. We're not buying it. We need to continue to take it. Now obviously, more difficult to hedge clearly in that commodity, almost impossible, I would say. So at some point, you will sort of have to buy it, and then you have some you are carrying cobalt inventory at a certain price.
And if prices go down, you have to take some NRV provisions against that. Now we're trying to keep that as low as possible. And we have a big access to the customer base, and we're obviously very involved and very strong in that market. But there has been some buildup in being long cobalt. We are long cobalt at the moment within the marketing part of the business, not to any point that's it's going to be a materiality that's going to that needs to be flagged unusually, but that has been a factor and will continue to be a factor.
We see the ability clearly during this period that, that ought to be stable to sort of go down, particularly the fact Katanga is currently not selling, and there will be a period. So absence Katanga being in the marketplace at the moment, it's still very healthy demand growth. And where prices now push down some displacement of some costs, this market is starting to sort of feel a bit more functional, and we should have a clearer pathway in terms of cobalt.
Steve, can I just push on this to make sure I understand it? So you guys are naturally long because you've got the flow coming through from Katanga, but ultimately you can't sell that Katanga material at the moment or are you actually taking delivery of the Katanga stuff?
No, we don't take delivery of it once it's radioactive. We will only take it when they clean out the uranium. It's saleable.
It's not It's not saleable right now, so it's just with Katanga. So they are stockpiling. And it's on their books at the moment, and they need to fund it through sort of working capital funding, if you could tell us.
Does Katanga have it on at cost? Or has it been mark to market?
Or No. Katanga has it on its books at a low cost of production. It's sort of the byproduct accounting that goes on. You'll see even that I mean, we spoke about this 3,000 700 tonnes or 3,900 tonnes, which is what's been produced and unsold at the end of their books. Even at the low prices on some mark to market at the end of December, had they sold it at that point, there was an opportunity EBITDA loss of £134,000,000.
So there's still a lot of buffer at the Katanga level relative to what they're carrying. They're carrying it at very low levels of production cost at the byproduct level. So way below net realizable. £134,000,000. Lower below net realizable.
At the
end of December.
Okay. All right. Thanks.
Dominic O'Kane, JPMorgan. Three quick questions. So you've moved front and center in the presentation to acknowledgment of low carbon economy. So does coal remain core to the portfolio? And could we rule out coal sitting outside the current portfolio in the near term?
2nd question on Matanda. You've pared back production guidance to 100,000 tonnes per annum. Can you maybe just give us some indications of what the likely CapEx might be for a sulfide plant and also some of the issues that you're facing there and the levels of comfort you'll need to get in Congo to make that investment? And then final question. On the RMI points, dollars 20,000,000,000 max through the cycle, can we how should we think about that in terms of broader leverage?
Can we link that $20,000,000,000 to a net debt EBITDA number? How should we think about that through the cycle guidance for $20,000,000,000 RMI? Thanks.
Okay. The first two, I'll take. Regarding carbon and coal, yes, coal will stay in the portfolio. We believe it's an important part of the portfolio. And as you can see, it generates exceptionally high cash generation because it has minimal CapEx.
And you saw the EBITDA levels and where we expect them this year. So it is part of the portfolio. What we have done and we've agreed today, we produce around about a way of capacity for about 150,000,000 tonnes of coal and we agreed we would cap it there. That's where we will keep our coal business, no reason to go higher. So yes, it will continue being part of our portfolio, no reason not to keep it there.
Murtanda, as we said, we reduced because of the oxide, we're still trying to understand the oxide reserve and how much oxide we have going forward. So we've decided to reduce it down to 100,000 tonnes, while we study the oxides and we study the potential processing of the sulfides. And as you know, we have a vast amount of sulfides at Murtanda. We're having a look at the type of processing, whether we use the Albion to build a concentrate at the different variations that we can do it to feed it into the SXEW plant thereafter. So we're looking at the various combination of that.
I think by the end of this year, we'll have a full study of it. We'll understand it. Of course, the mining code also affects how we do the valuation and where will the mining code end up. We hopefully will be negotiating with the new government. We have said before, we don't accept where they have changed the mining code right now, and we would like to negotiate with the new government, some type of sliding scale or something of that nature, which we mentioned before.
We'll see where that gets to and that will all have an effect, where the code will end up, how much CapEx it will need, what type of process we'll do and then we'll decide how much sulfides, oxides or how we'll operate Murtando going into the future. And respects the RMI, Steve?
Yes. I don't think I mean the RMI, we've put that sort of ceiling or cap, if you like, at CHF 20,000,000,000 As I said, the only foreseeable scenario that I can see of that being tested within the business is if it was a passive reaction to higher prices in particularly metals and oil, where you could see that go. Now that wouldn't affect the net debt number. Of course, that would just be a funding. So you've sort of got some sort of in some sense, you can say, well, net funding some sort of potential ability in that scenario to go up that GBP 3,000,000,000 wherever that gap that we are at the moment.
But you'd have quite a big general balance sheetfundamental hedge around what's driving you towards that potential GBP 20,000,000,000 so you would be higher prices on metals and various other things. So you wouldn't be GBP 15,800,000,000 on EBITDA and cash generation. You might be GBP 17,000,000 or GBP 18,000,000,000 in that environment. So but I mean, your net debt EBITDA, as we present it, should be at the 0.5, 0.6 at its worst under that level. So it will only arise in a very strong fundamental position that you don't need to put some other sort of stray jackets around things to necessarily look at, at that point.
But we would be mindful of all factors, of course, if it was to go to CHF 20,000,000,000 is the overall funding environment, liquidity, fundamentals, general access to funding because it needs to be funded in a variety of markets, either secured, unsecured, asset backed. It can be a variety of markets. There's pretty cheap funding that's available for that sort of material. But at least around that sort of scenarios that you want to run these various things, I think just putting that £20,000,000,000 is sensible as a cap.
Sorry, can I just as a follow-up question on the Matanda? So how should we think about restarting a feasibility study, new copper price assumptions, new cobalt assumptions, vis a vis the debates about super profits tax? I mean, how do we think about It
all goes into the mix, don't it?
All goes into the mix. That's why we say we're not rushing it.
You need clarity. We are
only baked. That's why we're just sitting at the 100,000 tonnes. We review it. We wait till the end of the year. We've got a lot of work to do.
Number 1 is on the process. Number 2 is, as you say, cobalt copper price. Number 3 is the super profit tax. Number 4 is the actual royalty and tax that's going to be in place. So all those issues will be brought in mind, looking at the CapEx and then like any business decision, we got to decide how
we go forward.
But you
would need
certain clarification on all these factors. Yeah.
So that's
why we'll take our time. But conservatively, 100,000 tonnes oxide production continue for the next few years, definitely.
And it continues for longer at this than some other things. So you've sort of preserved and to some extent, there has been also a rightsizing or something of cost structure and all these things. You've seen some sort of coverage between lower expats and some contractors and these things. So it's all been around optimizing long term value while preserving all the optionality around these various projects there.
It's Liam Fitzpatrick from Deutsche Bank. Two questions. Firstly, just on your asset portfolio. You own a lot more assets than your peer groups. That obviously brings challenges with safety and monitoring performance.
So is there scope to go a lot further than the €1,000,000,000 that you've announced today? And then linked to that, I'd be interested to hear what you've tasked Peter Freyberg with near term and whether you think there are material operational improvements that can come through the business? And then secondly, on the DRC, can you just give us an update on the ion project? What has been the hold up? And what are your expectations around timing there in terms of approval?
Thank you.
Okay. The first one is which commodity, which assets do we sell? We got a lot of we got some listed company, listed things we can look at. There's the tail end, the smaller type assets. Yes, you are correct.
We do have some of these smaller type assets as to our peers. They don't carry some of the tail that we have. And as time goes on, we will start and as we talk about $1,000,000,000 we should do that this year. Going forward, as we move forward in future years, there are some further smaller tail assets if we get the right prices for them or people want to buy them, we'll look at that. So it's not as though we actively got to get rid of all the tail.
There are certain parts of the tail that we do want to get rid of and we're working on that for this year. And future years will be more opportunistic if people want to buy them or there is eager demand for them and they don't fit our portfolio, we will look at that.
There is a target, Leslie, in there of, I don't know, 5 or 6 sort of assets, I guess, in the group that would be part of that potentially non core.
But you are correct. Having those type of assets is a more difficult challenge on safety. We do have these fatalities, which I mentioned earlier, more than some of our peers, but different peers, depending on what we do have the deep underground operations in parts of the world, which is more difficult to operate because of the culture of the work force, which takes a lot of time to change that culture. We're not running away from those assets because of the fatalities. We are staying there.
We're saying we're going to resolve this problem. And we're working exceptionally hard to resolve this problem. So we're there. But yeah, it is a bit more challenging, no doubt, but some of those assets do give good returns and it's worthwhile staying there, but not giving up on running those assets efficiently and safely. And that is part of the job.
You talk about Peter Freyberg, he has to focus on those areas and definitely on those problem more difficult type assets to ensure that they run better and safer. And technology wise, yes, that will be Peter's part of his job like anyone's doing with underground mines. Are there better safer ways to operate in the underground environment with the different machinery that is now becoming available? And that will be part of your job. Now technologically, can you reduce costs?
We believe we've reduced our costs. As you can see at our cost numbers, we've done a pretty good job with our asset heads who have been running these operations. Can Peter push it to a new level? Hopefully, he can. How much is really there with all of us miners trying to reduce costs.
A lot of it depends upon the equipment manufacturers and what they are doing and what they are producing that we can use underground and in the open cost operations to reduce costs. But yes, that will definitely part of Peter's job to look at new technology that's around and roll it out amongst the group and see where we can continue reducing our costs. But we had a relatively low cost base today. And as you know, in the mining industry, to push costs even further when you're at that level is difficult and it will need a lot of new technology and hopefully it's there.
Liam, I would say on the DRC, of course, I mean, Katanga will also be releasing results imminently, also through to the sort of TSX as a separate sort of public company. They'll talk more about this sort of chapter adverse, as you can imagine, within their own materiality and various significant events that's happening. But they'll talk about the fact that, of course, they obviously, working with our partner, Chekeremes, is a very key stakeholder here. So we're aligned with them about getting approvals, addressing sort of concerns and making sure we move forward with the different ministries and mines and environment and all these sort of things. But I think that's it's on track around the work and the technical work that's going on.
But there'll be chapter and verse of that in the next 24 hours. From their reporting, if there's some follow-up questions, you can come to us there.
Sylvain Brunet with Exane, BNP Paribas. Just following up on the pretty strong announcement you've made on call morning, which is obviously positive on the SRI side. I was curious to know if there was any change in your view on the outlook for coal demand? Do you still feel that we are quite distant from peak coal demand, which could have implications on the price, of course, if large players don't add to that? And related to that, what is your read of the current import restrictions in China?
Second question on cobalt. What do you see in terms of buyers' behavior? Because it was pretty clear that next 2 years or so, we're giving the opportunity for the battery chain and precursor material in China to restock. Doesn't look like anybody is doing much. What is your read there?
And lastly, maybe to Steve on the impairments this morning on Montaner and Montana,
if you
could share a bit more on the assumptions. It looks like you the price was using mainly mark to market as opposed to a longer term view?
Yes. Look, on coal, we said we're going to cap it at 150,000,000 tonnes. We've had a lot of the exchanges with our stakeholders, with our shareholders, etcetera, and that's what we came to an agreement an amount that we believe that makes sense and we'll cap it there. Now what effect that will have on the world seaborne coal market, yes, it will have an effect. Glencore is not increasing production.
The world coal market, a seaborne coal market, as you saw, demand increased 6% last year and demand went up. And if we continue having that growth of demand, we know in certain countries that continue consuming a large amount of coal and imported coal. You have India at about 185,000,000 185,000,000 tonnes, whatever it is. You have new countries starting to import a lot more. You have Bangladesh, you have Vietnam, you have Malaysia, you have Pakistan, these are countries that are now consuming a lot more coal and are consuming more seaborne coal.
And therefore, you got to look at the supply side, where will it come and who will be increasing with most of the major mining companies not increasing coal and of them as you know selling their coal assets and no big growth. You so limited new supply, you also have the situation in South Africa, where Eskom is continuing to need more coal and they don't have the biomass feeds anymore. So therefore, the seaborne coal, the export coal from South Africa, coal from South Africa, some of it may move internally. So you won't get supply growth there. Colombia is getting more difficult as we know.
You don't have bigger exports coming from there. So this who will feed the new supply demand on the seaborne side? The Russians can increase a bit subject to the rate restrictions. And Indonesia will increase, but Indonesia, unfortunately, I believe will be more tonnage increase, but not calorific value increase. So, yeah, if you look at Australia, you don't have new big supply.
So if demand keeps growing, I believe it could put pressure on the coal price with this limited new supply in the market. On cobalt, you're talking about the market and the consumers, how they're behaving. Look, they did stock up when the price was running up. We know that was probably what drove up the prices. The battery makers were holding up inventory.
You also add with the higher prices you had, as Steve mentioned earlier, the artisanal mining does supply more during higher prices. It's now come back and there's less artisanal material coming onto the market. The buyers, you've also had the new tonnage will be coming from in the DRC. So that is adding new supply. So in 2019, you do have a lot more supply.
We are, okay, subject to the Katanga issues and the uranium, we also added a lot of new supply. So the market came off with this new supply coming in the market. As we said earlier, it sort of seems like it's bottomed out. People are destocking in China and therefore they will have to come into the market and start re stocking. And as I see the price move up, you will see that happen.
So yeah, we're watching 2020, we definitely believe the demand will be there, more demand, more battery, more electric vehicles, etcetera, and supply may not have caught up by then, but we've got this balance in the middle in 2019 and let's see how it washes out, but it is showing signs with artisanal having cut back. Us naturally was Katanga, Tonnageo coming in the market is starting to put a bit more pressure on pricing, but we'll see where we go in 2019.
But so then, I mean, that supply itself has not sort of chased away the sort of long term buyers out there. I mean they still see a point forward when you can have some triggers that can totally turn this market chronically back into an undersupply relative to sort of different things. So they still are there's a lot of it's not like the market's going to sleep in a medium term sense. There's a lot of engagement with both Chinese and Western consumers about securing long term supply and needs and how to think about pricing that. So it still is a positive market as you look towards the engagement with the consumer universe.
We see a lot of consumers are coming to us to lock in long term supply, and the tonnages they talk about going forward in 'twenty, 21, 2022 are really significant, which they want to lock in with us. Now, naturally, we don't mind locking in tonnage subject to how we price it, etcetera. So we're looking at the various opportunities. But clearly, the battery makers do see cobalt being an important metal and seeing that it's not readily available, it's not large tonnages going forward. Because the increases we talked about that occurring in 2019 with us and the Kazakhs, etcetera, we post 2019 don't have much increase.
The Kazakhs post 2019 don't have much increase. So there's no and then who's going to be the balancing at the artisanals and that all depends on price. So if we go back to the higher prices, whatever it is, dollars 80,000 okay, yeah, you may get more artisanal, but also artisanal is limited. So the buyers are seeing this and the buyers are definitely trying to lock up tonnage supply. So 'ninety, we've got this blip, 'twenty we believe it starts moving again and therefore and thereafter, there's no new supply with demand continuing to grow.
There was a third question. Yes,
on the impairment stuff, we've given on Page 57 of the report. You can see all the details and the assumptions that have gone in. So we don't apply it's not a mark to market. You do take longer term curves, and we tend to take consensus in the absence of any other better information around these things. So we'd use 6,500 copper long term there and $27 a pound headlined sort of cobalt.
So both of those are above market and copper not materially. In cobalt, there's still some sort of catch up. So we will those are the assumptions. We show the sensitivities to potential movements. Now that could be at some point, if prices move above those things, we may have to reverse some of these impairments.
It's not just always one way traffic some of these things. The other thing that was material at Mopani, which I mentioned up there, was the asset supply because they obviously have their smelter there. So they're not only they're processing our own tonnes, they're also treating 3rd party. And of a 200,000 tonne a year smelting operation, they do generate quite a bit of acid. The market is pretty good for acid at the moment.
We've taken a renewed balance around regional things. We think the market is going to, at some point, going to contract, and we've had to run that through the Montpani model. And that itself was actually quite a material driver.
Just the final one on the coal import restrictions in China. The import restrictions in China.
Yes, I don't know how big that's recent that they're delaying the Australian cargoes. That's a bit of a political issue. It hasn't been in effect for a long time. They're delaying cargoes. I think it's about 30 day delays, etcetera.
So we're waiting and monitoring it to see what big effect it has, what effect it's going to have, when they're going to solve this diplomatic dispute, which is occurring. So let's wait and see. Hard to predict right now.
Thanks, Sacha.
It's Tyler Brode from RBC. Most of the questions I think have been answered, but just quickly, just Steve, just to just go back on that working capital. You said we aren't going to see any reversal of the move that we've seen.
I assume that you're going to see a reversal. Right. Just don't assume it.
Fair enough.
The days payable that went down with those oil contracts, does that not reverse though? Is that not expected to reverse? Or is that some more of a structural issue?
No. I mean, it can reverse. I'm just saying don't expect it because there's so many variables that go into the working capital. That's oil. There is we're a blend of oil and all the other metals.
There is receivable initiatives that clearly will go on from time to time. They're sort of creating more of a balance between receivable. We have certain internal targets around how we want to keep receivables and payables sort of generally balanced across the spectrum, which has always been, again, a question people have sort of raised, obviously, as this does reduce and this does bring those 2 in line about receivables and payables. So I'm not necessarily saying let's take payables sort of above receivables by another sort of £2,000,000,000 because that has its own modeling and sort of technical flaws in some of the full RMI offset, which we don't which I'd just like to sort of take all that off the table, don't assume. But of course, there's some float in working capital that some of it could reverse.
I'm not I certainly don't model it, don't expect it. It's put us in a more conservative balance sheet opening position, and that's a nice position to be.
Sure. Have you been factoring receivables? I mean, is this
a little bit
worse along that?
No, no. This you always it's not it's well, factoring discounting, that's something clearly people do in the industry. That's why you can have a shorter cycle on receivables over payables, but that's the easily factorable. Of course, if you're selling to BP and Shell, those ones are easier. If you're selling
to some of the other
counterparts, you can insure them. You can take LCs and things. They're less easy to so it's a blend. You can take LCs and things. They're less easy to so it's a blend across all these things.
But everyone in terms of word gap efficiency would do discounting and these things from time to time.
It's Myles Alsop, UBS. A few quick questions. In the DRC, are you actually paying the super profit tax at this point? And are you still prepared to go to international arbitration if you can't get the stability agreement honored by the new government? And then I guess the other point is sort of in terms of in the past, I think people have admired how flexible you are with strategy.
And when the right opportunity is in the market, like last year with the coal acquisitions, you sort of took advantage of that and arguably created more value from that than through the buybacks even. If the right opportunity came around, say, in the agri space, would you be prepared to put the buyback on hold for a bit and make a move if it's going to be more value creative?
Yes. I think on the first question, the DRC, we're not paying super profits tax yet because it's against the feasibility study.
Well, I
mean, just timing wise, super profits tax only would ever come on the lodging and the back and forth on your tax returns itself, which only gets filed in April. So it just hasn't there's been 0 relevance of it up until now in April in terms of how that even applies.
We're not yes.
We're not
paying it, please.
We're
not paying it, yes. And on your other question, look, with stabilization agreement, if we can't reach a reasonable solution, we're not saying we're ready to negotiate and we want to negotiate with the new government. And we've given a proposal within the old government where we gave a sliding scale top royalty ratio that we were prepared to accept. So hopefully, we can reach a negotiation with the new government. And as soon as the new government is in place, we wish we would like to start those discussions.
Would we consider arbitration if we cannot reach some type of agreement? Yes, we would continue potentially with an arbitration. The second part was on would we look at opportunities and as we did last year with the coal assets, yes, the company will continue to look at all opportunities that exist out there. If something comes that makes economic sense, we would look at it. However, it would have to beat and the returns would have to be as good as the buybacks are.
And as you look at the buybacks, we value our company, we see how the company is being valued, do we see the low multiples that it trades at. So would it make sense to go buy something where you're paying a higher multiple as against the multiple that we're trading at, etcetera, it would have to be a compelling situation. So yes, if you did have the Hell Creek type assets where you get these great returns based on where we thought that the coking gold price would be and where we could cut production costs, where it would beat the investment in Glencore, then naturally we'd look at that. The Ag side, we've always said opportunistic, we would like to grow the ag business. We have the partner in there.
We've said we would do it since the partner came in. I think it was 3 years ago. But up to date, we haven't find anything that was compelling for the Ag business to do, but we'll wait and see going forward. So we'll still be an opportunistic company, but the numbers would have to make sense and it would have to be very compelling to beat back buybacks.
And Miles, it's not always like it doesn't always mean in terms of that portfolio, you can have things coming in and out as well. So it doesn't need to be sort of sacrificing some shareholder returns. I mean we spoke about noncore disposals as well and some unlocking and recycling of some of those things could be deployed into other growth initiatives if you're getting, obviously, a valuation uplift while not compromising on shareholder returns, clearly.
Is the cap including met coal as well as thermal coal? Or is the cap that you're committing to just not to grow the thermal coal business?
Both. Both included there.
Sergey Donsko, Solvian. Most itachi upon points mentioned before, super profit tax in DRC. You mentioned that it's only payable on tax returns. But do you actually expect to incur any super tax with respect to your results at Motanda, say, for the past year?
We have no expectations on that at the moment. It's a complex area around what are the pricing assumptions, feasibility studies. We're obviously positioning ourselves to minimize any super profits tax that may become due and payable there, but that's a work in progress like so many things in the
Okay. And also on Motanda, with this reduction in output to 100,000 tonnes, which you expect is supposed to happen this year, Do we should we expect to see a material negative impact on cash costs given this base, which remains more or less the same?
I mean, of course, that the sheer volume effect, but you've had no change to cobalt. So the nature of the ore body and the grades and the processing is still keeping. So it's copper downgrade. Cobalt is still getting the 25,000. So you're still getting.
So you tell me what copper price what cobalt prices are going to do, and I can tell you what a primary sort of copper cost is clearly going to do there. That's obviously a material driver. Yes, at the margin, you will see some increase per tonne of copper, but we're doing as much as possible to mitigate that in terms of continuing to have a solid cash generator down there in Wotanda, and that's through some workforce reductions that there's been discussions that's through some regional optimization of services, equipment and the likes that we can do down there. So it will still continue to be a nice earner for us.
And 2 very short questions. Do you expect legacy alumina contracts to remain headwind this year? And if yes, is it possible to provide some guidance? And second, you mentioned in the press release $1,000,000,000 of proceeds from expected asset disposals this year. Could you remind us what are those?
What do you
think to cut? Thank you. Aluminum, not material in terms of any headwinds there as we come both in I mean, obviously, the market factors, but that's assuming even if market factors went the same as they were last year, the nominal exposure to that really nonmaterial now as we've come into 'nineteen. So I think you can park that. Non core disposals, I think it's no surprise we're not going to provide you the shopping list.
But there is, as I said, back to Liam's question as well, there is sort of 5 or 6 even real assets, I would say, within the business. Obviously, more at the tail end, I would sort of categorize as noncore. There is various stages of even discussions and work that's sort of going on in this regard, and that's actual operating assets. Some may even need some of these stakes. We have a few listed stakes and a few that we've accumulated through various transactions.
And I think in the presentation, there's a slide itself that covers some of the financial and other stakes which we have, which even on a market price basis, comes up to about 3,000,000,000 dollars at the moment. So I see it as being I don't think it's going to be one thing that says, yes, sold us $1,000,000,000 I think it will be a cumulation of a handful of things. And I think we'll blow through that number, and we'll get there at Acanter based on what the pipeline looks like.
Tony Robson, Global Mining Research. Probably you can't say much, but anything you can say on the DOJ investigation. Are you having an active dialogue there or after the flurry of headlines, has it gone quiet? And any view on the time line? Can't say much.
Pass. All
right. Didn't think. Never mind.
Nice one. Nice try. Edward Sterck, BMO. Just a question on over the last few weeks, we've seen some pretty significant flooding events in Queensland. Is there any impact on your coal operations or exports or even on your zinc exports?
Not much. We had a bit on the refinery, I think, but
Well, I
think it's all about an element of timing, but nothing that seen come through that would see a material annual effect on some sales. Of course, there'll be some sales slippage through railings of either the concentrate itself that goes from Isa. The rail will be down for a period of time. You can do a bit of trucking. And the refinery itself at Townsville will be down for a bit, but they have capacity to catch up and reach their full year targets there.
And on coal mining, what not?
Nothing on the coal side really.