Good morning, all. Welcome to our 2018 full year results. Thank you for joining us here today, also thank you to those joining via webcast. I'll now hand over to Ivan Glasenberg.
Good morning. Thank you. Today we're presenting our 2018 results. Whoops, not working, Martin, are they? Okay. As you can see, we got a few highlights here on this presentation, and you can see we had a record year. We had a $15.8 billion EBITDA during the year, which is 8% increase to the previous year. Net income pre-significant items is at $5.8 billion, 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, $5.2 billion. That was made up of around about $3 billion of distributions and $2 billion of the announced 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 $6.9 billion. Going forward, we will be doing the same, and it's a good cash return story, and this should continue. We've indicated we'll be doing around about $3 billion of buybacks during the year, $2 billion minimum by December 2019. Plus, we targeting another billion-dollar buybacks, which will come from some small asset disposals throughout the group during the year. Overall, including the dividend distribution, we should be making cash returns of $4.8 billion-$5.8 billion 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 zero fatalities at all our operations around the year. It's a continuing 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. 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. As you are aware, cobalt, zinc, nickel, copper, which is a complement for battery supply. 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. As you are aware, we're producing around about We have capacity for about 150 million tons of steam coal, and we've agreed that we will limit it to that 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 Polley 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. We worked aggressively from 2014 after the Mount Polley incident. After the Samarco incident in 2015, we increased our review of all our tailings dams even further. We worked very closely with the world's leading experts, Klohn Crippen Berger. Over a period of time, they have reviewed all our dams and alerted us where we have issues and how we have to remediate those issues. We're working through that as time goes on.
This company is working with us. They will continue working with us, reviewing all our dams on an ongoing basis. We'll review every dam and continue to review them with this group over a yearly basis. We believe over 12 to 18 months period, they'll be able to review each dam again and again over that period. 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. Actually, we are aware the problem dams are potentially the upstream dams. You will see if we got the 51%, 31% of those are active. That represents around about 22 of our tailings dams around the world which are upstream. We're working very closely to monitor those and ensure that they are safe.
With that, I hand over to Steve, who will go through more of the financial issues. Then I'll come back later and talk about how the market's 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 had spoken to most of these topics as well. EBITDA, unfortunately, it was a weaker second half than the first half. Industry 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. It's a higher percentage clearly in the marketing. If it's a sort of 100 or 2 potential miss on marketing over a $16 billion business, it obviously puts it in the context of where Glencore is today, more like around 1% or so over there.
Strong cash flow generation, obviously, as Ivan said, funds from operation up at $11.6 billion. That gives us the capacity to fund the business, spend the CapEx, do any M&A. It was a period during last year where there was a handful of announced acquisitions, probably more back in beginning of 2018, almost into 2017. We've sort of gone through all the funding and the commitments associated. We do start the year now, 2019, in terms of cash flow generation, that can be applied more generously towards share returns. I think the M&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's 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. We start the year 2019 unhinged in terms of any previous commitments on M&A. CapEx leveling around that $4.9 billion. That is our guidance still for the next three years, averaging around $4.8 billion. There's a level of expansionary around $1.1 billion, $1.2 billion, $3.7 billion, $3.8 billion at the sustaining level across the business. There'll be a slide, no change in any of that. Net income, as Ivan said, it was around $2.4 billion, what we'd call significant items, most of that impairments were $1.6 billion at the time, flagging Mopani $800 million, Mutanda $600 million is the two. There's sort of chapter and verse of that in the financials. By all 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 Mutanda. The oxide sulfides, that's at a $600 million impact there. Mopani, even the asset price assumptions was quite a big value driver there. As 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 Katanga, which obviously makes sense for that operation. There was a change that happened at Mopani. Net debt at $14.7 billion. There's the full reconciliations in the financials, but about $7 billion, as Ivan said, of equity free cash flows. The reason net debt's clearly gone up is the M&A, $4 billion, which is the accumulation of the HVO Hail Creek Chevron business and one or 2 smaller ones. Buybacks and dividends around $5 billion.
What we flagged two or three weeks ago at the production report was a $2 billion buildup in non-RMI working capital, just the balance between receivables and payables. Payables going down at a greater rate than what receivables, that $2 billion 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 six months ago in terms of that working capital position. There is a float there. Can we go and access that again at some point? Potentially, yes. By definition, for those saying what could happen going forward on working capital, we're in a better position around the trajectory there in terms of how that's gone.
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. 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, we used to have marketing first, industrial last. We said it's a bit back to front these days around that relative contribution between the two businesses. We flipped it now into industrial and marketing now representing $13.3 of that $15.8 number. It's well over 80% of the numbers. If you look at the contribution between two, that was up 15%. Metals and minerals overall still dominates across the main commodities, the copper, zinc, nickel, alloys, and the like.
The big increase has come in the increase on particularly the coal contribution, high prices, plus the contributions from the acquisitions during the year, the HVO, the Hail Creek. Cash margins, EBITDA margins, mining margins, very healthy, if you can see on the graph on the right. On the coal side, which contributes to the 46% there. 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 across the industry. On the industrial side, where did we see the movement 2017 to 2018?
Price helped clearly during the year. At some point, hopefully, we're 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 two 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 off 50%, and that's continuing to be a drag today in a relative sense on a cost structure on cobalt. From the $2.1, the copper cobalt $0.6 billion nickel $0.3 coal $0.9 contributed the major aspects of the increases. On the volume side, some small impacts. You'll see some volume trajectory going forward. That'll be a tailwind going forward across various aspects of our business. Again, copper, cobalt, particularly Katanga, the coal M&A, would have had positive contributions. That's cost including inflation.
In the past, we've broken inflation out. Inflation would be about just the sort of automatic CPI-linked inflation that tends to apply across most consumer price increases, would have been about $500 of that $1.347. You've got some relief clearly on currency. Some of the biggest impacters there, has been Mining Code, clearly across both our operations in the DRC that effectively came in from 1 January, so we've had six months absorption there. We are currently both being charged and paying the full effect of the higher royalties and various other impacts across the supply chain. It is something that we have contested. We're paying under protest, hopefully some Mining Code relief at some point when we're able to engage with the new government there. Clearly higher energy and commodity input costs. 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 much larger consumer than we are a producer currently in the oil business. That's coming through in the diesel. Various other input costs, reagents, acid prices, these are all 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. 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 said that CPI in Argentina was particularly one you saw 40% inflation. It'll come through cost, but then we've got $100 million 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 mini models would contribute to that business. Copper contributed 30% of the industrial EBITDA, $4.7 billion 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 first year of a line one, 140,000, 150,000 odd 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 tons copper and around 26,000 tons cobalt. 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 v production, both in copper of about 22,000 tons, 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 tons of cobalt, which even at the poor spot margin environment of cobalt at the end of December, had an EBITDA opportunity cost to us of about $134 million. 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 and particularly around suspension and uranium and how to treat that and how that project is clearly going.
All the costs around 2018 is broadly where we said towards the end of last year. Copper, which is 104, we guided to 103 at the end of last year, and they all come in pretty close to where we said. Increases year-on-year, 2017 to 2018 has clearly been impacted by DRC Mining Code, higher energy costs, and that sales v production variance, which at some point is going to catch up. We'll see the evolution more as we go from 2018 to 2019 as we go across. Zinc business, clearly stable. They're going through production returns at Lady Loretta, and ultimately, there'll be the Zhairem expansion within our Kazzinc operation, more 2020 effect will show you the trajectory in costs. Coal was a very solid cash contributor, EBITDA and relatively low CapEx, which allows good cash conversion.
It came in with a $40 margin against a 39 guidance, as we said last year. Marketing. We've spoken about the two factors, the basis risk. They're both in metals and minerals. 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 it would have been middle of the range. 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.
We've had the index pricing sourcing having to feed into long-term percentage of alumina prices as well. These are legacy contracts. These are old contracts. Our exposure to that basis risk is slowly grinding to almost nothing. With the huge spikes in alumina from the $350, $400 towards $700, that had quite a material impact on the business last year. 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 non-performance. We spoke about that as well around certain fixed price realizations on our hydroxide. We did have to sit around the table and reset some of those. Hopefully, there's swings and roundabouts around that over a longer-term cycle.
Cobalt is going to have its day in the sun again, but we clearly had to take that performance risk. Also, as I flagged back in December, it's a little bit left-hand, right-hand, but within the marketing business, we do have to continuously off take the material for both Katanga when it's selling coarse and obviously Mutanda under those agreements. 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 there's the demand strength today. You will have lag effects of having to take material onto your books. You will have some length in cobalt today. We'd like to have less length, but we do have some length in cobalt. 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. The agricultural side should be at $200 million-ish. Obviously, you've got challenges in that market as well. It's effectively contributed zero, which is the green line. If you look historically, 2013, 2014, 2015, we owned 100% of that business. 2014 was a stellar year, obviously, in that business as well.
2015, 2016 was a proportionate business once we'd sold it to the Canadians. We've restated 2017 and 2018 just to be our share of the net earnings of that business. 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% EBITDA business. We've given those numbers in the financials. It was $484, 100% down from $631, 23%. That does reflect weaker crops sizes, Australia in particular, and just general challenges in that industry. That business should be at 100% a $700 million-$800 million type business. Once that, I would say, should be about a normal operating capacity margin environment of that business. It is underperforming at that level. We should have about a $200 net income pickup from the agricultural business.
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. We'll get to the next page. This page reflects that 2.4, and again, the range and expectations around being, again, towards the middle of the range here for this year. 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, particularly in some of the metals commodities. Selective deployment of working capital. At the moment, we're not doing much. You've seen the release of some RMI, but that's certainly a catalyst if things suddenly presented themselves, Katanga 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. 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 billion against the $4.8 billion, and no changes to guidance around the $4.8 billion average over the next years. There's a range of more brownfield developments now averaging $1.2 billion. 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 Kolwezi mill expansion to the 170. Some of you were over at the site visits. We advised back in December that would be a potentially around a $200 million 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. We spoke about the net debt. Net funding was actually broadly flat year-over-year, notwithstanding the increase in net debt by the $4.5, and that was that release of the working capital of about $3.5 down to $17. 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.
I think you'll see more than a positive compensation through the spot cash flow generation, the EBITDA in the business. Look, we have this flagged as well. Obviously, we're 0.93 net debt EBITDA. With net debt, I would say having peaked now between the M&A and the working capital movement. Although we've spoken about a maximum 2 times net debt through the cycle, just given some of the uncertain, some of the trade, 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 1 times.
What that would do in our thinking, clearly, if the world fell out of bed tomorrow and suddenly our spot EBITDA was $15.8, now it's $13, 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. That's how we would look to keep that 1 times 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 a 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. 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's the one that's worth spending a little bit of time. You can see bottom left, I would point towards a range of outcome as probably being something that's more sensible. We've said $104 is the cost. That's what the actual was 2018. 2019, anywhere between $92 and $125. Now, the spot cash flow illustrative, $15.8 billion, is the higher cost, $125. We've taken the most conservative part of that range. What's driving that range, $92 to $125? Cobalt. There's nothing else that's driving that range. At the bottom end of the $92, what we've assumed at, say, in the $125 is that we are not selling about 25,000 tons 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, most of it's going to be 2020. Across that, as a modeling assumption, we've assumed 25,000 tons 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, we've taken about $11.50 a pound is the price that that's the benchmark. $11.50 a pound and 25,000 less tons of cobalt is what's driving that $125 against what would've been a $92. That's a $1 billion-dollar variance against the cobalt revenue that we were running just two months ago, at the end of or at the beginning of December, which would have been more sales and higher prices.
You can have your own views as to where the volume and price is going to, potentially. We do speak about the cashflow generation, the $6.8 that Ivan said. That's at the conservative $125. I think a range of probably $6.8 to closer to $7.5 is probably a 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's the main variable. The other businesses are a pretty steady state around its production. Obviously, cobalt, there is the assumption then of the, within copper, we have the expansion, 46,000 tons this year. That's the net of the extra 150 at Katanga. Mutanda 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's the only thing which is a drop of 40,000 across all the years on account of Mutanda. Even 2018 to 2019, we've got some reasonable volume growth in cobalt still. Sort of query the sales impact on that, physically, you'll be able to go and see the bags of hydroxide there, and ultimately, if we convert into cash, whether it's a 2019 or a 2020 story, we'll obviously wait and see. Zinc, you got Lady Loretta. There's some further nickel and coal, of course, is M&A and just a general recovery, mostly in Prodeco.
Across on the right-hand side, you've got overall, that's not an annual growth rate, it's an overall absolute growth rate, 2018 to 2021 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 cashflow and returns may look like across various cycles. We sort of see a $5 billion-$10 billion free cashflow range for this business across a range of cycles, and then what free cashflow 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 with 2015, 2016 was not a pleasant period.
On page 40, we show the various assumptions that underpin all those. If you sort of quickly glance to page 40, you can see the downside. There was copper averaging $4,800. There was zinc $2,000, nickel $9,600. There was the free cash flow at $49. So pretty downside from where we are at the moment there with that sort of cash flow generation. Upside of $10 billion. 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 $7,000. 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 a pound there, but not a million miles away from potentially getting up to $10 billion of free cash flow in this business.
We show some data points where 2017 was $7.7, 2018, $6.9, but obviously impacted by some of the delays in production sales. Marketing was a bit weaker. Spot today, $6.8 billion. $6.8 to $7.4, $7.5, 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 distributions, as Ivan said, $2.7 billion base distribution. A $2 billion minimum buyback out of free cash flows as opposed to the non-core disposals at $4.7 billion. Against the $6.8 billion, that's a payout of 69%. If the free cash flow was $ seven and a half, we'd have a payout of 62%. 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.
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 obviously the buildup, and you've seen all the graphs. There's the $6.8 billion. 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. Tax may be a little bit conservative, and this is still accounting on the interest rate for potentially two interest rate rises during the year. 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 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 what our share count is. Obviously, it's materially decreased as we've been doing some of the buybacks over the last period. Do build in and do track that within the various modelings as we go as well. As Ivan meant, I think a point just to mention is the $2 billion minimum buyback that's been put in place now to be topped up automatically by $1 billion from a target of $1 billion minimum non-core disposals. There's a range of what we would still say non-core or sort of tail assets. There's a few processes on the go. There's a few other target opportunities. There may be listed stakes, there may be various other things.
We think we'll get there in the canter, we'll obviously make those announcements as and when they come. I expect it's going to be a sort of a sprinkling of various sort of smaller announcements throughout the year. Potentially closer one or two as well. 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 announcements. 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 2018 and the end of 2019.
Applying those buybacks and the distributions across the price at the moment, we've mapped out that we're the fourth highest within the FTSE now in terms of a, not just a free cash all year, but an actual cash returning entity around the 11% or so. Well-positioned, certainly within the mining sphere as well. Some pretty powerful numbers economically as well. On that note, I'll hand back to Ivan then 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. As you see, that has had a drag on the PMI indexes, which have dropped during January 2019. We all know a lot about the trade talks, macro fears, and therefore it's 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, where we were above the whole industry, above $77 billion we were spending. Today, we're below the average at about $43 billion. The mining industry is being conservative on their CapEx. There's no massive expansion CapEx.
Most of it is sustaining CapEx, there's not many large new mines being built around the world. We have limited new supply coming into the market. 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 thermal coal is up close to 8% growth last year. If you look at nickel, we're up above 6% growth, copper above 2%. Demand has been relatively good. As I say, if you look at the left slide, with supply tightening up because no massive CapEx and no new mines coming into the system, it's definitely limited the amount of supply in the market.
What it evolves to, as we see in this slide, naturally, we are going to get drawdowns of inventory around the world of the different commodities. That gives you an idea. We have seen it. If you look at SHFE, LME, bonded warehouse, COMEX, et cetera, added together, and you look at the world's inventories around the world, we are at record low levels for a lot of the commodities. That gives you an idea. At copper, we have 13 days supply sitting in the inventories around the world. You have zinc down at record levels of eight days supply and nickel at 34 days. What does that mean with demand growth and where do we see demand and with the supply coming in the market during 2019?
What we have tried to do here, if you look at nickel, all we are trying to say to ensure you do not draw down from inventory, we gave the slide during December 2019, and it looks like it is still the same, not many new changes over the last three months. What we are saying, give an example for nickel, that you are going to have to have demand negative growth. You are going to have to go down 1.3%. Last year's demand in 2019, nickel was around about 2.3, 2.4 million tons. We see supply only being around about 2.3 million tons this year. Therefore, we are going to have a shortfall. Therefore, you will need on last year's demand, a negative demand of 1.3% to avoid drawing down inventory.
It is obvious, as we have seen with nickel over the last few years, it has been a deficit, and we have continued drawing down inventory. I think last year there was about 177,000 ton drawdown of inventory against the exchanges. The same applies for zinc. I do not want to go details, but Ryan, you will need negative 2% demand growth going from 14.3 million, because there is less supply coming this year of metal. Therefore, you will 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 is happening in Grasberg and various mines around the world, where you are going to have supply reduced. We do not see much supply, net supply over the next three years.
We do not really see much new supply coming into the market. Therefore, the little bit that does come in next year, you will need to avoid drawing down inventories. Demand can only grow 0.8% to avoid, because what are we talking about? We are talking demand last year of 23.7 million tons. This year, we believe supply most probably 23.8, 23.9 million tons. Demand cannot grow by 0.8% before you draw down inventory. As we saw last year, demand grew at about 2.3, 2.5%. It is clear if we get the same demand growth this year, we will start drawing down inventory, and you have seen in the previous slide, inventories supply is at a few days. We said in copper, around about 13 days. Really, if we do have more drawdowns against inventory, could have a very favorable effect on the market.
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 that supply side, which I mentioned earlier. We believe nickel 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 in the slide, depending upon commodity prices, we between the $5 billion-$10 billion free cash. We're well-capitalized assets. We have very little CapEx to spend on growth. That's mainly sustaining CapEx. You see in our CapEx figures and where we're going to keep the balance sheet. We're in a very strong position, which allows us to have these compelling cash returns back to the shareholders.
As we said, with the distributions and buybacks, we should have right about $5.2 billion. We're at $5.2 billion in 2018. Minimum distribution, we believe in 2019, as we said, between $4.8 billion-$5.8 billion. We should be there, number 4, the FTSE 100 on cash return yield. That's where we should be based, and that's where we see ourselves going forward. 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. 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. Ash? Yeah.
Ivan, it's Jason Fairclough, Bank of America Merrill Lynch.
Simple.
Just two quick ones. Apologies if they're a little techy. I'm interested, and maybe for Steve, on the interplay between the RMIs and the working cap. RMIs actually gone down, even as working cap, I think, has gone up. Then second, just on cobalt. Could you give us a little bit more color around your exposure to moves in the cobalt price? Because we've got the cobalt inventory. It seems like you're taking it mark to market on that. Beyond that, you mentioned that you have length in the portfolio, in the trading business. 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?
Yeah. Yeah.
Okay. RMI net working capital in its conventional sense reduced during the year. RMI, obviously, receivables, payables, the net effect of that increased working capital, but that was more than offset by the RMIs. You've had those two different factors that have been working in a conventional sense in how we look at net funding and net debt. In a conventional sense, working capital actually reduced. Working capital went up if you just look at the non-RMI part, and we've been at pains to show both the explanations and how that works through the presentation of the net funding line and of course, the net debt line. Based also what I said around where the non-RMI receivables, payables, I think that's now got to a point, having increased $2 billion, it's on a more conservative footing now generally around scenarios.
You can say, what's that going to go to forward? That's a more comfortable conservative balance sheet position that we're in here. RMI, we've set it at a high level as well. Want to manage through the cycles again, being not more than $20 billion. It's been as high as $23 billion at various times before. It's now comfortably below that. 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 collapse on that, but at least the trajectory should even continue to be some further release from that RMI, and there's some initiatives in place to do that. Cobalt. Obviously, as and when the industrial assets produce, they will sell almost instantaneously to Glencore.
We have metal and we have hydroxide. The hydroxide is clearly coming out of the African assets, Mutanda, that's about 50,000 between the two. Then of our 57, there's another thin 5,000-6,000 more in metal coming out of Murrin, out of the nickel business, Murrin and sort of INO. That's a 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's maybe a bit more complicated at the moment. Obviously our assets are exposed to the spot price, to some sort of realization of world price. The benchmarks times the payability, and we've assumed year-end 1,150. That's been significantly higher. It's been a touch lower as well.
That market that we think is starting to 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'd mentioned earlier, particularly some of the artisanal, some of the handpicking, production that may come out of DRC when prices go higher. Obviously you see a hive of activity and the buying continues. Prices are down here and clearly less of that going on at these sort of prices. Because of a period of oversupply within the marketing part of business, we can't tell Katanga or we're 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.
At some point you will sort of have to buy it and then 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. We have a big access to the customer base, and we're obviously very involved and very strong in that market. 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 going to be a materiality that needs to be flagged unusually. 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 going down.
Particularly the fact Katanga is currently not selling. There will be a period. Absence Katanga being in the marketplace at the moment is still very healthy demand growth. Where price has now pushed down some displacement of some cost, 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 you on this to make sure I understand it?
Yes.
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-
No, we're not.
radioactive stuff?
No. We're not.
No. We don't take delivery of it once it's radioactive. We will only take it when they clean out the uranium.
Saleable.
It's not saleable right now, so it's just with Katanga.
They are stockpiling.
Okay.
It's on their books at the moment, and they need to fund it for sort of working capital funding, if you look at their.
Does Katanga have it on at cost, or has it been marked 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 when that I mean, we spoke about this, 3,700 tons or 3,900 tons, 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 that at that point, there was an opportunity EBITDA loss of $134 million. 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
Cost
production cost at the byproduct level.
It's way below net realizable.
$134 million below.
Below net realizable.
At the end of December.
Okay. All right. Thanks.
Morning, Dominic O'Kane, JPMorgan. Three quick questions. You've moved front and center in the presentation to acknowledgment of low carbon economy. Does coal remain core to the portfolio, and can we rule out coal sitting outside the current portfolio in the near term? Second question on Mutanda. You've paired back production guidance to 100,000 tons per annum. Could 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? Then final question, on the RMI point, $20 billion max through the cycle. How should we think about that in terms of broader leverage? Can we link that $20 billion to a net debt EBITDA number?
How should we think about that through the cycle guidance for $20 billion 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. You saw the EBITDA levels and where we expect them this year. It is part of the portfolio. What we have done, and we've agreed to today, we produce around about a way of capacity for about 150 million tons of coal, and we agreed we would cap it there. That's where we'll keep our coal business. No reason to go higher. Yes, it will continue being part of our portfolio. No reason not to keep it there. Mutanda, as we said, we've reduced because of the oxide. We're still trying to understand the oxide reserve and how much oxide we have going forward.
We've decided to reduce it down to 100,000 tons while we study the oxides and we study the potential processing of the sulfides. As you know, we have a vast amount of sulfides at Mutanda, and we're having a look at the type processing, whether we use the Albion to build a concentrate at the different variations that we can do it to feed it into their SX-EW plant thereafter. 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. 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. Then we'll decide how much sulfides, oxides, or how we'll cooperate, Mutanda going into the future. You want to speak to the RMI, Steve?
Yeah. I don't think the RMI, we've put that sort of ceiling or cap, if you like, at $20 billion. 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 high prices in particularly metals and oil, where you could see that go. That wouldn't affect the net debt number. Of course, that would just be a funding. You've sort of got some sort of, in some sense, you can say, well, net funding has some sort of potential ability in that scenario to go up that $3 billion, wherever that gap that we are at the moment. You'd have a quite a big general balance sheet/fundamental hedge around what's driving you towards that potential $20 billion. You'd be higher prices on metals and various other things.
You wouldn't be $15.8 billion on EBITDA and cash generation. You might be $17 billion or $18 billion in that environment. Your net debt EBITDA as we presented should be at the 0.5, 0.6 at its worst under that level. It'll 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. We would be mindful of all factors, of course, if it was to go to $20 billion 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. It's pretty cheap funding that's available for that sort of material.
At least around that sort of scenarios that you want to run these various things, I think just putting that $20 billion is sensible as a cap.
Sorry, can I just as a follow-up question on Mutanda. How should we think about restarting a feasibility study, new copper price assumptions, new cobalt assumptions, vis-à-vis the debate about super profits tax?
It all goes into the mix.
All goes into the mix. That's why we say we're not rushing it.
You need clarification on all this.
We will only make that when we're sitting at 100,000 tons. We review it. We wait till the end of the year. We've got a lot of work to do. Number one is on the process. Number two is, as you say, cobalt copper price. Number three is the super profits tax. Number four is the actual royalty and tax that's going to be in place. 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.
You would need certain clarity and clarification on all these factors.
Yeah. That's why we'll take our time. Conservatively, 100,000 tons oxide production continuing for the next few years, definitely.
It continues for longer at this than some other things. You've sort of preserved, and to some extent, there has been also a right-sizing of something of cost structure and all these things. You've seen some sort of coverage between lower expats and some contractors and these things. It's all been around optimizing long-term value while preserving all the optionality around these various projects there.
Good morning. 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. Is there scope to go a lot further than the $1 billion that you've announced today? 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. Secondly, on the DRC, can you just give us an update on the Uranium One 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 assets would we sell? Yeah, 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. As time goes on, we will start, and as we talk about $1 billion, 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. 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. 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 list , Liam and there are, I don't know, five or six 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 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 workforce, 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 are 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. Technology-wise, yeah, that will be Peter's part of his job, like anyone's doing with underground mines. Are there better, safer ways to operate in an underground environment with the different machinery that is now becoming available? And that will be part of his job. Now, technologically, can he 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-cut operations to reduce costs. But yeah, that will definitely be 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.
Yeah
Katanga will also be releasing results imminently, also through to the TSX as a separate public company. They'll talk more about this chapter and verse, as you can imagine, within their own materiality and various significant events that's happening. They'll talk about the fact that, of course, they are obviously working with our partner, Gécamines, is a very key stakeholder here. We're aligned with them about getting approvals, addressing concerns and making sure we move forward with the different ministries and mines and environment and all these sort of things. I think it's on track around the work and the technical work that's going on. There'll be a 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 coal this 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? 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 two years or so were giving the opportunity for the battery chain and the precursor material in China to restock. Doesn't look like anybody's doing much. What is your read there? Lastly, maybe to Steve on the impairment this morning on Mopani and Mutanda, if you could share a bit more on the assumptions. It looks like the price was using mainly mark to market as opposed to a longer term view.
Look, on coal, we said we're going to cap it at 150 million tons. We've had a lot of the exchanges with our stakeholders, with our shareholders, et cetera, and that's what we came to an agreement, an amount that we believe that makes sense, and we'll cap it there. What effect that will have on the world seaborne coal market, yeah, it will have an effect. Glencore is not increasing production. The world coal market, the seaborne coal market, as you saw, demand increased 6% last year and demand went up. 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 million tons, or 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. Therefore, you've 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 some of them, as you know, selling their coal assets and no big growth. 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 mine- mouth feeds anymore. Therefore, the seaborne coal, the export coal from South Africa, some of it may move internally. You won't get supply growth there. Colombia is getting more difficult, as we know, and you don't have big exports coming from there.
Who will feed the new demand on the seaborne side? The Russians can increase a bit, subject to the radius restrictions. Indonesia will increase, but Indonesia, unfortunately, I believe, will be more tonnage increase, but not caloric value increase. If you look at Australia, you don't have new big supply. 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's probably what drove up the prices. The battery makers were building up inventory. You also had 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 the ERG operations in the DRC, so that is adding new supply. In 2019, you do have a lot more supply. We are subject to the Katanga issues and the uranium. The market came off with this new supply coming in the market. As we said earlier, it sort of seems like it's bottoming out. People are destocking in China, and therefore they will have to come in the market and start restocking. As they see the price move up, you will see that happen. We're watching 2020.
We definitely believe the demand will be there, more demand, more battery, more electric vehicles, et cetera, and supply may not have caught up by then. We've got this balance in the middle in 2019 and let's see how it washes out. It is showing signs with artisanal having cut back. Us naturally with Katanga tonnage not coming in the market is starting to put a bit more pressure on pricing. We'll see where we go in 2019.
Sylvain, that supply itself has not chased away those long-term buyers out there. 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 different things. 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. 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 2020, 2021, 2022 are really significant, which they want to lock in with us. Naturally, we don't mind locking in tonnage subject to how we price it, et cetera. We're looking at the various opportunities. Clearly, the battery makers do see cobalt being an important metal, and seeing that it's not readily available, there's no large tonnages going forward. The increases we talk about that are occurring in 2019 with us and the Kazakhs, et cetera, we, post-2019, don't have much increase.
Right.
The Kazakhs, post-2019, don't have much increase. Who's going to be the balancing act? The artisanals, that all depends on price. If we go back to the higher prices, whatever it is, $80,000, okay, yeah, you may get more artisanal. Also artisanal is limited. The buyers are seeing this and the buyers are definitely trying to-
Lock it up
lock up tonnage supply. 2019, we've got this blip, 2020 we believe it starts moving again, thereafter, there's no new supply with demand continuing to grow. There was a third question?
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. It's not a mark to market. You do take longer-term curves. We tend to take consensus in the absence of any other better information around these things. We'd use $6,500 copper long-term there and $27 a pound headline sort of cobalt. Both of those are above market in copper, not materially. In cobalt, there's still some sort of catch-up. Those are the assumptions. We show the sensitivities to potential movements. 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 on some of these things.
The other thing that was material at Mopani, which I mentioned up there, was the acid supply, because they obviously have their smelter there. They're not only they're processing our own tons, they're also treating third party and offer 200,000 ton 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's, again, at some point, going to contract, we've had to run that through the Mopani model. That itself was actually quite a material driver.
Just the final one on the coal import restrictions.
The what, sorry?
In China. The import restrictions in China.
Yeah, I don't know how big. That's recent that they're delaying discharging 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, et cetera. 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 resolve this diplomatic dispute, which is occurring. Let's wait and see. Hard to predict right now.
Thanks, Josh. Tyler Broda from RBC. Most of the questions I think have been answered, quickly, Steve, just to go back on the working capital. You said we weren't going to see any reversal of the move that we've seen.
Just don't assume that you're going to ever see a reversal.
Right.
Just don't assume it.
Fair enough. Yeah.
Don't bank on it.
The days payable-
Yeah
that went down with those oil contracts.
Yeah.
Does that not reverse, though? Is that not expected to reverse, or is that more of a structural issue?
No. 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. We're a blend of oil and all the other metals. There is receivable initiatives that clearly will go in 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 two in line about receivables and payables.
I'm not necessarily saying let's take payables sort of above receivables, buy another sort of $2 billion, because that has its own modeling and sort of technical flaws in some of the full RMI offset, which I'd just like to sort of take all that off the table. Don't assume. Of course, there's some float in working capital that some of it could reverse. 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 in.
Sure.
Steve, just to follow up.
Yeah.
Have you been factoring receivables, and is this-
Sure
a reversal of that?
No, no. Well, factoring, discounting, that's something clearly people do in the industry. It'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. It's a blend across all these things. Everyone, in terms of working capital efficiency, would do discounting and these things from time to time.
It's Myles Allsop, UBS. Just a few quick questions. In the DRC, are you actually paying the super profits tax at this point? Are you still prepared to go to international arbitration if you can't get stability agreement honored by the new government? I guess the other point is sort of In the past, I think people have admired how flexible you are with strategy. When the right opportunity's in the market, like last year with the coal acquisitions, you 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?
Yeah. I think on the first question, the DRC, we're not paying super profits tax yet because it's against a feasibility study.
Well, no, 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. There's been zero relevance of it up until now in April in terms of how that even applies.
We're not Yeah.
We're not paying it.
We're not paying it.
Yes.
On your other question, look, with the stability 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. We've given a proposal in the old government where we gave a sliding scale type royalty ratio that we were prepared to accept. Hopefully, we can reach a negotiation with the new government, and as soon as the new government's in place, 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 as we did last year with the coal assets. 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. Actually, we look at the buybacks, we value our company, and we see how the company's being valued. We see the low multiples that it trades at. Would it make sense to go buy something where you're paying a higher multiple as against the multiple that we're trading at, et cetera? It would have to be a compelling situation. Yes, if you did have the Hail Creek-type assets where you get these great returns based on where we thought that the coking coal price would be and where we could cut production costs, where it would beat the investment in Glencore, then we naturally would 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 three years ago. Up to date, we haven't found anything that was compelling for the ag business to do, but we'll wait and see going forward. 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.
Myles, 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.
It doesn't need to be sacrificing some shareholder returns. We spoke about non-core 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? Are you committing to just not to grow the thermal coal business?
Both. Both included, yes.
Sergey Donskoy, Sberinvest. Most actually on points mentioned before, super profit tax in DRC. You mentioned that it's only payable on tax returns. Do you actually expect to incur any super profit tax with respect to your results at Mutanda, 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. That's a work in progress, like so many things in the DRC.
Okay. Thank you. Also on Mutanda, with this reduction in output to 100,000 tons, which I expect is supposed to happen this year, should we expect to see a material negative impact on cash costs given this base, which remains more or less the same?
Of course, the sheer volume effect, but you've had no change to cobalt. The nature of the ore body and the grades and the processing is still keeping. It's copper downgrade, cobalt's still getting the 25,000. You tell me what cobalt prices are going to do, and I can tell you what-
Okay
What a primary copper cost is clearly going to do there. That's obviously a material driver.
Yes.
Yes, at the margin, you will see some increase per ton of copper. We're doing as much as possible to mitigate that in terms of continuing to have a solid cash generator down there in Mutanda. 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. It will still continue to be a nice earner for us.
Thank you. Two very short questions. Do you expect legacy alumina contracts to remain a headwind this year? If yes, is it possible to provide some guidance? Second, you mentioned in the press release $1 billion of proceeds from expected asset disposals this year. Could you remind us what are those? What do you think to cut? Thank you.
Alumina, not material in terms of any headwinds there as we come, both in obviously the market factors, that's assuming even if market factors went the same as they were last year, the nominal exposure to that is really non-material now as we've come into 2019. 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.
You'll see.
There is, as I said, back to Liam's question as well, there is five or six even real assets, I would say, within the business. Obviously, more at the tail end, I would categorize as non-core. There is various stages of even discussions and work that's going on in this regard. That's actual operating assets. Some may even be some of these stakes. We have a few listed stakes and a few that we've accumulated through various transactions. 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 billion at the moment.
I don't think it's going to be one thing that says, "Yes, I sold this $1 billion." I think it'll be accumulation of a handful of things, I think we'll blow through that number and we'll get there at a canter based on what the pipeline looks like.
Yeah.
Tony Robson, Global Mining Research. Probably you can't say much, 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? Any view on the timeline? Thank you.
Can't say much.
Pass, all right. Didn't think, never mind.
Nice one. Nice try.
Edward Sterck, BMO. Just a question on 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.
Well, I think it's all about an element of timing, but nothing that we've seen come through that we'd see material annual.
Good timing.
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. 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.
Thank you.
On coal mining, not much.
Nothing on the coal side really. Peanuts.
Okay. Think we're done.
Anything else?
That's it.
Thank you all.
Thanks very much. Thanks.
See you all later.