Welcome to the Glandor Half Year twenty eighteen Results Conference Call. At this time, participants are in a listen only mode. To follow the presentation, we ask that you navigate the slides as directed by Glanqor's management. There will be a question and answer session to follow. And today's conference is recorded.
I will now turn the conference over to Mr. Ivan Glazenberg, Chief Executive Officer. Please go ahead.
Thank you. Good afternoon. Today, we represent our 2018 half year highlights. As you can see, we had a record first half with our financial results with adjusted EBITDA up at $8,300,000,000 which is a 23% increase to the same time last year. Adjusted EBIT $5,100,000,000 which is up 35%.
Net income attributable to equity shareholders, pre significant items is $3,300,000,000 dollars which is up 40% from the same time last year. Funds from operation, dollars 5,600,000,000 which is up 8%. We have a continued balance sheet strength and we have wound our debt net debt down to $9,000,000,000 at the half year, which is down 16% to 31 December last year, so a significant decrease in our net debt. Once again Glencore proves the resilience of its marketing division and the marketing performance has been strong during the first half of the year with an adjusted EBIT of $1,500,000,000 which is up 12%. This is because of the strong performance from the Metals and Minerals and the Energy Products segment, which is up 17% 23% respectively.
There were lower crop yields in key geographies, which reflected the weaker agricultural performance during the first half of the year. However, we expect a stronger performance during the 2nd part of the year and we've already seen that in the early months of the second half of the year. So that should increase during this period. Industrial asset performance is underpinned by higher prices and continued cost asset optimization. Industrial EBITDA is up 26% as you can see to $6,700,000,000 and that is a solid first half mine cost margin performance across the businesses.
Copper, our cost of production is down at $0.88 per pound, zinc negative 0 0.11 dollars after byproduct credits, nickel $1.77 and the coal margin is roundabout $35 with the higher coal prices around the world. The copper and zinc mine costs are higher than the initial financial guidance, which we gave early on in the year and that is basically due to the lower byproduct credits, which we're getting from some of the commodities where we get the byproduct credits and also there is some modest energy cost inflation. However, this is helped by weighted production during the second half of the year and Steve will take you through the costs later on in the second half of the year. However, we have managed to increase returns to shareholders and this has been funded by the company's own cash generation, not by sale of any particular assets, but this is a cash generated from the existing assets and the marketing business. And therefore, we have returned to shareholders during 2018 $4,200,000,000 which comprises of $2,85,000,000,000 distribution of dividends of 2017 cash flows, dollars 3,000,000,000 of the share buybacks for the trust purchase and $1,000,000,000 during the second half buyback program, which we put in place recently.
We have a strong confidence in our own business prospects and the current share trading levels clearly points to our near term focus on deleveraging the balance sheet and shareholder returns and potential buybacks to the company by the company. Turning to the next page, looking at the half year sustainability and governance, you will see safety during in respect of safety, we had 5 fatalities up until today. These 5 fatalities are unacceptable. But what is interesting to note is that that the fatalities occurred in Chile, South Africa, Zambia and 2 in Kazakhstan. We've always spoken and remember, we do employ 140 6,000 employees across the group, but we used to have potential focus countries where we were getting our fatalities and we're pleased to note that the 2 focus countries where we had fatalities in the past, DRC and Bolivia, we've had no fatalities this year.
So it's clear we are achieving success in these focused countries. We still have Zambia and Kazakhstan to correct and ensure they reach the same levels as DRC in Bolivia with 0 fatalities. In respect of governance, we have established a Board Committee to oversee the company's response to the DOJ subpoena, which we received on the 3rd July. And as you can understand, we cannot answer any questions on this issue. And with that, I hand over to Steve, who can go into more detail on the financial statements.
Thank you.
Thanks, Ivan. I'll assume that you'll have the presentation in front of you. To the extent that it's necessary to highlight page numbers, If I jump around a bit, I will do that during the presentation. So on Page 6, the financial highlights at very much 25,000 feet and we'll work through the details as we get into the presentation. But as Ivan mentioned, adjusted EBITDA at $8,300,000,000 up 23%.
It is worth noting on that performance for the first half. We do expect a better second half performance, a higher second half performance as you'll see later on as I'll work through the building blocks. Based on current prices, which have obviously seen declines on a mark to market basis, particularly in metals in the recent weeks, On an illustrative basis, we would be reporting EBITDA of $17,700,000,000 generating around $8,200,000,000 of free cash flow. Just mathematically, if we were to take a 6 month period and halve the $17,700,000,000 that would show $8,900,000,000 for a half year period based on that. So we do expect an improved performance second half.
And as I'll talk later on in the bridge the reconciliation of the first half results, there were some timing differences as well across sales and production in copper and a little bit in SGA as well, which also held back the first half performance, which will reverse in the second half as we move forward. I won't spend any time on which will reverse in the second half as we move forward. I won't spend any time on the other numbers, which we'll get to later on. So jumping to Page 7 then where we slides that will mostly be familiar to you. We just show the period on period performance in the marketing part of the business.
Overall, a 12% increase. The 2 metals and minerals continues to be the key engine room of the firm with a 17% increase, generally supportive market conditions as we've said with also an overall increase in volumes handled. We show the volumes handled within the detailed part of the financial statements and you'll see both in all in copper, zinc, ferroalloys and iron ore, we've seen volumes increase by generally greater than 20% and up to 50% in the iron ore business during the period as well. Energy products up 23% that's made up of coal and oil as well. Improvements we've said period over period in both those commodities, which shows the strength of the franchise as well.
The weaker part of the side just for the particular period was obviously the base and the materiality is much less, but we've seen a decline period on period in the agricultural business. We've attributed quite a big portion of that to the wheat crops in Argentina and Australia in particular, where we have both procurement and handling businesses that do depend on volumes as well as processing margin depending on the domestic crops as well. We have been hindered in both those locations and the general industry in terms of margins. But as Ivan pointed out as well, we do expect a significantly improved performance in H2 compared to H1, providing some tailwinds for the overall business as we head into H2. We would look to reconfirm guidance again as we did earlier on in the year top half of the 2.2 to 3.2 long term range.
So the half of the top half is then sort of 2.95. So clearly tracking nicely there. In terms of industrial performance on page 8, again, as Ivan mentioned, a 26% increase in EBITDA to $6,700,000,000 And as we'll see in the next parts of the presentation on a half year basis, that should be trending higher even with the more recent reduction in some metals prices. So hopefully, we've even reached some conservative levels around that and it's another leg of potential improvement in EBITDA and cash flows as we move forward. The big part clearly the metals and minerals as well.
We flagged that some of the bigger variances period on period that's provided some lift. Lift is clearly the ramp up of Katanga having gone from 0 since suspension in September 2017 2015, sorry. And with the commissioning of Train 1 of the Hollow Leach Project in December last year, they did produce 63,000 tons of copper. And even in Q2 alone, I think it's around 35,000 tons, which is already almost running at the 150,000 run rate. And we've confirmed guidance of 150,000 tons of copper and 11 1,000 tonnes of cobalt for this year materially increasing into next year as well.
I'll spend a bit of time on the cost increases both just passive inflationary through energy and the like and a few other cost pressures that we're seeing in the business as well. I think a good place to just look, which would cover all the other comments that have been written down there is to look at the bridge on the bottom right hand corner, As our industrial has gone from $5,300,000,000 to the $6,600,000,000 Clearly, the big driver has been increasing commodity prices 1,900,000,000 dollars To break that up, we've seen increases in the copper business, which is helped by the cobalt byproducts and various others. 0.6 of that 1.9 is in copper, zinc set an increase 0.3 on pricing, the nickel business 0.3 as well, ferro 1.1 giving 1.3 overall for the metals business. And on the Energy, we've had 0.6%, which is coal at 0.5% and oil is at 100,000,000 increase and expanding off a low base as well. We should see some having bottomed out in terms of our oil production in West Africa.
We should start seeing some increases over the coming periods as well. Volume was, although netted out to a fairly flat variance for the year, there has been some both positive and negative contributors and we'll be turning materially positive as we move forward as well. Some of the positive changes, as I mentioned, was obviously Katanga, which delivered the 63,000 tonne of copper metal in the first half of the year. Australian coal has also improved volumes owing to a fairly weak base period due to both industrial and weather related issues in first half two thousand and seven. We have acquired and now consolidated the HVO business from May, which of course brought some additional both steam coal and semi soft tons into the business as well.
Some of the negatives mostly temporary from a volume perspective was Prodeko 2,500,000 ton reduction period on period. We've spoken about a significant investment period now as they develop and set the mine up for future rates of production consistent with their normal handling levels. They are going through some temporary reductions in product as they move more overburden that of course had a volumetric impact. Mount Isa in copper, you've seen reduction in copper tons out of that as they did a rebrick of the smelter during the first half. That's an event that only happens every 3 or 4 years.
On the zinc business, there was the sale of the zinc African assets in August last year to Trevali. So, of course, during the first half, there was production last year. There was about 70,000 tonne of zinc metal. So we didn't have that in this period. That will be more than compensated volume wise as we move forward with the Lady Loretta tons and ultimately the zinc product and lead coming out of Jairam in Kazakhstan.
On the gold side as well, there was also a slightly weaker production performance out of Kazink in gold first half over first half last year, timing difference in a period that favoring 3rd party material for processing, we expect to catch up some of that during the second half of the year as well. In terms of cost variance period on period, it's been a fairly modest and mostly passive increase in costs as we've seen during the business. In terms of real costs $348,000,000 By far the highest aggregate contributor would have been the higher fuel prices and other energy costs. We've seen average Brent prices as an indicator up 34% first half this year compared to first half last year. There's other components that are worth mentioning period over period.
Some Lady Loretta restart costs can't be capitalized. They have to be expensed within the zinc business as well. That's various costs in mobilizing the business, getting workforce set up, moving out of care and maintenance. We've had no production during the first half of the year, but there were reasonable costs to begin setting up and we should see the production and the unit cost benefits come through in the second half. Of course, Prodeka as well some cost effect that goes through its near term mine development.
The actual inflation component of 184, that's just sort of CPI linked. Its average is about 2.5% for the business, much of it running even below 1.5% to 2% depending on the geography with slightly higher CPI impacts coming in South Africa, Kazakhstan and Argentina. FX was actually a small negative variance for us this year, primarily due to the stronger rand period on period. But the rands weakened significantly in the Q2 and beyond. So that's now going to turn into a more positive indicator going forward.
Positive coal hedging variance are not having any. So that was an impact on first half last year, which is obviously now no longer the case. It's worth now highlighting 2 items, which impacted first half twenty eighteen EBITDA. You can see there's an other variance of $95,000,000 That's a corporate SG and A variance that impacted the first half of the year. You would have seen in the corporate column that our expenses was about just over $300,000,000 in the first half this year compared to $200,000,000 last year.
The biggest component of what goes into corporate is as we look across our entire industrial business is the variable pool bonus or the allocation of compensation that goes to obviously numerous individuals that participate globally in that particular contribution and incentive scheme that we do have. Historically, that's been something that has timing wise has generally split evenly over Q2 and Q3 over a particular period. During 2018, this was all wrapped up before the half year. It was all done in Q3. In Q2, sorry, that timing, hard to say exactly whether that timing will continue, but it needs to be highlighted and flagged.
On a full year basis, we're not expecting any impact. You'll see later on when we look at our illustrative full year EBITDA guidance, we talk about an industrial SGA of $400,000,000 which is the level that we've pretty much kept at historically. So we expect very little to come through in the second half. So $300,000,000 plus $100,000,000 roughly is a split this year. Last year was roughly a $200,000,000 $200,000,000 split was more even.
That's purely a time in difference that would have impacted the first half twenty eighteen. And at this point, it's also worth mentioning, which we do talk on Page 20, which I'll get to later on, is that in the copper business, we did close the books off on the first half of twenty eighteen, having sold 32,000 tons of copper less than what we produced. We flagged that in our production report on the basis that it was a material impact, which we knew at the time. We've now confirmed the financial impact on that, because you've obviously got both the copper and the byproducts coming out of cobalt, zinc and gold in particular, depending on where those tonnes were, of course, South America, some in Africa. And there was a $298,000,000 variance EBITDA wise on clear timing of having not had those sales go through in the first half that will through in the second half.
So just pro form a for the overhead of the $100,000,000 timing between H1 and H2 and the production visales timing different in copper, our EBITDA at a group level would have been $8,700,000,000 as opposed to the $8,300,000,000 on a pro form a basis. And I think that would be a number that would, modeling perspective would contribute to all if any number and variances that you're currently running. We try to flag as much early on. Of course, the overhead only something that we could discuss and confirm today. So that's on the industrial.
If we then move over to Page 9, which is one of the more important slides. As we look to show the development of cost structures, cash cost structures within the various parts of the business. And these numbers are, from our perspective, they're calculated to include everything from mining costs to processing to freight to royalties to everything from which to be able to from TCRCs treatment charges, everything to then be able to drive the based on the volume guidance that we give you to be able to drive EBITDA. And we've reconciled the first half for your guidance reaction on Page 20. And on Page 21, this is the building blocks that will build up to the $17,700,000,000 of group EBITDA illustrative basis down to $8,200,000,000 cash flow.
Before I just move into some of the details of that page, just a few highlights from the appendix that's worth noting as well. Pages 19, 20 21. If we go to 'nineteen, which will make sense of some of these numbers as we go through both 'eighteen, and I think as we think forward, we'll say to 'nineteen. So production guidance on Page 19, you can see in the chart, we've shown actual H1 production. The guidance which we updated 2 or 3 weeks ago, unchanged in almost all areas except a slight reduction in lead.
The 5% that we commented on, the $300,000,000 to $285,000,000 not as material as clearly some of the other commodities and a slight tick down in coal, 2,000,000 tonnes, 1,34,000,000 down to 32,000,000,000 minor adjustments around South America, Colombia and South Africa that fell into those particular components. So for those particular guidances we've spoken about on the left hand side, you can see quite significant H2 on H1 volume improvements, which will drive performance and are impacting or factoring into the cost performance. So copper, we're expecting 73,000 extra tonne H2 and H1, the continued ramp up of Katanga and Mount Isa recovery, as I said, from first half smelter rebrick. Cobalt, 29% increase, an extra 5,000 tonne period on period. That's the Katanga ramp up.
As you would recall, the Cobalt circuit was only commissioned in March. So you had a period which really only had a small number of months and it's now functioning very well as we've gone through 6 weeks or so in the second half period. Zinc is quite significant, of course, an extra 94,000 tons with Lady Loretta. Lead simile brings Lady Loretta at lead tons as a byproduct out of that with some H2 weighted production profile at Gazzinc, nickel, conniambocole. Now you've got HVO for the full period from May, Hell Creek, we closed that acquisition last week, Wednesday, 1st August, and some higher Columbia production as Prodeco is able to start moving back into normal operations from its temporary investment period.
And also oil, you've got the Chad drilling program. In every single one of those commodities, and we'll update the numbers in a few months, November, December, when we update life of mine and budgets, we'll come to you with 'nineteen, 'twenty and 'twenty one guidance. In every one of those commodities, we'll see quite material increases again going into 2019, which of course have a favorable impact both in a volumetric sense and in the cost sense. If we look on Page 20, that's just the reconciliation of the first half performance on cost fee guidance. You can see bottom left the copper production visales timing in respect to both the primary and the secondary products, so $159,000,000 and $139,000,000 that's the 298,000,000 dollars And we've reconciled to you that based on pricing that's come through for the first half and the updated cost structures as well that's come through.
I'll talk about some of the reasons for the cost increases as we go back to Page 9 in a minute as well. And Page 21 as well is then the full year having baked in now the full mark to market numbers of all the commodity prices as they are now. So of course, this is just a point in time. If we'd been cutting these numbers 6 or 8 weeks ago, that would have been higher because of course commodities like copper, zinc, cobalt and the likes would have been higher back then. And if we cut it off in 6 or 7 weeks' time, hopefully, it's higher again.
So these numbers are need to be taken. With that in mind, it is obviously sensitive and clearly volatility. Although, as Ivan said, there's a given both the commodity and geographic distribution and the stable commodity part of the business, it should be more cushioned than many of our peers. So we've run these numbers at a you can see the spot copper price. This is all cut off, I think, in the last few days or so before we finalized.
Copper was at $2.80 which is pretty much where it is now, the $6,171,000 zinc at $1.21 just over 2,600 nickel that was 13.4, which I think has picked up a few $100 since that. So maybe a bit conservative there. So I'll refer to those numbers later on, but as always, we provide those building blocks. Maybe now just covering back to Page 9 and then we'll spend a little bit of time on this slide. So the copper and zinc business just in the first half of the year has been impacted by they are 2 businesses that are most exposed and therefore will show sensitivity and volatility to the both clearly the primary product is affecting the revenue line, but the secondary products coming out is affecting the cost line as a credit to those particular business.
So copper is getting significant And we've also got gold out of Antamina. And we've also got gold out of Antamina, Ernst Henry and the likes and there's also some silver byproduct that will be coming out of Antamina and some other operations, very sizable byproducts. The zinc business similarly is affected by very big byproduct materiality out of lead and out of some of the precious metals as well as copper. Because zinc, as you would know, produces 70,000 tonnes or so of copper. We have quite significant copper as well coming out of the Canadian zinc operations as well.
So it is material. If we just provide on a year to date basis against where we were in January, the last time we gave some of these guidance. So in the copper business, what was relevant to them, you've seen zinc down 6%. This is the average prices against for the year against what it was in January, zinc 6% lower, lead is 5% lower, copper is 4% lower and gold and silver themselves is about 5% lower. So clearly that's obviously had an impact.
We've said some tick up in fuel and power prices. As mentioned before, Brent price was up around 18% from January's price to where we were for the average for that particular period. The business is very exposed to the diesel price and the fuel price through its mobile equipment and some power associated costs, which could also tick up through either being exposed to coal or through oil or various other utility like prices as well as they come through. As we move between copper and zinc, they have been affected by product pricing, fuel and power prices and we've shown the effect of that. And some production that was we've shown in the guidance on that Page 20.
Against initial expectation, we've seen modest lower productions than what we might have thought for the half year, I think only about 7,000 tonnes in both those cases as well. The bigger impact, I think, is as we go clearly now for the spot full year basis in costs, which is the next table and looking at 2018 revised, because now we're fully marking to market the entire byproducts on an illustrative annualized basis. And the movements in byproducts is significantly more material than obviously just a year to date average. So now we're fully mark to marking the entire zinc byproduct in copper at the prices of currently, which is the 2,600. It was 3,400 back in January.
So zinc is 26% less. That will have a material impact in the copper business. Lead is 17% lower over that same period. Cobalt 13%, gold and silver is 12% and copper is 12% as well. So within the copper business as well, we've seen the biggest impact on byproducts is cobalt, zinc and gold.
We've also noted some higher costs generally within the group and copper Africa has been singled out for the reasons that I will now go into. One of the reasons is Mopani itself. You'll see within for those sort of more sleuthey detectives, you'll see somewhere in the production guidance we've shown not so much in its own source, but we've been treating during the period much lower third party material due to general lack of availability within the area. Of course, you don't have that absorption and those processing margins that we would otherwise get. We've got significantly higher smelting capacity within the business than what we are mining out of our own operations.
That whole dynamic will change as the new tons come out of Mopane and we launched the new shaft projects, but there was quite a material impact at Mopane during this particular period due to lack of third party availability for treatment during that period. That's all been factored. We expect some partial recovery in that as we move towards the end of the year. We have also built in, and no doubt there'll be a question on it later on, we have built in what's currently being imposed out of the new DLC mining code. So we are paying certain additions under protest.
We don't agree with the application of the code as it currently stands, but royalties has now kicked in since 1st July or so at the high level, sort of 2% on net, it's now 3.5% on gross. And there is some additional important export duties as well that are being levied and paid in accordance with the regulations. We've built in that through into the copper business as well. So that's clearly coming through as well. And just the general as you go through ramp up periods, which we're still going through at Molpani and Katanga itself, there's just there can be a timing lag associated with when you're building up and mobilizing the full teams and getting the operation set for the production, which is lagging in terms of that full production.
But as we look at the copper costs of the 103 for 2018, we would expect all things being equal with even prices where they are now by product wise, we think is generally at fairly conservative levels now. Obviously, one can mark to market that on a go forward basis. But with the incremental production we have going forward in 2019, both copper 150 to 300 at Katanga with cobalt from 11,000 up to approximately 30,000 with marginal cost being very low to deliver that extra, we'd expect that average cost at current prices to start heading lower than that particular level. So that trend we would be hoping to produce in a few months show you the reversal of that escalation and that effect from the byproduct prices and the volume effect that comes through. And similarly zinc, which is seeing the same byproduct effect on its business as it brings in Lady Loretta and Gyrom, you'll also see the effect of those volumes high grade zinc clearly at Lady Loretta.
Gyrom, a good zinc with a meaningful lead byproduct should also contribute from a unit cost perspective. Coal, on the other hand, has been able to maintain its margins and its cost structure pretty much where it is. That is a function of the general portfolio optimization through Hell Creek, HVO, sale of Time Warner, all these have all contributed to an improvement in the margin and the cost structure of the overall business, contributed through some M and A. Timing wise, you see we've gone 52 to 50 then back up to 52. One of the contributors there was some longwall moves just at the Yulin mine, which didn't happen in H1.
Now it's going to happen in H2. So that's going to impact costs as we move forward. And nickel, pretty steady business as we work our way through. So those are the main costs. We'd expect them all to, as I said, copper and zinc to start coming south as we bring those extra tonnes.
Coal, steady business as we go forward, significant cash generator and nickel holding in its costs as well. On CapEx, no change in CapEx, same guidance, dollars 4,900,000,000 We've left the same for 2019 2020 for now, which we believe would remain unchanged. The update, which we will look to provide at the end of the year, is whether there's any adjustments would be required, whether we can absorb it in these numbers, we'll just need to see the financial impact of Hell Creek and just look to see what the program looks like at the Chevron business, the refinery down there in Cape Town when that gets acquired, which is expected in H2. Most of the expansionaries we provided last time was in respect of Katanga, INO, Jairam, Katanga and Chad West oil. We provided slides back at the beginning of the year and we'd look to update those slides again as we move towards the end of the year.
In terms of balance sheet, financial structure, I think the company is in as good a shape there as it's ever been. We've got reductions in net debt, as Ivan mentioned, down to 9 and very manageable bond maturities capped at $3,000,000,000 in any one year, which is very manageable. Just one point to highlight is the 3% increase in RMI the period, which was $700,000 reflecting net higher commodity prices and volumes during the period. Some were lower, some were higher, of course. Oil prices, we mentioned, was up 18% year on year.
Just to mention that as we stand at the moment, given the metal prices have come down since that period that that increase has now been fully reversed. So we're now at levels that are below where we are at the beginning of the year and you should see a continued reduction on that or reversal of that increase in the net funding line. And all things being equal, again, I would expect that we end the year less than where we started in terms of RMI the way it is at the moment. FFO to net debt, 133 percent net debt now to EBITDA or adjusted EBITDA running at 0.55 and on any pro form a basis with an increase in earnings expected that should continue to drop forward. So, very good balance sheet and structure.
Before we finish off to Q and A, just a quick cycle that we show on a half year capital allocation. And as we move around sort of wagon at the top right to maintain strong BBB, BAA, that's the priority. And then as we work through the starting the year with net debt to 10.7 percent. We generated equity cash flows of the $4,000,000,000 which was $5,600,000,000 FFO less $2,100,000,000 CapEx, dollars 200,000,000 out to minority interest, dollars 700,000,000 working capital reduction non RMI. That could be expected to potentially reverse towards the end of the year.
So I would flag that within our own assumptions, we're assuming that that flattens out before the end of the year. It's worth noting that in the funds from operation tax, cash taxes were significantly weighted towards first half. We expect a much lower tax cash outflow in the second half, which would be helpful both in the FFO and the net debt sequential movement. We did incur a bit of a double impact on tax during the first half. In an improving profit environment, you then will pay tax in respect to previous years.
And very often in some countries, you'll then pay provisional taxes in respect to future years. So once you've flattened out, you'll be paying more normal levels of tax. But in an up trending environment, you can pay double in some periods. In a down trending environment, you can then have the ability to reverse out. So cash tax will be much lower in second half.
We've then seen the distributions and buyback during the first half, as Ivan mentioned as well, dollars 1,400,000,000 we'll follow that up with another $1,400,000,000 in the second half. There was a small amount of share trust purchases of $300,000,000 that's our independent trust that manage potential settlements under employee share programs. We just accelerated the purchases in that trust to be fully hedged now to avoid any outflows or dilution over the next 3 years. It would normally be something in cash flow that might have otherwise been lower over longer periods. We've just accelerated it and that's something which will be helpful for the equity dilution and cash flow story going forward.
And then, of course, HBO was the net acquisition, the $1,100,000,000 that occurred in May, all of which to finish net debt at $9,000,000,000 For the second half of the year, I would just note to have plugged into models. Clearly, there's still the completion of the mop up of previously announced M and A. So Hell Creek, as I mentioned, dollars 1,700,000,000 that closed last week, so that's second half. We've slowed Chevron to complete, that's about $900,000,000 And in Brazil, there's Alisat, which is a downstream oil business. That's about €200,000,000 on the equity side.
So €2,800,000,000 we have to still complete the M and A program. H2 dividend will be $1,400,000,000 and the buyback program. So there is $5,200,000,000 or so accounted for in terms of cash usage for the second half of the year, ought to be covered almost fully by cash flow during that period and other cash movements potentially towards the end of the year will be might be sort of as you are around the net debt levels of $9,000,000,000 depending on what commodity prices you ought to have. But clearly then with no additional calls and commitments from an M and A perspective currently in terms of announced transaction, we'll start next year with the business generating significant free cash flow. We'll be declaring our base distribution in February next year.
These cash flows would be sort of $3,000,000,000 to 3,500,000,000 dollars The net debt around the minimum level that we've said at this sort of $10,000,000,000 So clearly having greater both momentum capacity and with eyes on the current share price to consider further buybacks as we because we've currently committed to the existing program out till the end of the year, the $1,000,000,000 We could, of course, come in December and look to continue that program again from 1st January next year or wait until February to make some further announcements around that. Maybe just Page 22 and then we'll just go to M and A. Just worth highlighting for the purpose again of modeling is where the share count is as we see it at the moment, given some treasury shares, trust shares that wouldn't be expected to be dilutive and are not the lower base is eligible for distributions. And I would have thought for both valuation and accretion purposes, we're down to 14.1 $3,000,000,000 as well, as you can see on page 22. So we thought we'd provide that information as well, given there's slightly more material movements and the buyback's ongoing, so it ought to be something that's watched.
With that, I hope it's been comprehensive enough. I think I'll hand back to the speaker for some questions and look forward to answering those. Oh, Ivan, sorry, just for including Mark.
Yes. Thanks a lot, Steve. If you look at Slide 14, it gives you an idea of the power of our diversified business, the type of commodities which we produce and it shows the earnings and cash flow momentum. As you can see, if you look at the momentum of our commodity prices during this year, where we've had volatility with all the commodities during the year, look at our year to date illustrative spot EBITDA momentum is definitely superior to our peers, because if you break down our commodities, which we produce, you have copper, which is weaker since the beginning of the year, 14%, negative zinc, 21%, cobalt, 15%. But this has been partially offset by the strong coal price during the year in both Newcastle, South Africa and Colombia and the where Newcastle price is up 17% and you have nickel up 7% and ferroalloys.
The coal price is extremely strong at the moment. As you know, there's tightness of supply in both Newcastle, South Africa and Colombia and this is keeping the price up with strong demand definitely in Southeast Asia. This is comparative to our peers and if you look at our peers, if you compare it to iron ore, we have the CNF price down 19%, whilst you have the FOB price of iron ore down 16%. So if you take the balance that definitely if you look at the slide on the right shows a differential of year to date spot EBITDA momentum versus our U. K.
Peers. We also have, as we've always said, the stability of the marketing cash flows. And as you'll see, I think we've got a slide in the addendum, which shows the stability of the marketing business even though we got the volatility on the commodity prices, the marketing business has been extremely stable. And as we displayed, we had higher prices during the first half of the year, we hit $1,500,000,000 EBIT on the marketing business. So it's clear the EBITDA momentum is superior to the peers who have more iron ore in their portfolio and this has been advantageous to us during the year.
We continue to be highly cash generative at current spot prices. And as Steve mentioned early on, if you look at our free cash flow at current spot prices, we're going to have a free cash flow of $8,200,000,000 from an EBITDA at current spot prices of $17,700,000,000 and that generates this massive free cash flow and as we show here that's giving us a free cash flow yield based on this $8,200,000,000 sorry, dollars 8,200,000,000 free cash flow that gives us a free cash flow yield of 13%, which you'll see from the slide on the right is a 17% premium to our peers, 70% premium. So the commodity fundamentals of our commodities, we believe remain favorable. It's clear you've got a bit of volatility with the potential trade wars occurring. However, there is limited supply in our commodities.
As we mentioned, there's limited new supply in coal, there's limited new supply in copper, cobalt, most of the supply new supply comes from us and there's limited new mines being produced on the being developed on the horizon, which produces these commodities. So we think we have the right mix of commodities and the fundamental demand for these commodities remains robust in the world and even with the potential trade wars and the noise around the trade wars, we don't see much decrease in the demand for these commodities even in China. If anything in China with the shutdown of some of their operations because of environmental issues, demand is in fact looking better in certain commodities. So if you turn to page 15, giving you a summary looking at what Glencore has and what it if you look at the year to date, we had a record first half. We're well placed for the future.
We believe we've got Tier 1 industrial assets, sustainable low costs and long life assets, long life for reserves. And as Steve went through some of the costs, the costs will start improving when we increase the volumes later in the year and towards 2019. And hopefully the byproduct credits will bring the cost back in line to where we were before, but a large amount of the cost rise was due to the decrease in the price of the byproduct credits. Once again, we always emphasize our marketing business, the resilience of our marketing business even with lower commodity prices and volatility and that generates a large amount of cash flow. And as we always said, from the marketing business, we will distribute a dividend, a minimum of $1,000,000,000 from the free cash flow of the marketing business.
The benefits of our diversified model is playing out as displayed by our cash flow momentum and our earnings momentum. We are still very highly cash generative. And as I mentioned before, dollars 8,200,000,000 free cash flow of $17,700,000,000 of EBITDA. And as I said at 13% free cash flow yield at current share prices. The commodity fundamentals, as I said earlier, remain favorable for us.
We still, as I say, emphasize that there is limited supply of our commodities coming into the market and demand still remains robust. We generated we distributed $4,200,000,000 to our shareholders over the year and I once again emphasize as I said in the beginning of the discussion that is generated from our existing assets, not from any sale of assets or anything of that kind. And we will continue doing more distributions, as Steve mentioned or we will definitely look at the current share price and if we believe it's undervalued, we'll continue doing buybacks and returning cash to the shareholders. So I think that gives you the final summary of the company and how we're looking today. And as I say, I once again emphasize the strong free cash flow that we're getting from current lower commodity prices and hopefully with higher commodity prices, this will increase as we move forward towards the end of the year.
And I think we're ready for questions. Thank you.
Thank you. We will now take our question from Ola from Macquarie. Please go ahead. Your line is open.
Hi, thanks. It's Alon Olshar here from Macquarie. Just two questions. Firstly, on the DRC Mining Code. Thanks for providing clarity just on the uplift to royalties.
But there are still some other pretty onerous provisions in there. Clearly, they haven't yet been implemented, the potential 10% royalty on cobalt as well as the windfall tax and some of the other provisions. So could you give us a bit of visibility as to when those might be implemented or the status of negotiations or discussions with government at the present time? And then the second question, just on coal, a 2 part question. Just firstly on the coal market outlook.
The market's been very resilient and the spread between high spec and off spec product has really widened recently. Could you just give us your take on what's been driving that and the sustainability of that? And then related to coal as well, you've now consolidated HVO or sorry, included HVO into the account. Could you give us a sense of some of the synergies you plan to drive there with the rest of your business in the region? Thanks.
Okay. Give me DRC. Yes. On the DRC, you are correct. What they are applying now is 3.5% on the gross and not the 2% that we had before on the net.
There are other implications, as you correctly state, on the new code, which we are still trying the industry is still negotiating and trying to talk to the government. As you are aware, we do have the stabilization agreement in place, which means we should not have from the date they change the code for a period of 10 years, we should stay with our existing agreements. We have tried to find a compromise with the government, which we the industry has spoken about and has put out announcements where we there's prepared to be a bit of give and take on the new code. We haven't progressed much further on that. There's still potential discussions there.
And we're debating that continue with the government. The industry is considering its legal certain legal actions it can take. Nothing has progressed on that side. And hopefully, we will find a better resolution with the government going forward. But the industry is still working very closely together and we're looking at all alternatives.
But for the moment, against our agreement, we are paying this higher royalty. And as Steve says, also some high import tax on goods coming in. But there's ongoing discussion with the government and it's something we hopefully will resolve, but we do have the option the industry will look at the option of legal action. We haven't built yes, as Steve says, we haven't built any of that in these numbers, which we've given you and these numbers are just working on the 3.5%. Regarding the coal, the coal market is extremely strong as you know.
Now there is a divergence between the lower quality coal and the higher quality coal. It's clear the higher quality coal, there's strong demand of the higher quality coal outside of China and certain areas and there's limited supply from Newcastle. There's been no new mines being built in Australia, no new mines being built in South Africa and Colombia. So there has been an increase in production from Indonesia, but that is the lower quality coals, but the demand for the lower the higher quality coals is strong and continues to be strong what we see going forward. The coal price now is running around about a new cost of $119,000,000 $120,000,000 whilst the low quality coals are lower.
But even if you look at the Chinese price today and you do the adjustment where China is running at about RMB 600, that reverts back to Australia for that kind of coal going in is in the low 90s. So overall going forward, still very strong. And as I say, we see no new production coming from South Africa and a lot more coal South African export coal, we believe will be required locally by Eskom. So it's all holding well for coal going forward. Steve, I think you can answer the one on the synergies we get at HBO.
Hi, Lon. Just on the obviously with HBO, it's only been a couple of months. I think it was main since we took sort of management control of that operation via the JV with Yancoal. So it's still undergoing. We're in our planning cycle at the moment.
We're looking to both see how HVO itself within its own entity can clearly deliver synergies by looking at things differently with our partner Yancoal as well as some of the adjoining properties with Glencore. It's also another public company. So, there's at this particular stage is with Yancoal on the other side and their own reporting. I think we'd look to try and coordinate something and come back to the markets around sort of November, December and give some feedback together on how that's progressing. But it's sort of first views and having been in there for a while is that it's delivering as per expectations and as being the logical owner or the logical party to be able to deliver those synergies, we're obviously very happy to be to have the keys for that particular property at the moment.
Okay, great. Thanks very much.
Thank you. We will now take our next question from Liam Fitzpatrick, Deutsche Bank. Please go ahead. Your line is open.
Good morning. I've got three questions. Firstly, on marketing, just with respect to the DOJ subpoena, has there been any impact on trading volumes or funding costs since then? Secondly, on strategy, given your legal issues, does this change your appetite to operate in countries like the DRC going forward? And finally, I mean, you touched on this in the release, but when we look at M and A versus buyback, is it fair to say that M and A is very difficult to justify versus your current share price?
Or should we still expect you to look at bolt on deals going forward? Thank you.
Yes. The first part of the question, the marketing, no, it's had no effect on our marketing business and no effect on finance available for our marketing business. Regarding going into these countries' risk, we will assess it carefully. We'll operate in a responsible, lawful and sustainable manner if we do operate in these countries and we'll continue as long as we do it correctly. Regarding where we look at M and A, as I said, yes, M and A we will continue looking at if it is opportunistic.
The same way we've always said, we'll look at opportunistic type ideas, providing we're getting the right returns that we're looking for in those areas. As I said today, we would require something around about the 15% IRR. There's not massive opportunities out there today and we haven't seen anything that really looks exciting. But if something comes along, we'll look at it. But if you look along the horizon, we don't see anything that great right now.
And potentially, the best thing we could do is returning funds to shareholders or doing share buybacks that potentially will give us the best returns.
Okay. Thank
you. Thank you. We will now take our next question from Jason Fairclough from Bank of America. Please go ahead. Your line is open.
Yes. Thanks, gentlemen. Just two quick ones for me. One on Koni Ambo and the other one on Dan Gertler. Just first on Koni Ambo, I see you're ramping up the second line.
You spent another $60,000,000 in CapEx. We still don't see any financials. And I guess, what is the latest and how should we think about the trigger to start actually putting some results through the financials? And maybe you could update us on the carrying value of the asset? And then secondly, just on Dan, has your approach to dealing with the issue of payments to Dan Gertler changed since your subpoena from the DOJ?
Yes. Look, Koneamba, as we said, we should produce we should get close to both lines are running. We should potentially hit just short of 30,000 tonnes, I think we're envisaging this year, Jason. Next year, we should start bringing it to account and we should ramp up further when both lines are running smoothly. But there's definitely the plant is running well.
There's no technical problems on the plant. It's just purely ramping it up. And on your second question on Dan Goetel, we cannot comment right now. Steve, anything else you want to add on Kone
A. Jason, it was obviously from 1st January next year is when we'd be looking to bring it in as a typical operation. We'd see all the financial results, the EBITDA, the cost structure start building all of them. That's the period at which we would see a level of accounting commercial production to have been reached. So that's our base case for now and it will be it would have sort of graduated to the Big Boys Club, which is good.
I think just to that point, I mean, since TOJ, it hasn't reflected how we sort of the resolution and how we reached, obviously, the announcement with Ventura back in June. That obviously still continues as is, which was the announcement and how that's being treated and the agreement and the way forward, the whole approach that's as is from the announcement that was made in June.
Okay. Thanks. Just to follow-up, Steve. So the latest carrying value on Kone Ambo and is it working well enough that you could actually think about writing back some of the value of the asset at some point?
We'll have to look at that. There's a couple of areas that we're going to have to look in Q4 when we update all the plans and the assumptions that we put in that we put some impairments historically, where there could be in reversal subject to pricing, of course, but we've got nickel and oil. We'd obviously made some impairments against some of the West African portfolio and prices where they are at the moment sort of holding it at these levels that would we'd obviously have to look at both of those. So it's not always one way traffic in terms of some of those things and obviously the opportunity to bring back some of that.
Thank you. We will now take our next question from Sylvain Brunette from Exane BNP Paribas. Please go ahead. Your line is open.
Good morning, gentlemen. Three questions maybe. First on the on potential non core asset disposals that were discussed at the beginning of the year, if you are still considering some of these and which are the criteria. Also if you could perhaps clarify a little bit your exposure to some off stakes on the aluminum or alumina side with Rusal? It doesn't look like the situation or their situation with the U.
S. Sanctions have been clarified. And lastly, if you could just give us some feel for your preference for dividend over buyback. In the past, obviously, the dividend out of Switzerland was more tax efficient. Obviously, at this current share price, valuation is very attractive.
How do you go about deciding the allocation between the 2? Please. Thanks.
Yes, the non core assets, we don't have many non core assets. We were talking about Rolestin a while ago because of the situation with the port capacity there and the liability with the port capacity. But with the current premium Rolison gets today with the low sulfur levels, there's a premium now, big demand for low sulfur coals in Asia today and especially in Korea, etcetera. It's something we keep looking at, but the pricing we're getting from roleston, the premium you get as against other coals with the regular sulfur, the benefit of it is starting to look interesting. But it's something we keep assessing.
If we can get the right price for it, we could look at it, but that's the one we had on the drawing board for potential sale. But I think with the new sulfur levels kicking in place and the benefit, it's a little bit off the sale list, but we'll see what we get there and what interest we have got from that. Regarding RUSAL and the U. S. Sanctions, I think that's something you referred to RUSAL.
We cannot comment on what negotiations they are currently having with the United States. If you want to talk about that as opposed to this?
Yes, thanks. So I mean in terms of obviously, there will always be the base distribution, which will just come through as the in the normal course, which will be the formulaic 1,000,000,000 dollars plus minimum 25 percent of industrial free cash flow. So that's going to anchor a certain regular recurring distribution, which as you pointed out, is still from a Swiss perspective. There is some favorable tax treatment around that given some capital reserves we had, both free withholding tax and tax free Swiss shareholders. So that's certainly attractive.
But in terms of the overall equity proposition and share price appreciation and value of allocating capital, of course, at these sort of levels, it is an attractive source. Now we've historically says our favoring of distributions over buybacks historically is that we felt the market was sort of in the right zip codes around sort of most of the operating assumptions and some of the risk factors around the business. But then it was a call on commodity prices, which is something that we didn't necessarily want to make that call. So we'd rather pay it out and people can come in. Today, we have a variety of factors outside of commodity prices, where we're seeing some big value that's inherent in the business in terms of probability of outcomes around delivery of our production growth, obviously ramping up.
That's obviously something risk adjustments that may be built into, obviously, parts of the business. The coal business itself, maybe certain people that may be a little bit softer in terms of some of those long term. We obviously take a different view on that particular commodity and how it's performing and the cash flows that are being generated. So you've got asymmetric factors now that are feeding into the favoring buybacks and for as long as that continues, then that will definitely be a tool that gets exploited to the maximum, which is what we're doing. The last one, in fact, the 1,000,000,000 dollars announcement of the buyback that we did back in July, as we were going through Q2 and looking at our potential projections, we were always looking at a $1,000,000,000 top up potentially.
If we've been talking in April or May, it may have been a top up through a special distribution as we went through June or July that turned into the buyback for the exact reasons that I mentioned. So that's the thinking that we do look like. In the interest of all shareholders as opposed to just Swiss shareholders, which we do need to take that into account as well.
Okay. Thank you.
Thank you. We will now take our next question from Ian Rizzo from Barclays. Please go ahead. The line is open.
Thank you. Just two questions from me. Just first of all, on the marketing guidance, which you've reiterated at the top half of the range. If you look at the first half run rate, you're already basically at that top end of the range. You obviously made some comments around the ags performance that you Does that imply that we should see weaker performance in Metals and Energy?
Or was that just being you being conservative? And then the second question, just around the capital allocation. On the buyback, you've already done just under $500,000,000 over the past month. And so you roughly have the same amount left to do over the next 5 months, which obviously suggests that you'll slow back or slow down the buyback quite significantly. In the context of your comments around the share price being very attractive at current levels, how should we think about that?
I mean, will you just keep the current pace and finish the buyback early or would you actually slow it down?
Okay. On the marketing, I'll handle that. Yes, the first half was good as can see 1,500,000,000 but that was of higher metals and energy prices. Coal has been up, yes. So therefore, we should do well in coal.
Oil is a bit up, but oil hasn't had really great fundamentals towards the end of this half. So I think metals could potentially be done oil towards the second half. Let's see where that ends up. Agriculture will be up. So hopefully it balances out.
Let's see what commodity prices do in the second half. But as we've always said with higher metals prices, higher commodity prices, there are more arbitrage opportunities and more opportunities to do better on the marketing business. So we've got to monitor what the metals price does in the second half. But we will definitely have a better second half on the eggs. As Steve mentioned earlier, we've already seen during July month that it's looking a lot better.
And hopefully, that will average it out and we should definitely get towards the topper end of that range by the end of the year.
Thanks, Ian. It's Steven here. Just on the buyback, you said we've obviously we sort of designed it in 2 phases. One was sort of signing the irrevocable during the close period of the $3.50 So that's been done sort of as about a week ago that completed. So that was around $450,000,000 So under the $1,000,000,000 up to $1,000,000,000 we've got $550,000,000 left, which on a sort of an average daily compared to what we've done in the last 6 weeks would be would clearly be slower.
It doesn't mean we need to be in market necessarily every day. We're sort of unrestricted now in terms of having to we can obviously be in the market when levels make sense. We can stay on the market for a while. We can see how I mean, the greater propensity for we've obviously had a slight weaker period in the last 6 weeks clearly. As we sort of roll forward our sort of debt levels, if it was the if it was 5 or 6 weeks ago and we were rolling forward sort of spot free cash flow with $1,000,000,000 I would have said we'd be waste sort of south of $9,000,000,000 as of now.
You sort of said, well, sort of $9,000,000 and maybe a touch above $9,000,000,000 which is not leaving as much breathing space around the $10,000,000,000 that I definitely want to be sort of below that. So we just need to see how the next sort of couple of months plays out, work through the remaining part of the buyback, but stay alert to the evolution of cash flows. We've sort of said anything materially below $10,000,000,000 that belongs to obviously your shareholders and we'd look to find the appropriate time to get that back and in the appropriate form. So we just got to see how we go towards the end of the year. We do, as I said, a bit of mopping up on the M and A and mopping up on the second half of the dividend.
We got the buyback we need to complete and let's see how that plays out before the end of the year. We do have the opportunity in November, December when we come and give them more medium term guidance. We don't have to wait till February, either ad hoc like we even did with the initial buyback or even, I mean, potentially November, December that would be an opportunity to say, do we want to just keep this thing running, start it again from 1 January, do we want to increase it somewhat? These are options, but I want to see how the sort of world looks over the next sort of month or 2 before making any decisions.
Okay. Maybe just to follow-up on Ivan on the first question. Have you seen any sort of opportunities in trading or marketing with the tariffs and the sort of trade disputes? Has that created more opportunities in marketing?
Yes, that will create opportunities. No doubt with aluminum and different tariffs existing around the world on certain commodities. Any changes is going to create arbitrage opportunities. We've seen a bit premiums move in the United States when you get these tariffs and that's setting in. Yes, so there will be anything where you got change, we should be able to take advantage of and get some opportunities.
Okay. I'll leave it at that. Thanks.
Thank you. We will now take our next question from Sam Catalano from Credit Suisse. Please go ahead. Your line is open.
Yes. Good afternoon. Two questions. Firstly, just on the cost guidance increases. Steve, you gave a pretty good roundup of the drivers there.
But just excluding the byproduct credit impact, the 2 divisions where you've had the most increases in your guidance are clearly the 2 divisions where you're ramping up production. Would it be fair to say you've been a bit surprised by cost inflation or ramping up production in those 2 divisions? And then second question sort of related, I suppose, is just about where to next for growth. You're obviously ramping up capacity into that latent capacity in zinc and copper. Previously, you always talked about favoring brownfield latent capacity type expansions.
Where are the next ones within the portfolio? And when do you think we'd be able to hear a bit more about them? Thanks.
Yeah, thanks. Sam, I'll take the cost question first. Yeah, that's I mean, the zinc and the copper is where there is some production increases that at the margin, sort of all things being equal, would expect to obviously mitigate some of those cost pressures. I did in copper mention some of the more extraneous impacts around lack of third party material at Mopani, DOC and just generally having to probably mobilize and staff up these operations ahead of their expansion with this is just against expectations. So at some point, there was maybe a timing thing of how we expected some of the costs to be introduced into the business compared to a certain other profile.
Something on zinc that was I didn't mention and maybe I should have on the call and it was really sort of a one off item as well. There was over in Zinc Australia, there was a better $20 odd $1,000,000 $25,000,000 take or pay settlement also payment on some historical freight agreements and rail agreements that had to go through the books. That was a one off relating to sort of historical discussion and disputes and whatnot. And it just happened to come through this particular period. It's a one off that's come through the zinc business and that's obviously not part of the feature.
So these are some of the smaller sort of things that each of them don't particularly deserve much attention, but you get a few of those and potentially add up. But we will see I mean, maybe there's an element of having in terms of some of the costing that maybe it built up where there was obviously slightly stretchy targets that are coming in and maybe now it's slightly more conservative and we can get 3, 4 months down the track and see that we've actually been able to close the gap somewhat. I'd rather sort of take the approach of setting these numbers out here and then setting some beats sort of down the track. I don't have I mean, these are the numbers that clearly come off the system, but that's just my own potential assessment of explaining some of those reasons as well. But clearly into 'nineteen, having seen some more extraneous factors in 'eighteen and some of the production timing of production and other factors come through clearly into '19, we'll be very positive all things being equal in both those copper and zinc businesses.
And that would be in sort of 3 months' time as we do always around that time, we'd look to come and update and give the full building blocks around that and explain everything having had another sort of strong 3 to 4 months now where the business really does go and turn everything upside down and builds everything up from the bottom upwards, including by the way your second part of your question is when they start thinking about subject to market, subject to latest capital, subject to latest returns, start thinking about whether it's time to either think about or to elevate or to promote any further organic expansion opportunities that exist in the business. For now, we're really focusing on those ones, as I mentioned to you earlier on, which was the Katanga Rhino, Jairam, Konyamba and Chad West Oil. We have options in copper. We have some options in some other commodities. I think it's premature now.
Let's wait till November, December and we'll talk about that.
Okay. Thank you.
Thank you. We will now take our next question from Mino Senders from Morgan Stanley. Please go ahead. Your line is open.
Yes, afternoon. Two small questions. First on coal, you both alluded to it, the prices are strong. You yourself see them continue to be strong. Nevertheless, a financial market and ourselves as well stubbornly forecast declining prices.
What do you think we are missing? And where should we pay more attention to? And secondly, on marketing and a trade war and the structural quality price differentials, intuitively, I would think that would be good for the marketing business. Nevertheless, RMIs are slightly flattish. So how can we close the gap between flat RMIs and what should be a very advantageous environment for the marketing operations?
Yes. I don't know what you guys are missing on coal. I suppose you missed the ramp up $2.20 and you missed the ramp up to South Africa $110 I mean, I think people are forgetting that demand in Southeast Asia is rising. India demand is strong. China has been stronger than people anticipated.
You have increasing demand in Malaysia. You have increasing demand in places like Turkey. And people are forgetting about the increasing demand. They are all looking at Europe. And you've got to remember in a 1,000,000,000 tonne market, seaborne market, Europe is really only about 100,000,000 tonnes.
So it's not a big effect on the market. So we hear about less coal burn in Europe and everyone's focusing on that, but we're forgetting about the demand which is going on in Southeast Asia and other parts of Asia and especially India where coal India is not ramping up as everyone anticipated. And unfortunately, I think India would even import more tonnes if the ports could handle it. So those areas are strong and demand is strong. And what everyone seems to be forgetting is there are no new coal mines being built.
No one is building a new coal mine in Australia. No one's building anything growth in Colombia. Nothing is happening in South Africa. In fact, South Africa could potentially go negative when Eskom has to take some of the export tonnes onto the local market. So you're only getting increases in Indonesia.
But what everyone seems to be forgetting, the increases in Indonesia is increasing tonnage, but not increase in actual heating value going out of the country because the increase they losing a lot of their higher quality coals and the increasing volume of the lower quality coals, so in calorific value exports is in fact going down. So I think this is where the market is getting it wrong and that's where they're putting I think you guys are putting forward coal prices around about $75 $80 going forward. We don't see it at that. And as we've seen this year, look at the numbers we're going to get on EBITDA on coal. I think Steve gives a slide on coal.
At current spot prices. I think the EBITDA of coal is our top performing commodity. I think it's around about where we had about $5,600,000,000 $5,700,000,000 of EBITDA. And you've got to remember the free cash flow from coal is extremely high because we have minimal CapEx in coal, is not a big CapEx bill on coal. So it generates a massive amount of our free cash flow.
So I think that's the part where you're getting it wrong. Trade wars and the effect of RMI, etcetera, you can remember the trade wars hasn't really kicked in yet. So therefore, we haven't really started taking advantage if the advantages are there yet. We'll see what happens and what the effect of it is going forward.
Thank you. We will now take our next question from Sergey Donsky from Societe Generale. Please go ahead. Your line is open.
Yes. Thank you very much. A few of my questions have been answered, but 2 small ones. First of all, speaking of your core division, I think that portfolio mix adjustment to price in first half was a bit higher than you expected. It was $19 versus $16 that you guided.
But you maintain your guidance for the year unchanged at $16 if I understand it correctly, which means that in the second half, this adjustment is supposed to shrink to about $13 Is this correct? And what is your thinking around this? What will be the reasons driving this adjustment lower? And second question, just a small one, with LIBOR rates up this year quite significantly versus 2017. How this affects your borrowing costs?
What is the average change in your borrowing cost of portfolio this year versus last year? Thank you.
Thanks, Sergey. It looks like a couple of questions for me. In terms of coal for the first half where you've seen a reduction in the portfolio mix, that was primarily on account of the lower coking coal prices compared to what they've been assumed back in January, because coking coal within this formulaic calculation is treated as a byproduct of the thermal coal just to try and bring it into one calculation for the coal business as a whole. I think with the purchase of Hell Creek now, which is primarily coke and coal, we'll have to consider whether that's still an appropriate way to show it or whether we split up the coal business into its 2 components and not have that have it as some sort of primary component. So we did see coking coal had was stronger in that sort of January period as above 200 and things moved sort of into the 170s, 180s and stuff and that clearly had an impact on against expectations as we move forward.
On a full year basis as to why that's now contracted in terms of the portfolio mix, which is another attribute or another assumption that goes into that because it's all about discount to a New Castle average price that gets assumed is that we're able to achieve in terms of many of our current coal blends and qualities that historically may have been priced either against a different benchmark or may have received even higher discounts relative to that Newcastle. We're able to price coal that never historically would have been priced against the Newcastle benchmark, which is achieving better returns than historically would have been the case. So that's essentially contracting that discount or that mix across. And our overall quality of coal generally has improved as we've taken in HVO, including the semi soft coal that comes with that particular division, it was quite material as well. Hell Creek, of course, when it comes in, but that's on the coking side as well and sale of a time or which was sort of an asset higher cost reaching the end of its mine life as well.
So we've taken up those tons. So that's the main reasons for that. In terms of LIBOR rates, cost of borrowing, we've seen obviously LIBOR go up steadily. It sort of had a different shape. It would obviously correlate reasonably with the Fed funds rate where you've seen a few increases that's happened across the pond there.
Our average borrowing during the period would have increased from around we have some fixed cost and floating and a mixture and hybrid of debt. It would have been about 3.80 up to about 4 would be our average cost of debt based on where LIBOR currently is. For the illustrative assumptions I've used more like 4.3%. So I have baked in another couple fed rises in there into our blended rate for the purpose of the cash taxes interest and other for the 8.2%. So there is another 2 rate increases that are baked into that number.
Thank
you.
Thank you. We will now take our next question from Taylor Brodaw from RBC. Please go ahead. Your line is open.
Great. Thanks, gentlemen. Just have two questions from my side. The first one is just on the DRC. Under the current code, would you have any estimates on the magnitude of what the incremental tax could be, if there were to be a request from the government for these taxes?
And then secondly, in terms of following the deals with GECOMINs, the mining code changes, etcetera. Could you be able to clarify the tax payable position here in terms of any carry forwards? I see there was a couple of changes to the deferred tax in the financials. And then just secondly on buybacks, I guess, 13% free cash yield, your net debt levels at the level you're expected to be at. You've got production growth growing for next year.
As you've mentioned on the call, you're preferring buybacks to M and A, potentially to dividends as well. Is there any practical limitation on the amount of buybacks that could be done? Thanks.
Yes. On the DRC code, it's very hard to estimate what it would be under the new code because you've got to go look at your regional estimated project, etcetera, and you work off that. So that it would be difficult to do it right now because we don't understand exactly how the code would work. And that's what we currently in discussions with the government because the super profit tax would be a complex calculation. So that one would be hard to estimate.
DRC tax payable, Steve can talk to that and the buyer.
Yes. Hi, Tyler. On the DRC, I mean, there's an accounting area here as much as a sort of tax area in the DRC, particularly in KCC, which is the Katanga operating subsidiary. There is significant tax losses currently in that business as they've sustained losses during the suspension and ramp up period and of course a lot of interest that's gone into funding that business. So they have around $4,200,000,000 of tax losses down there, most of which has not been recognized in the books as well.
So we've noted a conservative approach within the accounts as well. We've said based on the introduction of mining code, but that's probably a lesser thing there. It's more around just getting validation of the ramp up and sign off of all the recap and everything else is that given all the uncertainties, we've deferred a decision on whether we want to book some of those losses. If we did fully bring in all those losses, you'd have $700,000,000 or $800,000,000 of additional deferred tax asset. But that's all accounting that doesn't sort of change much in any of your own models.
In terms of tax, what that does do is, of course, shelter some income tax that would be paid at the statutory rate down there of the 30%. You can't use it fully down there in any particular year. There's a system down there where you can use of taxable income in any year that you do generate, which we expect very short to become taxable within KCC given its ramp up. 60% of that taxable income can be offset by carry forward losses, which then gets obviously carried forward and 40% would attract some tax as well. So clearly, there will be some cash benefit or some tax shield at that particular operation.
None of that's been assumed in the illustrative free cash flow we haven't built in. So this obviously the existence of those losses will even during an actual as opposed to illustrative sense will on account of that particular operation will result in less cash taxes actually being expensed over a period until those losses are exhausted. That's the only place that we currently have any meaningful tax losses still relevant for that purpose. And certainly, that hasn't been booked into the accounts. I think in terms of buybacks, you just asked what the any limitations on amount of buybacks.
I mean, there is none other than buying back in terms of levels that is in accordance with EU rules around market abuse and limits and the like. So essentially, there is guidance of ranges of less than 10% that you can buy in any given market, safe harbor rules around there, potentially up to 20% and various gray zones in between. So we obviously follow those and take guidance accordingly. But that's the only sort of practical limit based on liquidity and appetite in terms of how one could execute buyback programs.
Thanks very much. Very clear.
Thank you. We will now take our final question from Dominic O'Kane from JPMorgan. Please go ahead. Your line is open.
Hello. Just quick question on coal. Could you just give us some guidance on the percentage of thermal coal that you're selling at spot versus contract and how the contract timings evolve over the next 6 to 12 months? Thanks.
Yes. I think most of it is spot because we have sold some we sold a lot of tonnes on the index. So a lot of it is floating on the index even though the physical tonnes has been sold. We've got a certain amount in Japan, which is fixed pricing. My gut feel for the balance and a lot of the Japanese we priced recently and we back priced it to the 1st April because it's a 1st April starting date.
I would imagine we most probably 15 on the 135,000,000 tonnes that we have, I'd say most probably 15% is fixed priced.
Okay. Thanks.
Much less than historically because the Japanese, some of them have started pushing towards index pricing. So that's a figure I don't know exactly, but I imagine it's around about there because a lot of the tonnes have been sold, but it's been sold index priced.
Thank you. Ladies and gentlemen, that will conclude the Q and A session. I will now pass the call back to your host for any final remarks.
Yes. No, I think that thank you very much for the questions. I think the main thing we wish to emphasize on the call is the massive free cash flow generation of the company. And as we said, we're generating at current spot commodity prices round about $8,200,000,000 And as you guys picked up on the call, that's generating at least 13% free cash flow yield. And with that in mind, do we definitely for the first time, well not for the first time, but we were always talking about rather dividend payments, but because we don't want to take the risk of calling the commodity price, but we believe there are fundamental situations right now.
Where we believe the market's getting it wrong and therefore we've got to look carefully and we will continue looking at share buybacks as the best option as against any other M and A or other opportunities which may exist out there. And right now, we believe buybacks may be the best returns we can get for the company. So I thank you for attending the call. Thanks very much.
Ladies and gentlemen, that will conclude today's conference and you may now all disconnect.