Great. Good morning, everybody, and good evening, everybody on the phone and the web. Welcome to Rio Tinto's 2019 results presentation. Again, thank you for joining us so early in the morning here, and thank you for those on the phone and the webcast in Australia for giving up some of your evening and joining us. Before we turn to J.S. and Jakob to present our 2019 results and an outlook, a couple of housekeeping items. Please turn off your phone, or at the least, please turn on silent. Secondly, no safety test planned for today, so if you hear the fire alarm, two exit doors, one at the back, one here. Security personnel is also the fire marshal. Follow their instructions. The exit door is at the back here, right and left. Finally, we'll go for the Q&A procedure at the end of the session.
With that, J.S., please.
Thank you, Menno. Good morning, good evening all. I'm very happy together with the team to welcome you to our 2019 results presentation. Let me start by setting the scene. Rio's purpose is to produce the materials essential to human progress, now and in the future. We are focusing on two things, perform today and transform for tomorrow. Perform is what we're doing right now to deliver superior value to our shareholders. 2019 is another very good example of our success here, and we'll cover our performance highlights now. Transform is about what we're doing to prepare for the future, and we are already doing a lot. I will cover this in the second part of this presentation. 2019 was another very successful year for Rio Tinto and for our shareholders. A year of strong financial performance.
A year we delivered significant cash flow while maintaining our balance sheet strength. The year we invested in high-quality growth, and the year we paid $11.9 billion, just make sure people get the number, $11.9 billion of cash return to our shareholders. Today, we have announced a record final dividend of $3.7 billion, taking our total cash return to our shareholders over the last four years to $36 billion . Our commitment is to deliver superior shareholder value through the cycle, and we are consistently achieving this. In 2019, we generated $21 billion of EBITDA with a strong margin of 47%, resulting in an industry-leading return on capital employed of 24%. We generated $15.8 billion of operational cash flow that we allocated with discipline, including investing $2.6 billion in high-value growth.
Our strong exploration investment of $600 million in 2019 shows we are also out there looking for the next world-class business. Most of all, I'm very proud of our safety performance. Safety is a core value at Rio, and in 2019, we had no fatalities at a Rio Tinto operation. This reflects the work of every one of our colleagues and contractors around the world. We must maintain this and keep the focus, as we must with all other aspects of operational excellence. Strong operational performance underpins strong financial performance, as does our commitment to sustainability. Sustainability is a key enabler of our strategy and financial performance. Core to approach to sustainability is profitability. Our goal is to run a safe, responsible, and profitable business. Of course, the more profitable we are, the more we can contribute and share wealth across multiple stakeholders.
In 2019, we deliver here as well. Let me give you some examples. Rio Tinto employs around 46,000 people globally with over 100,000 contractors. We work with suppliers in more than 120 locations. We have a total spend of around $17 billion in 2019, and we have paid $7.5 billion in taxes and royalties globally to governments and communities. We also have thousands and thousands of retail shareholders. We are vital contributors to economies, communities, shareholders, and supply chains. Over the years, we have been working hard to create wealth in a responsible and sustainable way. We have improved our environmental performance. Over the last 10 years, we have reduced our global greenhouse gas emissions by 46%. We continue to invest in renewables. For example, just last week we announced a $100 million investment in a solar and battery solution in Pilbara in Australia.
We will invest CAD 55 million in ELYSIS, a breakthrough technology for aluminum. Today, we will release our new climate change targets. I will share more on this shortly. We ended 2019 as number two on the Global Human Rights Index, only behind Adidas. A great performance in a complex industry. In summary, today Rio Tinto is a stronger and more resilient company because we have the right strategy to perform and transform. As you can see, we have once again delivered industry-leading profitability, strong cash flows, and significant returns to our shareholders. We continue to invest in the future in both organic growth and in sustaining our operations. We have a world-class portfolio of assets, and we have the strongest, or one of the strongest, balance sheets in the sector, with $3.7 billion of net debt.
This provides us with resilience, which is absolutely vital in an increasingly complex and volatile world. It also positions us well for the future. I will tell you more after Jakob shares some further details on 2019 financials. The floor is yours, Jakob.
Thank you, J.S. Ladies and gentlemen, good morning. Well, as J.S. already have told you, we're very pleased here today that we have announced a set of very strong financials for 2019. Our top line grew by 6% compared to 2018, and we saw double-digit increases in underlying EBITDA and underlying earnings, which grew by 17% and 18%, respectively. This is despite the absence in 2019 of significant revenue and earnings from now-divested assets. In other words, we have delivered more from less. Net earnings were lower, entirely due to impairments. In the first half, we recognized an impairment related to Oyu Tolgoi, and at the year-end, there was an impairment at Yarwun. Our return on capital employed of 24% was the highest for almost a decade. We were able to turn earnings into cash.
We had an excellent cash conversion of EBITDA to cash flow of 70%, and cash flow from operations grew by 34%, and our free cash flow relating to 2019 reached $10 billion, an increase of 41%. This, combined with a strong balance sheet, meant that the Board was able to declare a final dividend of $3.7 billion, which will be paid in April. The full-year dividend of $7.2 billion represents a 40% payout. As you can see, in aggregate, higher prices and a strong U.S. dollar drove the increase in EBITDA in 2019. Operational challenges, including significant weather impacts, resulted in lower volumes, particularly in the Pilbara, leading to higher cash unit costs across the group. Most commodities declined in 2019, reflecting a weakening in the global economy. We, however, in aggregate, had a positive impact from prices due to iron ore.
The iron ore price benefited from significant supply disruptions, starting with the tragic incident in Brazil, but also very strong steel demand from China. Steel production, for the first time ever, exceeded, in a period, 1 billion tons on an annualized basis. However, both aluminum and copper prices were weaker last year compared to 2018. In aluminum, both the LME price and the Midwest Premium fell in 2019 due to the slowing of global trade and a weaker demand from transportation, particularly automotive. Copper prices, which often reflects the state of the world's economy, also decreased in 2019, particularly in the second half of the year. In 2019, Rio Tinto further improved profitability to 24% return on capital employed. The last year we had similar profitability was in 2011, and at that time, the iron ore price was approximately 80% higher than in 2019.
Our industry-leading profitability is not a short-term trend. The strengths and the resilience of our business is illustrated by the fact that during the last two decades, we've only had one year of single-digit return on capital employed. Most importantly, we have a business model that has the ability to turn earnings into cash. Since we amended our capital allocation framework back in 2013, we have delivered strong free cash flow. In 2019, we generated $10 billion of free cash flow, excluding the tax payments made in 2019 related to divestments completed in 2018. This is the highest in almost a decade. Now, let's dive into the individual parts of our business, starting with Iron Ore. Our Iron Ore business is truly world-class. Revenue has increased by 29%, EBITDA by 41%, which generated an EBITDA margin of 72%.
We started 2019 with the intention to slowly grow our shipments. Higher-than-planned weather disruptions, a fire at our Cape Lambert port, and some operational challenges in the first half meant that overall in the year, there was a 3% decline in shipments. It was, however, encouraging to see the increase in iron ore production in the second half. We were able to run the system at an annualized run rate of approximately 340 million tons, reflecting the investment we made in mine development. Operating costs increased in 2019 to $14.4 a ton. This was partly due to lower shipments, but also additional costs associated with waste movements. This year has had a challenging start, we were impacted by the tropical Cyclone Damien earlier this month.
As a result, we have reduced our 2020 shipment guidance for the Pilbara to be between 324 -334 million tons. We're currently expecting a 12% increase in the work index at our mines and a higher proportion of below water table mining. Despite this, we are expecting similar unit cost at $14-$15 per ton in 2020, albeit based on a slightly weaker Australian dollar. We will focus on productivity and technology to sustain a low-cost position. During 2019, we continued our controlled ramp-up of our investments in the Pilbara. This increase included spend on Koodaideri Phase 1, the Robe Replacement project, our recently approved investment in Western Turner Syncline Phase 2, and the investment required to sustain and improve the future reliability of our world-class assets. We expect sustaining CapEx for the coming years to stay between $1 -$1.5 billion a year.
Strong financials, combined with continued capital discipline, led to an industry-leading return on capital employed of 67% last year. Now, moving on to aluminum. During the year, the business faced very difficult conditions across the value chain. Bauxite production grew by 9% during the year following the ramp-up of Amrun, with third-party shipments increasing by 21%. Production in alumina and aluminum were fairly stable despite some operational disruptions with earlier than expected pot relining required at Kitimat and the impact of significant maintenance in alumina. EBITDA has decreased 26% and the EBIT margin fell 6 percentage points to 26% due to lower prices, which were partly offset by lower input costs and the increase in bauxite volumes. Despite the continued investments, particularly in sustaining CapEx, we continue to generate healthy free cash flow of $800 million.
The return on capital employed in this business reflects the tough operating backdrop for the industry and was 4% in 2019. We have a strong portfolio of aluminum assets. Some are weaker due to structural power disadvantages. We are doing everything we can to improve these assets, and this led to the announcement of the strategic review of our assets in New Zealand and Iceland. There should be no doubt that we are not satisfied with the profitability of our Aluminum business. What you need to ensure, particularly in tough times, is that you are competitive. What you can see here is that our assets continue to generate the leading EBITDA margin in the industry. Moving on to our Copper and Diamonds business. In 2019, we experienced really good operational performance, but the financial performance was masked by lower prices and one-off items.
Our realized copper price fell 7% in 2019. We also had lower production of copper due to, as anticipated, lower grades and lower productions of diamonds as these assets are getting closer to the end of mine life. Despite 11% lower grades at both Oyu Tolgoi and Kennecott, production of these assets only fell by 8% as we were able to offset the great decline with productivity improvements. 2020 is a transitional year where copper production is expected to be further impacted by lower grades, particularly at Oyu Tolgoi and Kennecott. However, higher grades will be achieved with the completion of the South Wall Pushback project in early 2021. Unit costs were well managed and reduced significantly in 2019, partly due to higher by-product credits. We expect that the unit cost for copper will increase in 2020 due to lower production and lower by-product credits.
EBITDA was down 17% on an absolute basis, mostly due to lower prices and volumes. The reduction year-on-year was 9% when excluding the $200 million one-off cost of moving from a coal to a renewable power contract at Escondida. During 2019, we continued to invest significantly in copper, particularly in the OT underground project and the sustaining South Wall Pushback project at Kennecott. In addition, we have invested in developing our understanding of the Resolution ore body through increased evaluation expenditures, which goes through the P&L, and most of our exploration expenditure also goes towards copper. Without stealing the thunder of J.S., a good example of that, which will be covered in a moment is the Winu prospect. We are heavily investing in our Copper business, which is a short-term drag on profitability and cash flow.
However, please note that Oyu Tolgoi CapEx is being reported on a 100% basis as it is fully consolidated. Now, our Energy & Minerals business recovered very well from disruptions in 2018. The external environment was strong, with favorable pellet prices for IOC and titanium slag prices for the RTIT business. On top of this, there were significant increases in production at both these businesses. Excluding the contribution of the Coke and Coal assets, which were divested in 2018, we saw a 15% increase in revenues, 41% increase in EBITDA, and the business generated a return on capital employed of 15% in 2019. In late 2019, we curtailed productions at Richards Bay Minerals in South Africa following a series of security-related incidents, as the safety of our people is first priority.
Whilst we were able to safely restart operations, this will take time to ramp back to full capacity, and this is reflected in our 2020 production guidance. We will review the restart of the Zulti South replacement project only when operations at RBM have normalized. While Rio Tinto continues to adapt to the external world, there's one thing that does not change, and that's our capital allocation framework. We will continue to be very disciplined in allocating capital. First, we look carefully at the level of essential sustained CapEx required, as maintaining our high-quality assets is our first priority. We need to invest in these not only to maintain them, to keep them strong, but also to improve their productivity. Secondly, we are committed to delivering against our dividend policy.
Then it is an iterative cycle of further returns to shareholders, compelling growth opportunities, and continuing to maintain a strong balance sheet. We have, over the last year, consistently talked about a disciplined ramp-up of our capital investments, and this is exactly what we have done and exactly what we intend to do. We indicated at our capital markets day that our 2019 CapEx would be slightly below the guidance of $6 billion, and adjusted this to $5.5 billion due to the timing of expenditures. However, we still need to spend the money, and therefore increased the guidance for 2020 to $7 billion. Other than that, we see the level of capital expenditure in the short to medium term to be around $6.5 billion per year. Today, we are also announcing $1 billion of climate-related spend over the next five years.
The portion of this spend which is CapEx is included in this guidance. In 2019, we increased our sustaining capital to $2.9 billion. We expect to spend on average around $2.5 billion per year in the years to come. We will continue to ensure that we are disciplined in our capital allocation and will only invest in value-accretive projects. At the beginning of 2019, we implemented the IFRS 16 standard relating to leases. The overall impact of this was an increase to net debt of $1.5 billion. During 2019, we paid out $10.3 billion in dividends and bought back shares of $1.6 billion of our own shares. Overall, after the impact of operating cash flow and CapEx, our net debt at the end of 2019 was $3.7 billion.
On a pro forma basis, we have continued to de-lever our balance sheet over the last few years, and also in 2019. We are, as a company, very comfortable with the strength of our balance sheet. During uncertain times, this gives us comfort that we are able to continue to invest in our business and continue to provide superior returns to our shareholders. Our shareholders' returns have consistently exceeded our dividend policy. The dividend policy is to pay out 40%-60% of underlying earnings through the cycle. As you can see, over the last four years, our ordinary dividend has been at the top of that band, and we have every year paid some additional return, and have also returned the proceeds from divestments. On average, over the last four years, the payout ratio has been just over 70%.
If you take into account the divestment proceeds, the average payout ratios has been in excess of 100%. Let me finalize here and take a step back before handing back to J.S., who will talk about the future. I wanted to leave you with my thoughts on what is behind the results we have disclosed today. It is, in my view, the strength of our assets, the way we run our business, that has delivered double-digit earnings, double-digit free cash flow, and double-digit shareholder returns in 2019. This demonstrates the strengths and the resilience that should serve us well also for the future. Thank you, and over to you, J.S.
Thank you, Jakob. Let's now spend some time looking ahead, starting with the very near term before talking about our transformation journey. As we have always said, there are two key drivers for the mining industry, global GDP growth and trade. Today, we face a very uncertain world on both drivers due to the outbreak of the coronavirus. As we all know, this is resulting in restriction to global movement of people and potentially trade flows. The effects of the virus have also affected sentiments and creates a risk to global GDP. Indeed, the Chinese economy has already been impacted, mainly the services, construction, and manufacturing sectors. Supply chain disruptions are a real possibility. Our Singapore and Shanghai teams are closely monitoring the situation.
We are watching high-frequency activities, such as the traffic in Shanghai and, of course, production flows. Whether the recovery is a V-shaped or L-shaped or W-shaped will be in part a result of people's ability to return to work. Looking at Rio, today, our Iron Ore books are full. We are likely to see some short-term impacts, such as in our supply chains and possibly in the provision of services from Chinese suppliers. There is uncertainty today, but what we know is that the Chinese government is acting with a first priority to contain the coronavirus, then to resume economic activity and limit supply chain impacts. The Chinese government has many possible stimulus measures at their disposal, and we expect them to act. We believe this action will have a positive impact later in the year.
As volatile as the current conditions are, Rio Tinto does well in tough times. Our strong balance sheet, world-class assets, and the quality of our relationship with our customers help us to outperform in an uncertain world. Across all our committees, the majority of assets sit at the bottom of the cost curve. Our world-class asset and people will continue to generate Tier 1 cash flow, and our Canadian aluminum smelters are in the first quarter are producing the most profitable and sustainable aluminum in the industry. Our balance sheet also offers protection in volatile times, and we are comfortable where our net debt sits today. As we manage short-term volatility, we are also planning for the future. Last year, we talked about the new era of complexity, one of growing political tensions, higher expectation of society, and technology disruptions.
This has certainly been the case since we talked about it. We shouldn't see complexity, though, just as a downside risk. There is also plenty of opportunity for a company like Rio Tinto in this new era. The transition to a low-carbon future and other demand drivers such as electrification, urbanization, and continued industrialization of the developing world will be materials-intensive. We have been working on our transform agenda for some time now to make the most of these future trends. I will cover more on this in a moment. We have applied our 4Ps strategy across a number of future scenarios, and under each of them, we are well-positioned for success. I'm confident we will deliver high-quality products for our customers, superior value for shareholders, and wealth for all stakeholders in the years to come.
To do this, we are looking to accelerate our transformation drive in three key areas. One, building a portfolio of products underpinned by world-class assets to support the transition to a low-carbon economy. Let me give you an example. We are the only large diversified mining company not mining coal or extracting oil and gas. Two, operating our assets in an economic and sustainable way, underpinned by technology and innovations. Looking at things like land reuse and recovery of minerals from tailings. Three, enhancing our value chain through a partnership ecosystem approach. This includes connecting the resources to the end market, building stronger relationships with our customers and suppliers, and working with our communities, such as our partnership with Baowu and Tsinghua University and our partnership with Apple, Alcoa, and the Canadian and Quebec governments.
These three actions will be underpinned by data to provide real-time insights and our program to build the relevant skills. Let me cover one of these now, building a portfolio of the future. Any talk on our future portfolio must include a discussion on the transition to a low-carbon economy and what this means for our industry in terms of profitability. First, let's look at our portfolio today. Most of our assets already have very low emissions intensity compared to industry averages. This is a great place to be, any material improvement in emissions intensity will be challenging without technology breakthroughs. We acknowledge we have a challenge around our PacAl assets, which sit significantly below the carbon intensity EBITDA line. The message here is very clear and simple. We must improve our cost position, starting with competitive power contracts, and develop long-term pathways to reduce our carbon footprint.
We are working with all our stakeholders to find solutions, but time is of the essence. This is an example of how we are shaping our portfolio right now by looking at both cost competitiveness and emissions intensity. We will continue this approach to build our portfolio of the future. We are confident the long-term fundamentals of our industry are very strong. We also expect that greater electrification and the shift to a low-carbon economy will be highly materials intensive. Our current portfolio and the growth we have in the pipeline means we are well-placed to make the most of these trends. The important point is this: We will not grow for the sake of it. We will assess the supply and demand fundamentals of each of our core markets and make informed decision aligned to our value over volume approach. In Iron Ore, we have a world-class business.
In 2019, we delivered 72% EBITDA margins. Our resource base will enable us to deliver superior cash flow for many years to come, and we are investing in renewables. Our world-class Canadian Aluminum business is at the bottom of the cost and emissions curve, thanks to our hydro base and sector-leading technology. It is well-positioned to meet future market demands in North America. We are growing our copper exposure through our existing pipeline and through exploration. We are also looking at options to invest in other materials of the future through internal and external growth. What is important for us is to continue to build, over time, an asset portfolio and pipeline of growth options that contributes to a low carbon future. Growth for us is all about sustainable value generation and returns to our shareholders. It is not about volume or emissions target per se.
It is about building sustainable cash flows. We have two levers to improve our portfolio. One, new high-quality assets with a primary focus on organic options. Our ventures unit has a continuous and rigorous commitment to M&A, and we have reviewed more than 200 opportunities. We will only transact if it is value accretive to do so. Two, we will continue to improve our margins and carbon footprint at our existing assets through operational and commercial excellence, enabled by technology and innovation. Rio Tinto is patient, and we take the long-term view. We have managed to reinvest and transform ourselves over the history of this company, and we will continue to do so. For example, in the 1960s, around 80% of Rio Tinto's profit was coming from copper and uranium. Our job is to create option which we can progress to meet market demand.
A great example is Winu, our copper opportunity in W.A. in Australia. The project is progressing well. Drilling and geophysical testing continues with nearly 140 km drilled to date, and those site works is on the way. We are looking to stage gate the project, starting small, but allowing opportunity for growth over time. We are progressing discussion with the traditional owners with an target, with an aim to deliver first production as early as 2023. I talked last year about the potential for the industry to look at growth in a different way. This is a good example of what I described in action. This approach allows us to provide copper to society and quicker cash flow to shareholders, communities, and governments. We will keep you updated as we progress. I will now make some specific comments on climate change as we release our targets today.
Let's take a step back and consider the global low carbon transition challenge. There are no easy answers. There is no clear pathway right now for the world to get to a net zero emissions by 2050. The ambition is clear, but the pathway is not. This will require electrification of transport, energy and resources efficiency across the value chain, decarbonization of energy generation, transformation of agriculture and land use, to name but a few. New technologies, partnerships, and effective government policies will be key. The challenge for the world and for the resource industry is to continue to focus on poverty reduction and wealth creation while delivering climate action.
This will require a complex trade-off, which means all of us need to face up to some challenging decisions, such as, for consumers, are you willing to pay a premium for services and products that are greener and to support developing nations? Are you willing to consume less? For governments, are you willing to sacrifice economic growth and associated jobs to deliver climate goals? For shareholders, are you willing to see a reduction in shareholder returns to finance climate action? Are you willing to cap your growth in the short term? There are very different views across countries, communities, politics, and business. We must have honest conversation here. At Rio Tinto, we are pragmatic. We have a clear climate change strategy, which has four pillars based on producing, reducing, partnering, and enhancing. That is, one, producing the materials from a low carbon future.
Two, reducing the carbon footprint of our own operations. Three, partnering to reduce the carbon footprint across our value chains. Four, enhancing our resilience to physical climate change risk. We have delivered strong performance in each of these. Our ambition is clear. To get to net zero by 2050, this is a massive undertaking. It means all of our future growth will need to be carbon neutral. We will need new technologies and partnership. We do not have a full roadmap, but we are working on it. Today, we are announcing our 2030 targets based on detailed analysis. An additional 30% reduction in emissions intensity from all of our operations. An additional 15, one- five, 15% reduction in absolute emission from our operations. It comes on the back of 46% reduction in emissions since 2008. Our targets were developed through detailed marginal abatement cost curve, asset by asset.
For sure, of course, we'll try to do better and more quickly. We believe it is now about action and results. Indeed, to support our work and that of our customers and supplier, we will invest a further $1 billion in climate change over the next five years. Like the $100 million Pilbara renewable investment we just announced last week. Like technology breakthrough initiatives such as ELYSIS. This project will be delivered with the support of our new energy and climate change center of excellence group, which was established late last year. Let me close with performance and by looking at our superior value creation. The last four years are not just about strong financial and portfolio performance. It's also a story of consistent capital allocation. Our underlying business generated over $62 billion over a four-year period. 80% or $50 billion of this came from cash from operations.
On the back of this, we paid $36 billion since 2016 and paying a further $3.9 billion to our shareholders in the first half of 2020. That is equivalent to over 67%, 2/3, of our market cap at the beginning of 2016. We have strengthened our portfolio, divesting $12 billion of assets. We have paid down $12 billion of our net debt, and we have invested $18 billion in growth and in sustaining our world-class assets. Our track record is strong, and we have a solid base for future investment and returns. However, the next six months could bring some challenges, but the long-term outlook for the industry is positive. Rio Tinto is well-placed. We are a resilient business. We have a clear strategy to perform and to transform. For us, it's all about creating sustainable and superior value day in and day out.
Now I'm going to turn to questions. Before I take bear with me one sec on this one. We have Chris in Perth, we've got Alf in Montreal, we've got Steve in Miami, and I've got Simon Trott, our Chief Commercial Officer. I'm sure there will be lots of questions for you, Simon, on the outlook. Here, I've got Paul and I've got Arnaud. Why don't we start? Menno, how do you want to manage the questioning?
Just take two here and two from the.
Okay. I see. Okay. All right. Dominic, I think you are in great shape. You want to go first?
Two questions from me. Very admirable on the CO2 targets. Could you just maybe comment on the financial cost to Rio of those targets? If I look at Winu, what's the things such as CapEx intensity, what's the project parameters for access to power compared to a conventional mining project? Is there a material increase in the financial cost to Rio with these admirable targets? The second question is on Mongolia. Could you just maybe give us an update on projects in Mongolia in relation to the government, and specifically, how does the coal-fired power station fit into your carbon neutral or carbon zero targets?
Arnaud, you just came back from Mongolia. You want to pick up the discussion on Mongolia?
Sure.
You have a frequent flyer points we've.
Yes. Okay, so in terms of the power project in Mongolia, as you know, commitment was made in 2009 through the investment agreement to invest in a coal power station, and to source 100% of the power within Mongolia. We've made a lot of progress on this project, and we delivered to the government in February the feasibility study of 300 MW coal power station based on the coal deposit, which is called Tavan Tolgoi. In parallel, we are also looking at some other projects, particularly in renewables, and we've shared some numbers with the government. We are now at a stage where we're assessing with the government the different options. In terms of the impact of this project on our carbon footprint, it will depend on which option will be chosen with the government.
Yeah. Thank you, Arnaud. I think the point important here, Dominic, is currently the power is coming from China, from Inner Mongolia, which is coal-fired. From that perspective, it's net, but we are clear that, as Arnaud is saying, is we have an agreement. At the margin, we can bring other source of power. That's where we look at, but no decision. The ambition remain the same. Between now and 2030, we will have to reduce overall emission, CO2 emission, by 15%, no matter what we do. That's a massive undertaking. On Winu, you want to say a few words, Arnaud, as well?
Sure.
Saying that we're looking at renewables.
On Winu, it's early stage, of course, but we're already looking at different power solutions, including LNG or renewable. Personally, I don't see actually clean power as a risk. I really see it as an opportunity. If you look at all over the world, the cost of energy generated through renewable, particularly solar, is becoming more and more competitive. We are definitely looking at a cleaner energy and renewable energy for Winu.
Potentially medium to long term, because as J.S. explained, we're looking at a Stage 1, which will be a smaller mine and then progressively growing. Renewable power for Winu is both an opportunity to reduce our carbon footprint, but potentially it's an opportunity to reduce our cost as well.
Just to wrap up, because your question, Dominic, is absolutely spot on, is what will be the financial impact? I think it's important if you step back on climate change, we shouldn't forget what the first pillar of the climate change strategy is about. It's about supplying the product, the aluminum, the copper, the high-quality iron ore or minerals for the battery that the world is going to require. Pretty often people focus only on the internal stuff, the cost, and so on and so forth. We should not forget the top -line growth aspect as well. That's the first aspect. The second aspect is we've done a lot of work between now and 2030, hence the 2030 targets. What we see is in order to underpin our strategy and our mission, there is $1 billion of CapEx and OpEx.
We don't know how much is going to be CapEx, how much is going to be OpEx. That will be for the finance people to decide the allocation as always. We are clear. Are we concerned today when I look at the strength of our balance sheet, are we concerned about when I look at the quality of our asset base, the quality of our product, and the quality of the relationship with our customers about our ability to deliver superior return as we've done for the last four years, superior return to our shareholders in the short, medium, long term? The answer is no. We're flagging that the cost will be $1 billion, which is fully embedded in our plan. That's where we are at this point in time.
I think we'll continue the dialogue for a long, long time, which is where I'm coming from, Dominic. Jason, and then we'll go to [audio distortion].
Jason Fairclough, Bank of America. Two quick ones on Iron Ore. First, maybe for Jakob, I'm just wondering if you can give us a bridge on the unit costs. You're saying flat year-over-year, but it does sound like a lot of headwinds. How much of that flat year-over-year is currency? How much of that flat year-over-year is efficiency? Maybe you just walk us through that. Just more generally on Iron Ore, I think you're guiding flat in terms of volumes. You've always been a value over volume guy. Could you talk about the willingness of the business to flex iron ore supply depending on what's going on in China?
Yeah, just very quickly on that front. You're right, there is a little assumption of a further strengthening of the U.S. dollar compared to the average rate to the Australian dollar we saw last year. We saw, I think, $0.7 and we now assume $0.67. We came out at $ 14.4 and we are guiding $ 14-$ 15. You can make your own assumptions whether the cost will be lower or be higher within that band. There's no doubt that we are, and we have been very transparent for quite a while on this, that we are facing a couple of tough years in Iron Ore where we have to work the mines very hard until Koodaideri goes on stream. That means I was referring to in my presentation the increase in work in the mine index and more mining below water table, which comes at a cost.
I think overall what you see is we are offsetting some of the challenges with more productivity and that's why we can guide a fairly unchanged cost. I would though say as late as last week, we were hit very badly by the cyclone that hit us straight in the port on the way down the rail line, and therefore we had to reset the production guidance for the year. We are still on top of that, J.S.
Maybe Chris, if you're on the call, you're the one running this business. If you can tell us more details on the ground, what you're doing in terms of productivity, in terms of asset productivity, in terms of people, labor productivity. Chris, that would be great.
J.S., thanks for the question. Come back to the bridge on unit costs. Jakob was absolutely right on everything that he said. Of course, if you look at the margin we delivered last year despite the additional costs, pretty good outcome after bouncing back in the second half. In terms of productivity, we are facing headwinds. Jakob talked about the 12% increase in hole length we're facing this year, which is really a result of working the brownfield mine a lot harder. To offset that, we're continuing to push on automation. We've now achieved 50% of our truck fleet is automated and we have a pathway of 80%. Of course, we've previously disclosed that decreases costs by 15%-20%.
Look, we're continuing to push on the next wave of productivity, particularly the focus on data. We have a series of projects outlined a number of them at the last Capital Markets Day, which I think is really the next horizon in cost efficiency. Finally, of course, the investments we are making in Koodaideri are both going to be lower certified product as they come through. We will see the benefit from those as well. Thanks, J.S.
No, thank you, Chris. I know everybody in here. Very well here. Push hard on automation on the trucks, and the target is to get to 50% in the coming years of autonomous trucks, and it's in the plan. It's about using more of the data across the system. Remember, Koodaideri will be the first or next wave of intelligent mine with twin in the cloud, so we can increase the availability of the mine and so on and so forth, to give you a sense. Now, there is pocket of labor inflation in the Pilbara as we speak, but is very focused, very targeted, and so on and so forth. As Chris said is, at the end of the day, what we're driving is the margins, and we deliver a 72% of EBITDA margin in the Pilbara.
Simon, you want to say how you look at the value over volume approach for Iron Ore, the blending you're doing in China, because you've done some great stuff this year and you're doing this year, then maybe I'll come back to Chris about the value over volume, what it means in practical terms in the Pilbara. Simon, floor is yours.
I guess looking at the market as it stands at the moment, obviously coming into 2020, reasonably strong and a bit of a tick up in key industrial indicators. Of course, obviously COVID, and its emergence towards the end of January. We're working really closely with our customers and our suppliers as we work our way through that. We just went out and spoke to around about 200 or so of our customers and suppliers, and looked similar themes to that which you're seeing. Certainly shortages in terms of labor, and restrictions on logistics, particularly trucking logistics. Some of the steel mills, domestic suppliers of things like fluxes, access to scrap being somewhat curtailed. You're seeing EAF rates drop considerably. A lot of the fleet largely closed until certainly into March. BFs less impacted.
As you look through that short-term disruption, we're really focused, I guess, beyond that, and some of the implications for the full year. You're seeing stimulus measures really in two phases. Currently really focused on availability of credit, and making sure those businesses with cash flow constraints continue through. Then, obviously, the next phase is going to be much more targeted towards consumption, towards infrastructure, and some of that more commodity intensive. We're working really closely with customers, looking through the short-term disruptions. They're obviously looking to that longer-term, medium-term resumption and some of that infrastructure spend. Clearly additional optionality like the portside trading gets us closer to the market and also gives us some optionality in terms of response.
You've certainly seen in the last few days a little bit of a pick-up in terms of at the back end of the ports as some of those trucking restrictions ease. That's going to create some opportunities for us that we can enhance as we go through the balance of the year.
Thank you, Simon. Jason, we have no impact on iron ore today. If you look at the stats, if you look at the port stats, I know you're looking at very carefully, the inventory has not increased. The inventory is flowing. I think if I step back at the macro level, during the Chinese New Year, you don't stop a blast furnace unless you're forced to. You can slow it down. What you can do very easily is stop, shut down the EAF converters, and that's what they've done. The demand for iron ore did remain pretty strong throughout the Chinese New Year and so on and so forth. What we're watching very carefully is how much steel is stuck, rebar, slabs, HRC, are stuck in the value chain, in the supply chain between the upstream and the downstream.
That's the piece we are watching very carefully. As we are having this conversation, we don't have any problem in moving our iron ore product or high-quality iron ore product from the Pilbara back into China. Shall we move to a couple of questions on the Webex, and I'll come back to London after? David, do I have any question from the-
I'm sure the Aussies.
Your first question comes from the line of Paul Young from Goldman Sachs. Please ask your question.
Yeah, morning J.S., Jakob, and team. Can you hear me?
Yeah, go for it, Paul. I can hear you loud and clear, my friend.
Okay, great. Okay, first question, J.S., on Oyu Tolgoi. A question on the mine design. You stated that the removal of two of the three mid-access drives has had an unfavorable impact on the schedule. Does this mean we can expect the delay to be more towards the 30 months end of the guidance range now? A question, J.S., on the bauxite market. Your bauxite guidance for 2020 implies just 2 million tons of growth. That's despite completing and spending $2.5 billion on 25 million tons of new capacity at Amrun and CBG. My indication here is that the growth in Guinea exports has caught you by surprise. Question is, have you changed your view on the bauxite market, or did you get this wrong? Thanks.
Okay, very good. Why don't we start with the bauxite? Alf, you on the call? You pick it up, this one?
Hello? Can you hear me, J.S.?
Yeah. I can hear you.
Thank you, Paul, for the question. In terms of market, I would say that if you look at the market, the global bauxite market is expected to grow by about 4%-5% in 2020. We expect Chinese imports also to grow at higher rates, around 20% in 2020, with new coastal plants ramping up and more inland refining using imported bauxite as a result of the Chinese domestic depletion and also quality deterioration and environmental controls. In that market scenario, if we look at what we've been doing, we have been growing. Amrun has achieved design capacity rates of 22.8 million tons a year in the fourth quarter of 2019, the mine delivers a 50% replacement, 50% growth, and the asset is a significant long-term advantage asset.
It's in close proximity to a refining asset in Queensland and our other customers in China at the other end of the cost curve. It was delivered, as we mentioned before, early and under budget. It's a high-quality product that increases efficiency in our Gladstone refineries, with the remaining export volume sold on multi-year contracts or short-term spot contracts to our Chinese-based customers. Yes, supply from Guinea has come faster and in greater amounts than expected, but we are positive on demand from the market to deliver strong value from K- fuel. In 2019, as was mentioned before by Jakob, our production performance enabled us to increase shipments of bauxite to third parties by 21%, 40 million tons. If you look at the last five years, we have increased our third party bauxite sales by 60 million tons.
That's 70% increase, maintaining our position as a leading global supplier in the seaborne bauxite trade. We will continue to operate on a value over volume basis, optimizing our production by grade from Amrun, East Weipa and Doomadgee to supply only Gladstone refiners in the market demand. Overall, I think we see a trajectory of successful growth and we will continue to explore options to continue to grow. Our focus clearly is on value over volume, optimizing our system.
Thank you, Alf. I will add only one point to or strengthen the point made by Alf about the growth. There is no doubt, back to the discussion about climate change or the point I made earlier, but there is a need for more aluminum, there'll be a need for more high-quality bauxite. The old question for us is, we have options to grow in Guinea, we have options to grow in South America, we have options to grow in Australia. The question for us is how to develop a pathway at the right capital intensity to make sure that those options are attractive from an economic standpoint. It's not a question about the next five years. If you take a 10, 15, 20 year perspective, because there will be a need for more bauxite.
The question is to find a pathway, because the competition from China is very strong. It's not only about bauxite, it's across aluminum, it's across iron ore, and so on and so forth. A big chunk of the work that we are currently doing with the team is how can we improve the capital intensity and in a way, to leverage the Chinese experience approach to build mines or to build smelters in order to make sure that we can participate in the growth and create value on the back of this one. If I move to your other question, Paul, is on Oyu Tolgoi. I've got Steve on the call. Steve, you want to pick the question? Otherwise, I know that Arnaud is really jumping to answer the question. Steve?
Well, maybe I can start, J.S. Thanks, Paul. As you will remember, Paul, originally, we had said that there was about a three-month benefit by having the mid-access drive in Panel 0, the mid-access drive across about three levels, apex, undercut, and extraction. As we went through all of the modeling and the updated geotech work, we took the decision that we would remove the undercut and extraction, mid-access drive. We kept the apex. Obviously, in that, we will lose a little bit of the benefit as originally planned. I think the piece I want to focus on is we've been working very hard on the productivity underground. As you probably would have seen with the Turquoise Hill end- of- year announcement, we now highest lateral development rates in December. Very high rates now of lateral development productivity underground.
We obviously now have the new mine design, which will come together in the second quarter of this year. Really once we have that, we will understand the location of the ore handling system, the options relating to panel sequencing during the mining operations, and therefore, obviously, we'll have a better understanding of schedule and cost impact ranges. Those things are ahead, and as we said, definitive estimates in the second half of this year.
Thank you, Steve. Another question from the call, and then I'll come back to Arnaud. I know Paul did ask two questions.
Your next question comes from the line of Hayden Bairstow from Macquarie. Please ask your question.
Thanks, J.S. To circle back on the CO2 targets you're setting yourself, is that the CapEx spend or the climate spend of $1 billion, can you sort of give us an idea of how far towards the target does that get? Obviously then when looking at your assets and some of the charts in the presentation, Pacific Aluminium continues to stand out in terms of its carbon intensity. I mean, what are the options with all those assets? I know two of them or one of them is under review, what's the options for the whole asset base? Yeah.
All right. Very good. On the $1 billion, first of all, the $1 billion is not only CapEx, it can be OpEx. I'll give you a sense. I'll give you a couple of examples of how we're going to spend the money going forward. One will be about investing in the repowering of our system. I think a good example of it is what we spent the $100 million we disclosed last week in the Pilbara, which is to build a solar farm and the battery in the Pilbara to support our Iron Ore business. We have a pipeline of such projects, which is under assessment. During the next 10 years, we will do more and more of those. Switching from one source of fuel to another source of fuel.
In the context of Pilbara, the beauty of it, if I may put it this way, is that it's a closed system. We totally control the system, and we have invested a few years ago in very efficient gas turbine that you can switch on, switch off very easily, and therefore provide the firming of this specific grid, which is very important. What people shouldn't forget is, yes, renewable will give you a lower cost, but if you don't have a firming in place, because as we all know, the sun shines only during daytime, and the wind doesn't work all the time, right? You need the firming is something that is very important. In the context of Pilbara, the firming is there through those high-efficiency gas turbine, and therefore enable us to invest further in the renewable, as an example.
There will be more investment in what we describe as a repowering of our existing needs. The second element where I can give you a sense of where we're going to spend the money is on technology. I think, and I'm going to use the example from the speech, is if you look at the aluminum industry, a big chunk of the carbon that is generated by the aluminum industry is about the power. If you burn coal as an example or in the anodes, because you need an anode to convey the electricity in the cells in order to smelt the alumina into aluminum.
The technology we are developing with Alcoa and Apple and the government of Canada and Quebec is to move away from a carbon-based anode that, as it is consumed, release CO2 to an inert anodes in order to make sure that as and when you convey the power through the cells, you don't release CO2. It will be a combination of things, but physical, primarily about renewable, as an example, and second point will be about technology. The concern I have today, if I may sound negative, is not what we're going to do between now and 2030. Between now and 2030 is going to be primarily based on existing technology. The real question we have is how do we move from 2030 to 2050?
If we don't develop the new technologies, the new partnerships now, we will not be ready by 2030, and therefore we'll try to strike the right balance. The last item I would like to say, the $1 billion is for the next five years, and clearly, we will spend more money in the following five years to get to 2030 target. The second question is about PacAl. I think I can't make it clearer and simpler. Is on PacAl, so we're talking about mainly three assets. We're talking about Tasmania, Bell Bay, which is hydro-based. From an emission standpoint, there are no issues whatsoever.
It's really a discussion with the relevant authorities in order to strike the right tariff, the right power cost, in order to make sure that this smelter can carry on for the benefit of Rio shareholders, for the customers, and for the benefit of the communities going forward. The discussions are on the way. Those are private conversation. When we get to a solution, we disclose it. We have two other smelters in Aus. One is in New South Wales called Tomago, and the other one is in Gladstone. They are currently mainly supplied from coal-fired power station, and therefore there are two questions that are being discussed as we are having this conversation. One is about the cost of power, because at the end of the day, if you are not profitable, then there is no way forward, okay?
As a minimum, you need to be profitable, then you need to develop in partnership with the relevant suppliers or government to develop a roadmap to be able to secure the right green energy over time. Once again, those discussions are on the way. Private conversation, I don't think it would be appropriate for me to say anything above and beyond that. As I mentioned, time of the essence, you see from the appendix of the press release, the profitability of the asset, there is a real urgency to tackle them, and that's what we're doing at this point in time. To answer your question, the options are from finding a new power contract and ensuring the long-term viability of the assets to all other options, as you can imagine.
The priority, because I believe there is a way forward, is to find the right source of power at the right cost, and that's what we're doing at this point in time. If I go back to London.
Thank you very much. Sergey Donskoy, Societe Generale. Two questions. One on your commodity exposure and strategy. You as a group seem to remain quite positive about diamonds. You want to maintain exposure and the FalCon project earned the distinction of being mentioned today in your press release. At the same time, you seem to be rather disinterested in gold as a separate exposure. Is this something that you are thinking about? Can this change going forward? there are reasons why you think gold just doesn't belong to your mix?
Okay. I know you. I know you like diamonds.
As you do, actually.
I love diamonds, yeah. Especially pink ones, yeah.
Why do we like diamonds? Actually, it's a great business to be in. We've got know-how, which is recognized. We've got a brand, a very strong reputation. This is a business that generates a strong EBITDA margin. The challenge that we've got in Rio with our Diamond business is Argyle is going to be closed by the end of this year. We will do it very responsibly. We're making great progress in preparing for the closure. Diavik could be closed in the coming three to five years. That's the reason why we're investing in FalCon project where potentially we could have quite a good asset. On top of it, we're also investing in exploration. With the venture team led by Bold, we were looking at potential M&A options only if indeed we can create value for shareholders.
Our strong desire is to stay in the Diamond business because it's a highly profitable business, and we've got a good while to create value for our shareholders.
We'll continue to put the pressure on our exploration team. On average, if it takes only 25 years to find copper, if during the time people find some nice colored rocks to cash flows, diamonds is only 30 years, right? That's where you need to take a long-term perspective. No, we like diamonds, and in our models, let's be clear, is we believe that synthetic diamonds will capture some market share, but nevertheless, good quality diamonds has a future, and we want to be part of it. It is challenging, but we're spending money, and we're looking into it. We are in the gold business today as a by-product. We've been in the gold business for a long time.
At Oyu Tolgoi, I know that the gold grade at this point in time are lower, but as and when we go underground, the gold content will increase because at the end of the day, Oyu Tolgoi is, in simple terms, is a big lump of copper and gold, right? Are we in the gold business? We are in the gold business. Kennecott, we have been in the gold business at Kennecott for 125 years, right? It is as a by-product and so on and so forth. Are we interested in gold? The answer is yes. If our exploration, and I know it's different from the past, I fully accept that. If today our exploration teams find a good gold deposit, I think we may keep it in the portfolio and so on and so forth. At the end of the day, it's what we want.
We believe in diversification, okay, and gold could be part of it. Another question in, second row. I was going to say Menno, but that's no. Menno, you're working for us now so on.
Myles
Yeah, Myles, yeah
A few quick questions. First, just going back to Oyu Tolgoi and thinking about the politics, where we are with that. The recent development, looking for international arbitration around the tax audit doesn't feel good as you look at it from the outside. Give us a sense where those discussions are around the investment agreements and what compromises you may have to make there. Maybe going back to ELYSIS.
ELYSIS, yeah.
When can we have a concrete step forward there? Is that going to be a big profitable kind of option more than just a climate change dynamic? Maybe the last question on net debt.
Okay.
When do you think the balance sheet's getting lazy, and what do you think the ideal net debt level is through the cycle?
I'll pick up the ELYSIS. It's pretty simple. Next time you go through Saguenay in Quebec, you'll see a big pilot plant, big cell using the ELYSIS technology and so on and so forth. When you ask about concrete steps, the pilot plant is being built as we speak and so on and so forth. It will take some time. The industry has been producing aluminum for 100 years. We've been trying for 100 years not to use carbon, right? For the first time is we believe, and Arnaud and myself have been in the industry for 25 years-ish.
Yeah. We may have the solution on this one. We will ramp up slowly but surely. It's not an easy one, but we believe that the combination of know-how of Rio on the cells design, especially from France and the know-how of Alcoa on the ceramic on the other side, is we may have cracked the code. We need to ramp it slowly but surely. We're going to have a large-scale pilot as we speak, and then the next phase will be to invest in four or five cells in one of the existing operations to take it further and so on and so forth. Do I believe we have a big impact in the next 10 years? The answer is yes. As I mentioned earlier, if we don't develop the technology now, we will never be ready beyond 2030.
It is the time to invest, and that's what we're doing on this one. Oyu Tolgoi politics, I'll come back to Jakob.
How long do I have to answer the question?
You got exactly two minutes, Arnaud.
All right. Okay. In terms of the tax, you would remember that we had an audit for the years 2014 to 2015 in January 2018, asking for an additional $155 million. Just to put things in perspective, typically, we pay around $200 million to $300 million per year. It's not insignificant. We've worked a lot with the government representatives and with the tax authority in the country to genuinely look for settlements. We've made a couple of offers in writing. After lots of discussions with the government, we both came to the conclusion that actually in the current context of Mongolia, political context of Mongolia, and based on the challenges of the finding of this audit, the best way forward was to agree to go to arbitration. You describe it as not a good omen, I think.
Fundamentally, I see it actually as a sign of a healthy relationship. It's not unusual to go to arbitration to resolve tax issues. We do it in other countries. Actually, the fact that we're doing it in Mongolia is a sign of a healthy relationship where both parties have agreed, actually, we need a third party to be able to help us understand the contracts that we've signed. I'm okay. That's fine with this. The good thing about it is it will resolve the root causes of the misunderstanding in the agreements. Which I think is a very good thing for the medium to long-term. In terms of your other part of the question was on the negotiations. A lot of progress has been made in the past six months about getting the government to publish a conclusion for the permanent working group.
You remember, we talked about it last time. That was a big unknown, and it has delivered more certainty, and it has opened some questions as well. We are currently working with the government to be able to start negotiating. The government is putting its negotiation team together. I think it's fair to say that the coronavirus and the big challenges that the government has been facing and managing extremely efficiently in the country has made the progress a bit slower compared to what we would have anticipated earlier on. We're progressing with this. I would say in terms of negotiation, the critical issue to start with is to progress power. As I said before, we've got different options. That is also good progress, and it's important that we progress with the government towards choosing a solution that we can all support.
Thank you, Arnaud. Lazy balance sheet, Jakob?
No, we don't have a lazy balance sheet. We're very proud of how we have deleveraged over the last few years, but that's really just because our business is so cash generative. We don't have a net debt target, and therefore, further deleveraging is fine for us. Obviously, it has no value if you're not prepared to use your balance sheet. I explained about our strict capital allocation. Actually, think about this year. We are believing in the future despite short-term uncertainty. We are ramping up investments. We are indicating today that we will invest $1.5 billion more this year than last year, and also our exploration and evaluation costs are at a very high level, and we feel comfortable about that. That's back to the question about lazy. We think that's very valuable.
You look at the history of Rio Tinto, you look at how profitable mining is. It's really profitable to think about the future as well. Therefore, whether you optimize your balance sheet, that's not the point. You want to have the balance sheet so you can use it at the right time. No debt targets, and comfortable if we further deleverage a bit. Right now, at least, we have good investment plans in place.
To be clear, we have always been conservative from a balance sheet standpoint because we are in a really capital-intensive business. We are making investment not for 10 years, but 20 years, 40 years, 50 years. Therefore, the best insurance policy you may have is to make sure you have a strong balance sheet. I think being where we are, having this conversation today with all the uncertainty we have around the coronavirus and so on and so forth, I feel much better with the balance sheet than some of my peers may have, but I wouldn't say anything much more than that. David, do we have any other questions from the call and then we'll come back here? Yeah. If we can have a few questions from the call, please.
Your next question comes from the line of Ian Rossouw from Barclays. Please ask your question.
Hi. Good morning, guys. I just had a question on your port site trading that you've mentioned in your production statement. That's something you're planning to ramp up. You obviously guide on shipments for the Pilbara business. I was just curious, what's the ambition over the next few years to grow that business? Typically, obviously, there will be some working capital build. How much should we deduct for sales for this year and maybe over the next couple of years just to get a sense of that business scale? Thanks.
Simon?
Thanks for the question. At the end of last year, we reported both sales but also production. You can see about 1.3 million tons difference between those numbers. We'll give you a bit of an indication of where we were up to last year. Look, the port side initiative is really around making sure that we're reaching customers that may not actually be customers today, and thinking about our logistics chain in a different way. Thirdly, it just allows us to bring different products to market. At Capital Markets Day, we talked a little bit about the blend that we were doing between IOC and our SP10 product, which we've been continuing, which we've now got out to mills. That's certainly an area that we'll continue to look at. The shape that that takes in the future, we'll have to determine based on value considerations.
It's certainly something that customers are appreciating. I think the current backdrop in China also just underpins quality of customer relationships, having the right products. We've got to continue to innovate, and we've got to continue to think about how do we position our portfolio as we go forward. They're some of the things that we're thinking about. Clearly, ultimately, it's about meeting customer needs and about value, and that's how we'll manage the business.
Okay. Further from the call?
Can I just ask a second question, please? Can you still hear me?
Well, that's the second question from the call then.
Just on ELYSIS. I'm curious just on the technology itself. We've heard some commentary from some of your aluminum peers that the carbon-free technology is much more energy intensive. Just sort of curious if that's the case with this technology and also what spare hydro capacity you have within the Quebec business to actually employ that technology.
Okay, no worries. Alf, you want to take this one? Although we just have to be slightly careful because the technology is protected.
Sure
Can you give some indication here?
Yeah. The technology is protected. I really can't comment a lot on the details of the technology, unfortunately. What I might say is, adding to what J.S. said before, is that the work is progressing in earnest. We have announced this year the construction of the R&D facility that J.S. was referring to in our own facilities at Complexe Jonquière. The research and development facility is an investment of about CAD 55 million, which will be completed by the second half of this year and will employ about 25 technical experts. We are moving ahead with the technology, with the aim of being able to commercialize it by 2024. Also another, I think, big milestone that happened this year is Apple purchased the first commercial batch of aluminum made with this ELYSIS carbon free-smelting technology. We are moving ahead.
We are moving in at a rapid speed, with that objective of having the technology commercialized by 2024. I can't really comment a lot on the technical aspects of the technology.
Okay. How much capacity do you have?
Regarding your second question.
Yeah. Sorry, go ahead.
Regarding your second question, is about the hydropower. At the moment, we are balanced on hydropower in Quebec. We do buy and sell power from Hydro-Québec, depending on the hydrology every year. We are balanced at this moment in time in terms of power. You have to take into account that any retrofit or new build would be most likely better in terms of power efficiency to the power efficiency is now, since the technology will be more advanced.
Okay. Thank you.
Thank you. Okay, we have time for one last question. Menno, you were saying? Oh, one more question from the call. Thank you, Menno.
Your next question comes from the line of Glyn Lawcock from UBS, Sydney. Your line is open. Please ask your question.
Good morning, J.S. Two very quick ones. Just with the pro forma net debt now less than $5 billion versus $8 billion 12 months ago, just the absence of the on-market buyback extension, is that a balance sheet issue or is it more Chinalco? If it's the latter, does that mean that's the end of buybacks for the company? The second question, just quickly on the Koodaideri Phase 2, which you've brought up and flagged 27 million tons. Maybe Chris could just put that into context. Is that envisaged in the mine plan to be replacement or incremental to the 360, and therefore you may have a lot more flex in the business once that comes on? Thanks.
Okay. Chris, if you want to pick up Koodaideri, I'll ask Jakob to pick up the other one.
Okay. Thanks, J.S. Thanks, Glyn, for the question. Koodaideri Phase 1 is 43 million tons. We are studying options which could take Koodaideri Phase 1 and 2 up to 70 million tons. Within that, we also have a number of quality options to choose. The other thing, Glyn, is, of course, our value over volume optimization. We will always look to optimize the right capital operating cost quality option that creates value for customers and for ourselves. The short answer is, we could use Koodaideri either as a growth option if there is the potential, or also look to optimize the complete portfolio of mines, by potentially growing Koodaideri and not replacing somewhere else. That's a continuous optimization, and we're looking at all of the options.
Yeah. Thank you, Chris. Jakob?
Yeah. Thank you for the question. Let me just take a step back and remind you that today the B oard announced actually, a record dividend. The ordinary dividend has never been higher. We end up with a total payout ratio of 70%. The deleveraging is not from not paying dividend. The deleveraging is from having a very strong cash generation last year. We have the freedom to use all instruments. We have done share buybacks last year. We have actually even done it this year here in January and February, we have bought back shares. Today's announcement is entirely about record high ordinary dividends. Look, it's the discretion of us, the Board, every half year to look at what instrument is the right thing. I cannot comment on any discussions that might be between two other parties, our biggest shareholders and our biggest host government.
That's what I have to say. We have freedom, and we are distributing a lot to the shareholders.
Thank you, Jakob. I understand we have time for one last question from the call.
Your next question comes from the line of Lyndon Fagan from JP Morgan. Please ask your question.
Thanks very much. The first question is just about slide 32, which talks about 200 opportunities that have been reviewed since first quarter 2017. I think that's more than one every five days or something like that. J.S., I'm just wondering what your vision for the company is, in 2030 to align with the emissions target. There's obviously an M&A agenda there. You mentioned gold might be something that the company would be prepared to retain in the portfolio. Around those opportunities, what are the commodities that perhaps Rio Tinto is not producing today that may have been assessed? Could you give us some color about sort of what that includes? Thanks.
It seems that Bold and Andrew on the third row have been very busy. Can you give some flavor of what you've been doing during the Saturday and Sundays? Bold?
Yeah, sure. Thank you for the last question. I thought I was not going to have a question today. Look, we have been busy, and you point out correctly that obviously, M&A buy-side is very process-intensive. I think the first and foremost, our attention has been on lithium. We have to understand the hard rock and the brine. We have to understand the low-cost position. We're in a fortunate position to have lithium in our product, not just in Serbia, but as a by-product of boron. Understanding the customer supply dynamics, as well as the cost position, as well as the chemical composition of what the customers will buy and what it means to be battery-grade, is essential. We have done a lot of work on lithium. The other one is, of course, we're primarily focused on battery-grade materials.
That, of course, as Arnaud alluded to, spending a bit of time and assisting together with copper around looking at the copper acquisition opportunities. Secondly, we are spending a lot of time understanding high-purity nickel and class nickel and what the post-price dynamics are. That's primarily the focus. As far as the other minerals, they're more tertiary in nature and, at the end of the day, I would say everything has to create value, and it has to meet our IRR thresholds and depending on the jurisdiction, it actually has to be very attractive in order for us to make a decision on that.
Thank you, Bold. That's a very good question. I can't tell you exactly what the portfolio will look like in 2030. I know for a fact that there will be high-quality iron ore. I know for a fact there will be high-quality copper, high-quality aluminum, and so on and so forth. That is for sure. We look at other opportunities, mainly in the battery space. Without saying too much, because that's typically under Rio Tinto, is if we could have PGMs in the portfolio, not from South Africa, could be very good as well. We're looking at exploration in that space. Are we going to have oil and gas or are we going to have thermal coal in the portfolio? I think I'm pretty confident to say no. That's what it is about.
I can't tell you what the breakdown is going to be because what is very important, that's back to the disciplined capital allocation, we are not allocating capital per commodity. At the end of the day, if you step back, the portfolio and the treasury is an asset portfolio. Okay? We want to invest, to allocate the money towards the best asset and the best project, no matter which commodity they are, as long as they sit nicely in this climate carbon-free world. That's what it is about. Climate change-friendly. That's what it's about. Are we ready to invest? The answer is yes. Are we investing? The answer is yes. At the same time, I can't make it clearer.
Today, when we look at the opportunities, and clearly Bold and Andrew have been pretty busy, is the first port of call for us to grow will be around organic growth. Okay? M&A is a watching brief. We're looking at stuff, we will not transact if it doesn't create value. I can't make it clearer. At the end of the day is what we want is Rio Tinto to be regarded as a good investment on the back of the quality of our returns, the discipline allocation, the profitability, and not growth for sake of it or carbon emission for sake of it, and so on, so forth. We can't make it clearer. I know that doesn't excite lots of bankers and journalists and so on and so forth, that's what it is about. I think the last four years are a good example of it.
You don't have many companies where they were $36 billion of cash return to the shareholders the last four years. It is as simple as that. When I look forward and you look at the quality of assets, the quality of the pipeline we have in terms of exploration, when I look at the quality of our product, quality of our relationship with our customer, and the balance sheet, I'm pretty confident that we will continue to deliver superior value for our shareholders in the short, medium, and long term. That's what it's about. On this note, Menno is saying enough is enough. Thanks for coming. That's not the end of the discussion for obvious reasons. I see there are still some questions. For the drinks, the coffee, maybe you can continue a conversation with some of us. I'll see you in August.
On this note, thank you very much.