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 Jacob 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, 2 exit doors, 1 at the back, 1 here.
Security personnel is also the fire marshal follow their instructions. The exit door is at the back here right and left, so right and left. And then finally, we'll go for the Q and A procedure at the end of the session. With that, Jers, please.
Thank you, Mello, and 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 2 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're 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 $11,900,000,000 just to make sure people get the number, dollars 11,900,000,000 cash return to our shareholders.
Today, we have announced the record final dividend of $3,700,000,000 taking our total cash return to our shareholders over the last 4 years to $36,000,000,000 Our commitment is to deliver superior shareholder value through the cycle, and we are consistently achieving this. In 2019, we generated $21,000,000,000 of EBITDA with a strong margin of 47%, resulting in an industry leading return on capital employed of 24%. We generated $15,800,000,000 of operational cash flow that we allocated with discipline, including investing $2,600,000,000 in high value growth. Our strong exploration investment of $600,000,000 in 2019 shows we are also out there looking for 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 the Rio into operation. This reflects the work of every one of our colleagues and contractors around the world. But 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. And in 2019, we deliver here as well.
Let me give you some example. Rio Tinto employs around 46,000 people globally with over 100,000 contractors. We work with suppliers in more than 120 locations with a total spend of around $17,000,000,000 in 2019, and we have paid $7,500,000,000 in taxes and royalties globally to governments and communities. We also have 1,000 and 1,000 of retail shareholders. So we are vital contributors to economies, communities, shareholders and supply chain.
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 $100,000,000 investment in the solar and battery solution in Epidra in Australia.
We will invest CAD 55,000,000 in Elesys, our breakthrough technology for aluminum. Today, we will release our new climate change targets. I will share more on this shortly. And we ended 2019 as number 2 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 return 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 $3,700,000,000 of net debt. This provide us with resilience, which is absolutely vital in an increasingly complex and volatile world. It also position us well for the future.
And I will tell you more after Jacob shares some further details on 2019 financials. Floor is yours, Jakob.
Thank you, Jacob. 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% 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 oil talcoy and at year end, there was an impairment at the Yawin.
Our return on capital employed of 24% was the highest for almost a decade. And 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 percent and our free cash flow relating to 2019 reached $10,000,000,000 an increase of 41%. This combined with a strong balance sheet meant that the Board was able to declare a final dividend of $3,700,000,000 which will be paid in April. The full year dividend of $7,200,000,000 represents a 40% payout.
As you can see, in aggregate, higher prices and a strong U. S. Dollar drove the increase in EBITDA in 'nineteen. 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 of 1,000,000,000 tonnes 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, in 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 tend to further improve 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 and the strengths and the resilience of our business is illustrated by the fact that during the last two decades, we've only had 1 year of single digit return on capital employed. Most importantly, we have a business model that has the ability to turn earnings into cash. And since we amended our capital allocation framework back in 2013, we have delivered strong free cash flow.
In 2019, we generated $10,000,000,000 of free cash flow excluding the tax payments made in 'nineteen 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. However, higher than planned weather disruptions, a fire at our Cape Lambert port and some operational challenges in the first half meant that overall the year 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 340,000,000 tonnes reflecting the investment we made in mine development. Operating costs increased in 2019 to 14.4 dollars a tonne.
This was partly due to lower shipments, but also additional costs associated with waste movements. This year has had a challenging start and 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 324,000,000 and 334,000,000 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 costs at $14 to $15 per tonne in 20 20, 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 Cadillaray Phase 1, the rope replacement project, our recently approved investment in Western Turner Zinkline 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 $1,000,000,000 $1,500,000,000 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 side production grew by 9% during the year following the ramp up of Ameren with 3rd party shipments increasing by 21%. Production in alumina and aluminum were stable fairly stable despite some operational disruptions with earlier than expected pot relining required at piquedimab 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 $800,000,000 The return on capital employed in this business reflects the tough overrating backdrop for the industry and was 4% in 2019. Overall, we have a strong portfolio of aluminum assets. However, 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.
Nonetheless,
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. Now moving on to our cover 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 at 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 byproduct credits.
We expect that the unit cost for copper will increase in 2020 due to lower production and lower byproduct 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 $200,000,000 one off cost of moving from a coal to a renewable power contract at Escondido. 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 and L and most of our exploration expenditure also goes towards copper.
Without stealing the thunder of JS, a good example of that, which will be covered in a moment is the Winnow prospect. We are heavily investing in our copper business, which is a short term drag on profitability and cash flow. However, please note that oil, talcoy CapEx is being reported on a 100% basis as it is fully consolidated. Now our Energy and 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 RTIIT business.
On top of this, there were significant increases in production at both these businesses. Excluding the contribution of the coking 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 Richard Base 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 Salty South replacement project only when operations at RBM have normalized.
While we intend to continue 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.
And 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 Capital Markets Day that our 2019 CapEx would be slightly below the guidance of $6,000,000,000 and adjusted this to $5,500,000,000 due to the timing of expenditures. However, we still need to spend the money and therefore increase the guidance for 2020 to 7,000,000,000 dollars Other than that, we see the level of capital expenditure in the short to medium term to be around $6,500,000,000 per year. Today, we're also announcing $1,000,000,000 of climate related spend over the next 5 years.
The portion of this spend versus CapEx is included in this guidance. In 2019, we increased our sustaining capital to 2,900,000,000 dollars However, we expect to spend on average around $2,500,000,000 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 €1,500,000,000 During 2019, we paid out $10,300,000,000 in dividends and bought back shares of $1,600,000,000 of our own shares.
Overall, after the impact of operating cash flow and CapEx, our net debt at the end of 2019 was 3,700,000,000 dollars On a pro form a basis, we have continued to delever 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% to 60% of underlying earnings through the cycle.
And as you can see, over the last 4 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 4 years, the payout ratio has been just over 70% And 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, Jacob. So 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 2 key drivers for the mining industry, global GDP growth and trade. Today, we face a very uncertain word on both drivers to the outbreak of the coronavirus. As we all know, this is resulting in restriction to global movement of people and potentially trade flows.
And the effects of the virus have also affected sentiment and creates a risk to global GDP. Indeed, the Chinese economy has already been impacted, mainly the services, construction and manufacturing sectors. And 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. Now looking at radio, today our iron ore books are full. But we are likely to see some short term impacts, such as in our supply chains and possibly in the provision of services from Chinese supplier. So there is uncertainty today. But what we know is that the Chinese government is acting.
We were first priority to contain the virus, then to resume economic activity and limit supply chain impacts. The government, 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 in Pilbara will continue to generate Tier 1 cash flow. And our Canadian Aluminum smelters are in the Q1, are producing the most profitable and sustainable Aluminum in the industry. Our balance sheet also offers protection in volatility times, and we are comfortable where our net debt is 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 off, growing political tensions, higher expectation of society and technology disruptions. This has certainly been the case since we talked about it. However, we shouldn't see complexity though just as a downside risk. There is also plenty of opportunity for Compere Real 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 4 piece strategy across a number of future scenario. 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 our shareholders and well for all stakeholders in the years to come.
To do this, we are looking to accelerate our transformation drive in 3 key areas: 1, 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. 2, 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.
And 3, enhancing our value chain through a partnership ecosystem approach. This includes connecting the resources to the end market, building stronger relationship with our customers and suppliers and working with our communities, such as our partnership with Bau and Shinro 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 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. But any material improvement in emissions intensity will be challenging without technology breakthroughs. We acknowledge we have a challenge around our PACCAR 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 over the future.
And 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 Workhorse 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 based and sector leading technology.
It is well positioned to meet future market demands in North America. We are growing our corporate exposure through our existing pipeline and through exploration. We are also looking at options to invest in other materials of 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. And we have 2 levers to improve our portfolio. 1, new high quality assets with a primary focus on organic options. Our Ventures unit has a continuous and rigorous commitment to M and A, and we have reviewed more than 200 opportunities.
But we will only transact if it is value accretive to do so. And 2, we will continue to improve our margins and Cabot 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.
So our job is to create option, which we can progress to meet market demand. A great example is Vinu, our corporate opportunity in WA in Australia. And the project is progressing well. Drilling and geophysical testing continues with nearly 140 kilometers drill to date and no city works is underway. 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 1st 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 allowed us to provide corporate to society and quicker cash flow to shareholders, communities and government. 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 charge. There are no easy answer. There is no clear pathway right now for the world to get to a net zero emission by 2,050. The ambition is clear, but the pathway is not.
This will require electrification of transport, energy and resources efficiency across 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 complex trade off, which means we all of us need to face up some 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 assess your jobs to deliver climate goals? And 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 need to have we must have honest conversation here.
At Rio Tinto, we are pragmatic. We have a clear climate change strategy, which has 4 pillars based on producing, reducing, partnering and enhancing. That is 1, producing the materials from a low carbon future 2, reducing the carbon footprint of our own operations 3, partnering to reduce the carbon footprint across our value chains and 4, 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 0 by 2,050.
This is a massive undertaking. It means all of our future growth will need to be carbon neutral. And we will need new technologies and partnership. We do not have a full road map, but we are working on it. Today, we are announcing our 2,030 targets based on detailed analysis: an additional 30% reduction in emissions intensity from all of our operations and additional 15%, 15%, 15% reduction in absolute emissions 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. But 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 suppliers, we will invest a further $1,000,000,000 in climate change over the next 5 years, like the $100,000,000 Pill Drive renewable investment we just announced last week, like technology breakthrough initiatives such as Elesys.
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 4 years are not just about strong financial and portfolio performance. It's also a story of consistent capital allocation. Our underlying business generated over $62,000,000,000 over a 4 year period.
80% or $50,000,000,000 of this came from cash from operations. On the back of this, we paid $36,000,000,000 since 2016 and paying a further $3,900,000,000 to our shareholders in the first half of twenty twenty. That is equivalent to over 67%, twothree, of our market cap at the beginning of 2016. We have strengthened our portfolio, divesting $12,000,000,000 of assets. We have paid down $12,000,000,000 of our net debt, and we have invested $18,000,000,000 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 6 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. And now I'm going to turn to questions. So before I bear with me one second 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 Trot, our Chief Commercial Officer. I'm sure there will be lots of questions for you, Simon, on the outlook.
Here I've got Bold and I've got Arnaud. Why don't we start? Arnaud, do you want to measure the quick Q and A?
Just take 2 here and 2 from there.
Okay. I see. No worries. The milk, I think you are in great shape. You want to go first?
Two questions for me. So very, very admirable on the CO2 targets. Could you just maybe comment on the financial cost to Rio of those targets? So if I look at Wino, what is the what's the things such as CapEx intensity? What's the project premises for access to power compared to a conventional mining project?
Is there a material increase in the financial costs of Rio with these admirable targets? And then the second question is on Mongolia. Could you just maybe give us an update on the 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 target?
Andre, you just came back from Mongolia. You want to pick up the discussion in Mongolia? You have a frequent flyer points with
Yes. Okay. So in terms of the power project in Mongolia, as you know, commitment was made in 2,009 through the investment agreement to invest in a coal power station and to source 1 of the percent of the power within Mongolia. We've made a lot of progress on this project, and we've delivered to the government in February the feasibility study of 300 megawatts coal power station based on the coal deposits, which is coal to Kevin Thornton. In parallel, we are also looking at some other projects, particularly in renewables.
And we've shared some numbers with the government. So we are now at a stage where we're assessing with the government the different options. So in terms of the impact of this project on our carbon footprint, it will depend on which option will be chosen with the demand.
Yes. Thank you, Arnaud. I think the point important here, Dominik, is currently the power is coming from China, from Inland Mongolia, which is coal fired. So from that purchasing, it's net. But we are clear that, as Arnaud is saying is, have an agreement.
At the margin, we can bring all the source of power that we have to look at, but no decision. But the ambition remains the same. Between now and 2,030, we will have to reduce overall emissions, CO2 emission by 15% no matter what we do, right? So that's a massive undertaking. On Vinyl, you want to say a few words, Arnaud as well, saying that we're looking at renewables?
So on we know it's early stage of course, but we're already looking at different power solutions, including LNG or the new Ebola. 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. And so we are definitely looking at cleaner energy and renewable energy for Wino over potentially medium to long term because as Jess explained, we're looking at the first stage, which would be a smaller mine and then progressively carbon footprint, but potentially it's an opportunity to reduce our cost as well.
To to wrap up because the question your question Dominik 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. So pretty often people focus only on the internal stuff, the cost and so on and so forth. But we should not forget the top line growth aspect as well.
So that's the first aspect. The second aspect is we've done a lot of work between now and 2,030, hence the 2,030 targets. And what we see is in order to underpin our strategy and our mission there is $1,000,000,000 of CapEx and OpEx. We don't know how much is going to be CapEx, how much is going to be OpEx. It would be for the finance people to decide the allocation as always.
But we are clear. So 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 relationship with our customers, about our ability to deliver superior return as we've done for last 4 years, superior return to a short, medium, long term. The answer is no. But we're flagging that the cost will be $1,000,000,000 which is fully embedded in our plan. So that's where we are at this point in time.
But I think we'll continue the dialogue for a long, long time. If you see where I'm coming from, Dominik. Jason? And then we'll go to the to Orbex.
Just to 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. So you're saying flat year on year, but it does sound like a lot of headwinds. So how much of that flat year on year is currency?
How much of that flat year on year is efficiency? Maybe you could just walk us through that. And then just more generally on iron ore, I think you're guiding flat in terms of volumes. You've always been a valuable volume guy. Could you talk about the willingness of the business to flex iron ore supply depending on what's going on in China?
Yes, just very quickly on that front, you're right, there's 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. But we came out at 14.4, and we are guiding 14 to 15.
So you can make your own assumptions whether the cost will be lower or will be higher within that. And 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 crude Ivory goes on stream. And that means, I was referring to in my presentation, the increase in work in the mine index and more work more mining below water table, which comes at a cost. But 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 and the way down the rain line.
And therefore, we had to reset the production guidance for the year. And but we are still on top of that, J. S.
On the ground. Chris, if you're on the call, you're the one running this business. So 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.
Yes. And J. S, thanks for the question. Just to come back to the bridge on unit costs, Jacob, that's absolutely right on everything that he said. But 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.
Looking in terms of productivity, we are facing headwinds. Jacob talked about the 12% increase in pole length we're facing this year, which is really a result of working the brownfield mine a lot harder. But 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%. And of course, we've previously disclosed that decreases costs by 15% to 20%.
Look, we're continuing to push on the next wave of productivity, particularly the focus on data, and we have a series of projects and outlined a number of the ones at the Capital Markets Day, which I think is really the next horizon in the cost efficiency. And then finally, of course, the investments we are making in Podiatry, best in classifying to do, are both going to be lower byproduct. But as they come through, we will see benefit from those as well. Thanks, J. S.
No. Thank you, Chris. I know everybody didn't hear very well here. So push harder 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.
And remember, Cadagliari will be the 1st or next wave of intelligent mine with between 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 pockets of labor inflation in the period as we speak, but it is very, very focused, very targeted and so on and so forth. And as Chris said is at the end of the day what we're driving is the margins and we deliver 72% of EBITDA margin in the pillar. Simon, you want to say how you look at the value over volume approach for I know the blending you're doing in China because you've done some great stuff this year and you're doing this year. And then maybe I'll come back to Chris about the value of the volume, what it means in practical terms in a bit more.
Simon, the floor is here.
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. And then 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 look, some of my themes to that which we're seeing is certainly shortages in terms of labor and restrictions on particularly trucking logistics.
So some of the steel mills, domestic suppliers are things like fluxes, access to scrap being somewhat curtailed. And so you're seeing EAF rates drop considerably, a lot of the fleet largely closed until settling into March, BS less impacted. And 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. We're seeing stimulus measures really in 2 phases, currently really focused on availability of credit and making sure those businesses with cash flow constraints continue through. And then obviously, the next phase is going to be much more targeted towards consumption, towards infrastructure and some of that more commodity intensive.
So we're working really closely with customers, looking through the short term disruptions. They're obviously looking to that, long term, medium term resumption in some ad infrastructure spend. It's clearly additional optionality like the port side trading gives us gets us closer to the market and also gives us some optionality in terms of response. You certainly see in the last few days a little bit of a pickup in terms of how the back end of the ports, some of those truck restrictions ease. And so 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. So Jason, we had no impact on iron ore today. And if you look at the stats, if you look at the port stuff, I know you're looking at very carefully, the inventory has not increased. So the inventory is flowing. Because I think if I step back at the macro level, during the Chinese New Year, you don't stop the blast furnace unless you force to.
You can throw it down. But what you can do very easily is stop shut down the EES converters and that's what they've done. So 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 supply chain between the upstream and the downstream. That's the piece we are watching very carefully.
But as we're having this conversation, we don't have any problem in moving our high quality iron ore product 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 we have any questions from the I'm sure the Aussies.
Your first question comes from the line of Paul Ye from Goldman Sachs. Please ask your
question. Yes, good
morning, James, Jacob and team. Can you hear me?
Yes, go for it, Paul. I can hear you loud and clear, my friend.
Okay, great. Okay, first question, Jaakob, on OT. A question on the mine design. You stated that the removal of 2 of the 3 mid axis 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?
And then a question on, Jason, the bauxite market. Your bauxite guidance for 2020 implies just 3,000,000 tonnes of growth. That's despite completing and spending $2,500,000,000 on 25,000,000 tonnes in new capacity at Ameren and CPG. So my indication here is that the growth in Guinea exports has caught you by surprise. The question is, have you changed if you're on the bauxite market?
Or did you get this wrong? Thanks.
Okay. Very good. So why don't we start with the bauxite? Alf, you're on the call. You pick it up this one?
Hello?
Yes, I can hear you.
Thank you, Paul, for the question. Yes. In terms of market, I would say that if you look at the market, the global books on mine is expected to grow by about 4% to 5% in 2020. And 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. And in that market scenario, if you look at what we've been doing, we have been growing.
Ameren has achieved desired capacity rates of 22,800,000 tons a year in the Q4 of 2019. The mine delivers 50% replacement 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 lower end of the cost curve. And it was delivered, as we mentioned before, early and under budget. It's a high quality product that increases efficiency in our glass and refineries with the remaining export volumes sold the multiyear contract and short term spot contracts to the Chinese based customers.
Yes, supply from Guinee has come faster and in greater amounts than expected, but we are positive on demand from the market to deliver strong value from Kfuel in 2019. As was mentioned before by Jacob, our production performance enabled us to increase shipments of books at third parties by 21% to 40,000,000 tons. And if you look at the last 5 years, we had increased our 3rd party bauxite sales by 60,000,000 tons, that 70 percent increase, maintaining our positioning of leading global supplier in the seaborne bauxite trade. But we will continue to operate in a value over volume basis, optimizing our production by grade from Ameren, East Weeper and Doo and Go to supply the honing glass or refineries in the market demand. So overall, I think we see a trajectory of successful growth and we will continue to explore options to continue to grow.
But our focus clearly is on valuable volume optimizing our system.
Thank you, Alf. I mean, I will add only one point or strengthen the point made by Alf about the growth. There is no doubt back to the discussion about climate changeable, the point I made earlier about there is a need for more aluminum, there will 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.
So it's not a question about the next 5 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. And it's not only about bauxite, it's across aluminum, it's across iron ore and so on and so forth. So a big chunk of the work that we are currently doing with the team is how can we improve the capital intensity by and in a way to leverage a 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. So 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.
So Well, maybe I can start, J. S. So thanks, Paul. So as you will remember, Paul, originally, we had said that there was about a 3 month benefit by having the mid axis drive in Panel 0, the mid axis drive across about three levels, Apex, undercuts 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 at Axis Trides.
We kept the Apex. And obviously, in that, we will lose a little bit of the benefit as originally planned. But 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 announcements, we had no highest lateral development rates in December. So very high rates now of lateral development productivity underground.
We obviously now have the new mine design, which will come together in the Q2 of this year. And 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. So 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 another. I know Paul did ask 2 questions.
And your next question comes from the line of Hayden Bairstow from Macquarie. Please ask your question.
Thanks, Jay. Just to circle back on the CO2 targets that you're setting yourself, is that the CapEx spend or the climate spend of $1,000,000,000 can you sort of give us an idea of how far towards the target does that get? And obviously then when looking at your assets and some of the charts in the presentation, Pacific Aluminum continues to stand out in terms of its carbon intensity. I mean, what are the options with all those assets? I know 2 of them are all, one is under review, but what's the options for the whole asset base?
All right. Very good. So on the $1,000,000,000 first of all, the $1,000,000,000 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, right?
One will be about investing in the repowering of our system. And I think a good example of it is what we spent the $100,000,000 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. So we have a pipeline of such projects, which is under assessment. And therefore, during the next 10 years, we will do more and more of those. So switching from one source of fuel to another source of fuel.
And 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 on very easily and therefore provide the firming of this specific grid, which is very important. Because what people shouldn't forget is, yes, renewable will give you a lower cost, but if you don't have firming in place, because as we all know, the sun shines only during daytime and the wind doesn't work all the time, right? So you need the firming is something that is very important.
In the context of Epilbara, the firming is there through those high efficiency gas turbines and therefore enable us to invest further in the renewable as an example. So 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 speeches, 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 government of Canada and Quebec is to move away from a carbon based anode that as it is consumed really CO2 to an inert anode to make sure that as and when you convey the power through the cells, you don't release CO2. So it will be a combination of things, but physical, primarily about renewable as an example and second point will be about technology.
Because the concern I have today, if I may sound negative, is not what we're going to do between now and 2,030. Between now and 2,030, it's going to be primarily based on existing technology. The real question we have is how do we move from 2,030 to 2,050? And if we don't develop the 2 new technologies, the new partnership now, we will not be ready by 2,030. And therefore, we'll try to strike the right balance.
Last item we'd like to say, the $1,000,000,000 is for the next 5 years, and clearly, we will spend more money in the following 5 years to get to 2,030 target. The second question is about Pacal. I think I can make it clearer and simpler. It is on Pacal, so we're talking about mainly 3 assets. We're talking about Tasmania, Belvay, which is hydro based.
So 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 RIIO shareholders, for the customers and for the benefit of the communities going forward. The discussions are underway. Those are private conversation. When we get to a solution, we'll disclose it.
Then we have 2 other smelters in us. 1 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 2 questions that are being discussed as we are having this concession. 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.
And then you need to develop in partnership with the relevant suppliers of government to develop a road map to be able to secure the right green energy over time. Once again, those discussions are underway. Private conversation, I don't think it would be appropriate for me to say anything above and beyond that. But as I mentioned, time of the essence, you see from the appendix of the press release, the profitability of those assets, there is a real urgency to tackle them. And that's what we're doing at this point in time.
So to answer your question, I mean, 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. But 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 Don, Societe. Two questions. 1 on your commodity exposure and strategy. You as a group seem to be seem to remain quite positive about diamonds.
You want to maintain exposure and 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. So is this something that you're thinking about? Can this change going forward? Or there are reasons why you think gold just doesn't belong to your mix?
Okay. I know you like diamonds. I love diamonds, yes, especially pink ones, yes.
Why do we like diamonds? Because actually it's a great business to be in. We've got to know how, which is recognized. We've got a brand, a very strong reputation. And this is a business that generates strong EBITDA margin.
So the challenge that we've got in Rio with our diamond business is our guide is going to be closed by the end of this year, and we will do it very extensively. And we're making great progress in preparing for the closure. DIVEK could be closed in the coming 3 to 5 years. And therefore, that's the reason why we're investing in the 5 Con project, where potentially we could have quite a good asset. On top of it, we're also investing in exploration.
And with the venture team led by both, we were looking at potential M and A options only if indeed we can create value for our shareholders. So our strong desire is to stay in the diamond business because it's a highly profitable business and we've got a good wow to create value for our shareholders.
And we'll continue to put the pressure on exploration team. On average, if it takes only 25 years to find copper, during the time people find some nice color coated rocks to cash flows, Diamonds is only 30 years, right? So it's that's where you need to take a long term perspective. But 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 as a future and we want to be part of it.
But it is challenging, but we're spending money and we're looking to it. Gold is we are in the gold business today as a byproduct. I mean, we've been in the gold business for a long time. When we I mean, I told you, Torgoi, 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? So 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, all right? So but it is as a byproduct 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. So 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 Meno, but that's no. Meno, you're working for us now.
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 sort of feel good as you look at it from the outside, but give us a sense where those discussions are around the investment agreements and what compromises you may have to make there. And then maybe going back to Alyssis, the Alyssis.
Alyssis, yes.
When can we have a concrete kind of step forward there? I mean, 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. So When do you think the balance sheet is getting lazy? And what do you think the ideal net debt level is through the cycle?
I'll pick up the leases pretty simple. Next time you go through the Saguenay in Quebec, you'll see a big pilot plant, big cell using the Elisys technology and so on and so forth. So when you ask about concrete steps, the pilot plant is being built as we speak and so on and so forth, right? So 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? But for the first time is we believe and Arnaud and myself have been in the industry for 25 years ish. And we may have the solution on this one, right? So we will wrap up slowly but surely. It's not an easy one, but we believe that the combination of NOA of RIIO on the sales design, especially from France and the NOA of Alcoa on the ceramic on the oil side is we may have cracked the code, but we need to ramp it slowly but surely.
So we're going to have a large scale pilot as we speak and then we will the next phase will be to invest in 4, 5 cells in one of the existing operations to take it further and so on and so forth. So it's not do I believe we have a big impact 10 years? The answer is yes. But as I mentioned earlier, if we don't develop the technology now, we will never be ready beyond 2,030. So it is the time to invest and that's what we're doing on this one.
OT politics and then I'll come back to Jacob.
Answer the question?
You got exactly 2 minutes, Armando.
All right. Okay. So in terms of the tax, you would remember that we had an audit for the years 'thirteen to 'fifteen in January 2018 asking for additional $155,000,000 Just to put things in perspective, typically we pay around $200,000,000 to $300,000,000 per year. So it's nothing significant. 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. And 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, it's and based on the challenges of the finding of this audit, the best way forward was to agree to go to arbitration. And you described it as not a good domain, I think. But fundamentally, I see tax ready as a sign of healthy relationship. It's not unusual to go to arbitration to resolve tax issues.
We do it in other countries. And 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. And I'm okay, that's fine with this. But 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. So a lot of progress has been made in the past 6 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 more some questions as well. So 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 efficiency in the country has made the progress a bit slower compared to what we would have anticipated earlier on. But we were 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,
we're very proud of how we have delivered 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. But obviously, it has no value if you're not prepared to use your balance sheet. So I explained about our strict capital allocation.
But 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 $1,500,000,000 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. And that's back to the question about Lacey.
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. And therefore, whether you kind of 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. So no debt targets and comfortable if we further deleverage a bit.
But right now, at least, we have good investment plans in place.
And to be clear, I mean, we have always been conservative from a balance sheet standpoint because we are in the really capital intensive business. We're making investment not for 10 years, but 20 years, 40 years, 50 years. And therefore, the best insurance policy you may have is to make sure you have a strong balance sheet because and I think being where we are having this conversation today, evolving uncertainty we have around the coronavirus and so on and so forth, I feel much better with the balance sheet that 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 I will come back in.
Yes. So if you can have a few questions from the call, please.
And your next question comes from the line of Ian Rosen from Barclays. Please ask your question.
Hi, good morning guys. I just had a question on your port side 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. So I was just curious what's the ambition over the next few years to grow that business?
So typically, obviously, there will be some working capital build. So 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.
Amit?
Thanks for the question. At the end of last year, we reported both sales but also production. So you can see about 1,300,000 tonne difference between those numbers, really a bit of an indication of where we're 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. And thirdly, it just allows us to bring different products to market.
So at Capital Markets Day, we talked a little bit about the blend that we're doing between IOC and our SB-ten product, which we've been continuing, which we've now got out to mills. And so 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, but 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.
So there are 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.
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 the Elesys. I'm curious just on the technology itself. I mean, we've heard some commentary from some of your aluminum peers that the carbon free technology is much more energy intensive. So 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. So can you give some indication here?
Yes. The technology is protected. So I really can't comment a lot on the resourceful technology, unfortunately. But 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 and D facility that Jes was referring to in our own facility at Complexionn Quir. The research in the oil facility is an investment
of about $5,000,000
which will be completed by the second half of this year and will employ about 25 technical experts. So 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 1st commercial batch of aluminum made with this Elesys carbon pre smelting technology. So we are moving ahead. We are moving in at a rapid speed with that objective of having this technology commercialized by 2024.
But I can't really comment a lot on the technical aspects of which technology. Okay. Regarding your second question
Yes. Sorry, go ahead.
Regarding your second question is about the hydro power. At the moment, we are balanced on hydro power in Quebec. We do buy and sell power from Hydro Quebec depending on the hydrology every year, we are all balanced at this moment in time in terms of power. But you have to take into account that any retrofit to new build would be most likely better in terms of power efficiency to what the power efficiency is now since the technology will be more advanced.
Okay. Thank you.
Thank you. Okay. We'll have one last question. Menno, you're saying? One more question from the call.
Thank you, Menno.
And your next question comes from the line of Green Lowcock from UBS Sydney. Your line is open. Please ask your question.
Good morning, JF. Two very quick ones then. Just with the pro form a net debt now less than 5 bill versus 8 bill 12 months ago, just the absence of the on market buyback extension, is that a balance sheet issue? Or is it more Janelco? And if it's the latter, does that mean that's the end of buybacks for the company?
And then the second question just quickly on Caudatory Phase 2, which you brought up and flagged 27,000,000 tonnes. Maybe Chris could just put that into context. Is that envisaged in the mine plan to be replacement or incremental to the 360,000,000 tonnes, 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 Coudevri and then I ask Jacob to pick up the other one.
Yes. Okay. Thanks, Joss. Thanks, Glyn, for the question. Look, Caudiere first phase is 43,000,000 tonnes, and we are studying options which could take, could already Phase 1 and 2 up to 70,000,000 tons.
And within that, we also have a number of quality options to choose. The other thing, Glyn, is, of course, our value over volume optimization. So we will always look to optimize the right capital operating cost quality option that creates value for customers and for ourselves. So the short answer is we could use CodiDry either as a growth option if there is the potential or also look to optimize the complete portfolio of mines by potentially growing Cadiatry and not replacing somewhere else. So that's a continuous optimization and we're looking at all of the options.
Yes. Thank you, Chris. Jacob? Yes.
Thank you for the question. Let me just take a step back and remind you that today, the Board announced actually a record dividend. The ordinary dividend has never been higher. So and we end up with a total payout ratio of 70%. So the deleveraging is not from not paying dividend.
The deleveraging is from having a very, 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 February, we have bought back shares.
Today's announcement is entirely about record high ordinary dividends. And 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 2 other parties, our biggest shareholders and our biggest host government. So that's what I have to say. But we have freedom, and we are distributing a lot to the shareholders.
So thank
you, Jacob. I understand we have time for one last question from the call.
And your next question comes from the line of Lyndon Fagan from JPMorgan. Please ask your question.
Thanks very much. Look, the first question is just about Slide 32, which talks about 200 opportunities that have been reviewed since Q1 2017. I think that's more than 5 sorry, one every 5 days or something like that. J. S, I'm just wondering what your vision for the company is in 2,030 to align with the emissions target.
There's obviously an M and A agenda there. What you mentioned gold might be something that the company would be prepared to retain in the portfolio. But around those opportunities, what are the commodities that perhaps Rio Tinto is not producing today that may have been assessed? Or could you give us some color about sort of what that includes? Thanks.
It seems that Bolt and Andrew on the 3rd row have been very busy. So can you give some flavor of what you've been doing during the Saturday and the Sundays? Boal?
Yes, sure. Thank you for the last question. I thought that I was not going to have a question today. So but look, we have been busy and you point out correctly that obviously it is a very M and 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 byproduct of Boron. So 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 means to be battery grade is essential. So we have done a lot of work on lithium.
The other one is, of course, we're primarily focused on battery grade materials. And so that, of course, as Arnaud alluded to, spending a bit of time in assisting together with copper around looking at the copper acquisition opportunities. And then secondly, we are spending a lot of time understanding high purity nickel and class nickel and what the post price dynamics are. And 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, Balda. That's a very good question. I can't tell you exactly what the portfolio will look like in 2,030. I mean, I know for a fact that it will be high quality, I know. I know for a fact there would be high quality copper, high quality aluminium and so on and so forth.
That is for sure. We look at other opportunities, mainly in the battery space. But without saying too much, because that's typically unreal Tinto is if we could have PGMs in the portfolio, not from South Africa, could be very good as well. And we're looking at exploration in that space. So but are we going have oil and gas or are we going to have thermocol in the portfolio?
I think I'm pretty confident to say no. And that's what it is about. So I can't tell you what the breakdown is going to be because what is very important, we're not allocating 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 REO is an asset portfolio, okay?
We want to invest to allocate the money toward 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. So are we ready to invest? The answer is yes.
Are we investing? The answer is yes. But at the same time is, I can't make it clearer. Today, when we look at the opportunities and clearly, Bode and Andrew have been pretty busy is the first pot of call for us to grow will be around organic growth. M and A is a watch in brief.
We're looking at stuff, but 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
and 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, but that's what it is about. And I think the last 5, 4 years as a good example of it. You don't have many companies where they were $36,000,000,000 of cash return to their shareholders in the last 4 years.
It is as simple as that. And 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, long term. And that's what it's about. On this note, Mino 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. So for the drinks, the coffee, maybe you can continue a conversation with some of us. And I'll see you in August. On this note, thank you very much.