Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Mark Cutifani - Chief Executive and Director

René Médori - Finance Director, Executive Director and Chairman of Investment Committee

Paul Galloway

Christopher Ivan Griffith - Chief Executive Officer of Anglo American Platinum Limited

Norman Bloe Mbazima - Former Global Financial Director

Seamus French - Chief Executive Officer of Metallurgical Coal

Analysts

Jason Fairclough - BofA Merrill Lynch, Research Division

Menno Sanderse - Morgan Stanley, Research Division

Rene Kleyweg - Deutsche Bank AG, Research Division

Tim Clarke

Caroline Learmonth - Barclays Capital, Research Division

Brian Morgan - BNP Paribas, Research Division

Alain William - Societe Generale Cross Asset Research

Anglo American (OTCPK:AAUKY) 2013 Earnings Call February 14, 2014 4:00 AM ET

Mark Cutifani

Okay, I think we're ready to roll. I think, ladies and gentlemen, that goes at the back, sit down and let them settle down. I guess, while you're getting settled, I'll -- for those that are aware, I've just had a hip operation, and I'm 3 weeks into the rehabilitation process. So first day was Zimoclone [ph]. Second day was 2 crutches. Third day was 1 crutch. I'm now on the walking stick. Now for those that know, Tony O'Neill, who's actually older than me, so in the next week, I'm going to toss this and give it to Tony. And as I said to René, when I toss the walking stick, I'll be ready to play for Arsenal. I'll let you think about that, I'll let you think about that. That's from a Chelsea supporter to an Arsenal supporter. So certainly, from -- and I've had some messages of, "Get well quick soon," so thank you very much for those messages.

Certainly, in terms of the results, if I can just make one comment. The results, from our point of view, are encouraging but certainly not where we want to be. So there are some encouraging signs in terms of business improvements and, in particular, improvements in the second half and, in particular, the fourth quarter but -- and I put a big but there in terms of not anywhere near where we need to be as a group, and certainly a lot of work to be done. And we'll touch on the key issues, the progress we've made, where we see our challenges and how we're going forward.

The intention is to not spend too much time in the presentation. So I think it's important that we impact the numbers, but I think it's much more important to get to some questions. You've seen the detail of the work that we've done in December. So again, not wanting to regurgitate that, other than to say you'll see in our forward-looking numbers that we've made some modest adjustments upwards in terms of the numbers that we expect to hit this year. That's encouraging in and of itself, but not any big changes. And I think we've made one negative adjustment in 2016 on nickel, and that's more a timing of the furnace issues. So we're on track, no major changes, encouraging performance. So you can see, it's -- the last time we spoke in December, that we'll unpack all those key issues.

And I will move fairly briskly through the presentation on the basis of getting to questions and discussion around the things that matter more to yourselves, this -- which is where we should be focusing. And this worked 30 seconds ago. There we go.

I'll focus on the business performance. René will pick up the financials and unpack the detail in the financial numbers. And then I'll pick up projects and progress across the businesses.

As you know, you all have seen the numbers, underlying operating profit up 6%. Again, encouraging performance across a number of the businesses, but still a long way to go. Again, René will unpack the underlying earnings and the impact of minorities in the 7% number. Earnings per share, 2009 (sic) [$2.09]. So certainly, a few things supported that in terms of foreign exchange offsetting price weakness. And I guess the strength of the portfolio was seen during the course of the year, both in terms of geography and commodity mix, with foreign exchange basically offsetting price weakness across the portfolio. So when we talk about being a major diversified and you think about our value proposition, this is one of the areas that I think that advantage comes through pretty clearly.

Good news, platinum and diamonds making improved performance. The coal guys have done some really good work. Unfortunately, a 24% decline in prices has hit the numbers. But as I said, I think, in December, for every $1 that Seamus and the team take off the cost, we see we get about a $2 hit on prices, but that will turn around. The key issue is when.

And again, operations improvement across a number of commodities was encouraging but certainly not good enough from where we've been. And again, no surprises, as one would hope, from your own perspective, on dividends, maintained while we're going through the major capital spend. But certainly, the one message that I think was important to convey from the board is that if you go back to -- and I can only relate my specific experience, back in April, we were thinking of scratching our heads about maybe $16 billion to $18 billion net debt the end of this year. That's changed twice. We headed it back towards $15 billion to $16 billion, and René will talk about continuing improvement on that prognosis. But there's a consequence of the improvements that we've made and some encouragement on commodity prices. So what we continue to improve, we can continue to see some improvement across the portfolio, but again, a long way from where we need to be.

On safety, again, solid improvement on our lost time injury frequency rate, 18% improvement. That at least tells me that we're working on the cultural aspects, and the leadership across the business has been fairly strong. But our fatality incidents, fatal incidents, and if I add the fact that we've still lost 2 colleagues in Amapa that's not in the reported 14 number for the year, we've got a lot of work to do on the safety front, in particular around major hazards. So that will be our key focus area, and obviously dominated by the tragedy at Amapa in March last year. So very focused on making sure we get on top of those issues and continue the broader performance improvement, I think very important for us.

On the environmental front. The way we've presented the numbers here, I think it's important to show water, greenhouse gases, energy improvements across the board, and being or delivering solid environmental performance is consistent with improving the business. And you'll see the numbers there in terms of reducing our cost. That's part of how we've continued to reduce our costs during the course of the year. And so I think the team, and in particular on the sustainability side, should be very proud of the improvements. And the guys have done some very good work across the business.

In iron ore. And I see Norman just busting in, obviously hopping off a plane. Good to see you, Norman.

The Sishen quarterly production, very, very encouraging to see the improvement from Q3 to Q4. Clearly, we were all very unhappy with the Q3 result. The team has a lot of work to do this year, but certainly, I think they've got a good plan. The team is working on a whole range of process initiatives. And so certainly excited in terms of the potential.

On a full year basis, we got some help from price and FX gains being in South Africa. And the really bright light in the performance was the Kolomela performance that Norman and the team believe they can continue to hold and, in fact, improve over time where their business process works. So we'll unpack more of that midyear, but certainly, I think we've got our arms around the issues. We have a plan. The guys are working on the final elements of the execution plan. And certainly, from our point of view, I think we should see continuing improvement during the course of the year. Certainly, I know Norman is keen to field any questions a little bit later in the day.

On met coal, again, some good improvements if you look at that 18% improvement in operating costs over the last 2 years. In the last 12 months, the improvements at Moranbah have been well documented. What hasn't been as public, and certainly one that we'll talk more and more about, I hope, in the next few months, is the improvement at Grasstree. So taking the lessons from Moranbah, where we've almost [ph] doubled the cutting hours. And I think, Seamus, we're up at about 115 hours a week as we speak. That's a significant improvement from where we were at 59 hours a week, so a significant improvement across the business. We're taking that model into Grasstree. And in taking that model into Grosvenor certainly enhances the returns that we'd originally forecast from Grosvenor. So I'm very pleased with the results.

Unfortunately, in the industry, there's still a lot of sticky production with the total pay contracts and the rail lines in both the U.S. and Australia. Some of that capacity is shaking out, but it might be more than a year before we saw -- see the sorts of numbers that are going to be needed to improve the pricing focus. But Seamus and the team are managing what they can manage. If we have to make some tough decisions on reducing our capacity, we will go there, but certainly, I think the improvement programs are making a big difference, and we still have a way to go.

In thermal coal. Again, fairly significant changes through the business are occurring as we speak. Seamus and the team had to do some tough stuff. Seamus and Godfrey had to do some stuff -- tough stuff in the last few days, advising people of some reduced numbers in the thermal coal business. You have seen or we have seen a drop in operating profit, in particular price driven. But we do have some quality issues, but we've put some coal in to end the year [ph], and those contracts -- or those sales have gone well. And from a standing stat, 9 months ago, when we said to the team that we won't accept a 30% reduction in the next 6 to 7 years in terms of volumes and a commensurate drop in performance, they've done a great job in identifying how they can hold production; improve margins; and in looking at different contract positions, it might be exactly the same quality, but in terms of cost, delivery and margins, doing really good work in terms of preserving our returns. And you'll see we're better than 20% returns -- or 23% return on thermal coal. And from our point of view, even though the mix changes, the guys are doing some good work. And we think we can preserve those sorts of margins. So for us, an exciting time in thermal coal, to be frank. And Seamus has spent a few trips down in South Africa and working with the team, and certainly, again, excited in terms of what we see as potential.

Now copper. From our point of view, I've got to say that we're a little bit sheepish in the copper numbers. The guys did extremely well. We were probably a bit more conservative than we should be in our guidance numbers. In particular, both Los Bronces and Collahuasi have really come in strongly in the last quarter. We thought there were a couple of operating risks at Collahuasi that caused us to be prudent. And reflecting somewhat on the history in the last couple of years, the team has done exceptionally well. And so we're very pleased with the numbers, and again, sheepish in regards that we weren't sandbagging the numbers. We thought there were a few risks, but we'll certainly look to do better. And you will see in our guidance numbers that we've kicked the guidance numbers up for the year based on what we've seen. Again, we're still being quite prudent, and we'll keep an eye on that. And if we see a reason for further adjustments, we'll certainly let you know. But it's certainly not in our intent to sandbag or try and be overly protective of what those numbers should be, so -- and this is the one we had some sensitivity to.

As an engineer, this sort of stuff is stuff I love to see. We were work -- we worked with the team in June, July around the whole Barro Alto operating strategy. We agreed at the end of June to actually cut the power back on the furnaces, do some rebuild work around the walls of the furnace, change some operating practices and really change the philosophy that is consistent with the operating model we're currently designing for implementation across the group. It's very similar to what Seamus and the team are doing at Moranbah and Grasstree, but again, looking at how we do that differently and how we apply it to nickel. We've seen a 44% improvement in nickel production. And it's somewhat counterintuitive. When you reduce the power, you'd expect to see less nickel. This is all about getting stability and getting our operations delivering in a controlled environment. So I'm very pleased with the performance.

Nevertheless, it's been a tough year and nickel price has been tough, but that second half performance has improved our position. I think we've taken a full $1 a pound off our costs in nickel through that strategy. The next 2 years, the furnace rebuilds are being scheduled. You will see a 2016 adjustment to production guidance. In fact, it's the only negative change since we spoke in December, and that's more about the timing of the second furnace upgrade because we'll do the first. We're leaving ourselves another 3 months between the 2 to make sure any learnings that we take out of the first upgrade have been taken into the design or consideration of the second furnace upgrade. We're also watching the Vale guys at Onca Puma very carefully. Very pleased to see that their program has gone fairly well. I haven't seen anything in the last week, but certainly, some learnings to be had there. And we know the guys pretty well, and very pleased with that performance.

So still some work to be done. But by 2016, still got a fair bit of the furnace upgrade there, but as to the second half of the year, you'll see much higher production. And again, pleased with the progress, but certainly a lot more to be done.

Niobium and phosphates. Again, I get a bit of a spring in my step despite the hip when I look at niobium and phosphates because I hadn't even thought about that as part of the portfolio when I started in April. And I saw Ruben, who's an old Vale colleague of mine, being very excited. So the fresh rock project in niobium will start to make a contribution this year, and it is part of our improvement program. And certainly, 2015, 2016 looks pretty good. It is, from our point of view, a structurally solid market. We're, I think, the #2 player now. And it is dominated by CBMM. And so from our point of view, they have -- they appear to be behaving rationally in the market, but certainly, from our point of view, it's been a good business, good returns. And certainly, we expect to see continuing improvement, both in niobium and, in the longer term, with phosphates. We have upside capacity in our existing operations, and we've just found a new deposit. And being in Brazil, where the -- where Brazilians are significantly short phosphates, some 40% short of phosphate, we're sitting on their doorstep and it's one of the most dynamic agricultural regions in the world, so it's a great place to be in. And it's a very good business. I'm very happy. And we think we can continue to put just a bit of incremental capital in and make very good returns, so a great place to invest.

In platinum. Again, I'd like to acknowledge Chris and the team and the hard work that they've put in. They hit all of the key milestones that they stood up and articulated midyear. And again, it's been a hard road but a very important road. We're obviously having some tough conversations around the industrial front. I think the clear message is that we will not move. We are about creating a viable, long-term platinum business. The returns, as we see today, are very challenging, but as we start to move into the reconfiguration considerations, and Chris and the team are at the front of that, I think you'll see the ideas around platinum, during the course of this year, the ideas emerging around a very different business.

We aim to dominate the low-quartile position on the cost curve, drive margins and improve our position. And on the assumption that the market doesn't change that much and it's $1,400 or $1,500 an ounce, we've got to make returns on those numbers. And clearly, if we see a bit of encouragement in the market, we'll do extremely well, but either way, it's about quality, it's about returns on capital and it's about a sustainable model. And obviously, when you look at betsha [ph], you don't have to be Einstein to work out where we're looking and focusing in terms of making a bigger contribution as we go forward, but it has to be done carefully. It has to be done with the employees because it does have ramifications in terms of employment. It does have to be done with the government as a partner because we have to take into account all of those considerations. And Chris has the tough job of making the tough calls and, at the same time, making sure we're managing all of our stakeholders. And I think, in the second half of last year, when you look at the public statements from the government and from other key players, we're in a very different conversation around the platinum business. And yes, we're going through some tough pieces at the moment on the industrial front, but that's what we need to do. We're standing our ground. We're about creating the world's best platinum business and a viable and significant contributor to the portfolio. And that's what Chris and the guys are navigating. And certainly, he will have the full backing and resources of the organization in working through that program. And during the course of this year, we will continue to open up and explain exactly how we see that occurring in platinum.

Diamonds, great day to be here, Valentine's Day. So I might sort of went a bit cross-eyed when I said we're going to have a picture of the world's biggest sump. And for those who don't know what a sump is, it's where all the water runs when you have a big downpour. Now I live in Cobham. And at the moment, I know about water and I know about rainfall, and I reckon you could just about put the Thames river and all of the water that's sitting around Cobham in this big hole in the Jwaneng pit.

Now the reason I think this is important to show is, as a business, we're learning about managing the risks that come with the business. Now in the context of Jwaneng, it is such an important contributor to the diamonds business and it allows us some flexibility in terms of responding to market demand. The fact is that you can have significant rain events. So what we've done is we've engineered the right solution, that if that occurs again, we can continue producing and be flexible in the market. So it might be the sump in Jwaneng. It might be the design of the cutbacks at Venetia. It might be something different we do at Snap Lake or Victor in terms of the Canadian operations, or it could be about something we're doing in met coal. The issue of risk, understanding what it is and trying to make sure we're more reliable contributors and operators in the business, is very much about the technical changes we are bringing through the organization. And again, while that may take 12 to 18 months to roll through, in the end, it improves our reliability, it improves performance. And for us, that's how we improve our capital returns across the business, is focusing on the basics in the operation.

So with that, I will hand across to René and encourage him to talk about the former leaders of the football competition.

René Médori

Thank you, Mark, and good morning, everybody.

First, a look at the P&L on Slide #15. Mark mentioned already the increase in operating profit, 6% to $6.6 billion for the full year. A much stronger performance, in fact, in the second half, an increase of 32% in the second half this year versus the prior year. The decline in underlying earnings of 7% is due to, first, the higher tax rate, 32% versus 29%. In 2012, we got the benefit of the reversal of the court for the secondary category tax in Chile following the past [ph] disposal in Disputada.

We also have higher minorities in 2013, again, the impact of the disposal in Disputada; the acquisition of De Beers, that I know that now we treat as a subsidiary; but also the higher contribution from platinum and then, within that, the minorities in platinum.

CapEx, $6.3 billion, very much in line with the guidance we gave you back in December; and attributable return on capital employed of 11%.

Turning to the operating profit waterfall. Mark already mentioned that the decline in the rand and the Aussie dollar offsetted the impact of the decline in commodity prices. Commodity prices decline, an impact of $1.7 billion, predominantly in the first half of the year and predominantly in metallurgical coal and copper.

Volume, a positive variance on sales volume, positive variance of $700 million. That way, we have the benefit of the recovery at Los Bronces and Collahuasi, but also the increased productivity in met coal, but also the increased sales in platinum. Cash costs, a positive variance of $300 million. I will cover that in more detail later in my presentation.

De Beers, a positive impact on -- at the operating profit level of $400 million, both the impact of the acquisition but also the improvement in underlying performance, both in term of volume but also in term of product mix.

Turning to price variance, and first, bulk. Realized price for iron ore, slight improvement, $125 a tonne compared to $122 a tonne in 2012, better than we were speaking. I think we, as well as the rest of the market, were expecting a decline in iron ore prices in 2013. That has not materialized. We also had the benefit of a favorable product mix in terms of production, product profile from Kumba, with a high weighting in term of land [ph] products.

Metallurgical coal, a steep decline in term of price. The realized price, $140 a tonne compared to $178 the prior year. We were able to mitigate the decline in price by improving the product mix with a strong increase in production, especially at Moranbah. And you see the increase in term of proportion of premium metallurgical coal going up to 63% versus 51% in 2012.

For the current quarter, we have settled at $143 a tonne, so down to -- compared to the last quarter at $150 a tonne. Spot price, I think, is around $125, Seamus, so still continue to see price pressure on the met coal in the met coal market.

Turning to base and precious. The decline in copper price, $326 (sic) [$3.26] per pound in 2013. That includes the mark-to-market adjustment, negative mark-to-market adjustment, of $92 million in 2013. At the end of December, we had 179,000 tonne of copper, which we have provisioned a price at $3.34.

Platinum price, relatively stable in U.S. dollar terms, slightly down, below $1,500 an ounce. But you see the increase in rand terms. That's the number for -- on average for the year, 26 -- ZAR 22,586 an ounce. The spot price today in rand term is ZAR 26,000.

FX, I see I've already covered quite extensively the positive price variance. In our case, it's primarily around the rand, close to -- in excess of $1.3 billion in 2013. The -- you have in the appendix the sensitivity around the rand, one [ph] movement, increase or decrease, variable of earning by $390 million.

Turning to the sales variance, a positive $713 million. Copper sales increased 19% on the back of the production increase at Los Bronces and Collahuasi. Platinum sales increased 7% to 2.3 million ounces, and that despite the buildup of safety stock at the end of 2013 in anticipation of the strike that we are currently going through in South Africa.

Met coal sales increased 6%, predominantly hard coking coal. Thermal coal, sales up 2%, and that despite a strike at Cerrejón. The impact of the strike in Cerrejón in February was a loss of 1 million tonne. And Cerrejón was able to recover half of this volume in the second half of the year. And then Kumba, despite the problems that Mark has covered at Sishen in the third quarter, Kumba was able to maintain the level of export sales at 39 million tonnes.

Cash cost movements, a decrease in real term of 2%. Three key drivers: first, the volume, the production increase across the portfolio; the productivity gains, especially in metallurgical coal; but also the reduction in overhead, especially in metallurgical coal again, at the end of 2012.

CapEx, $6.3 billion for 2013. That includes $1.9 billion for Minas-Rio. The CapEx spend so far on Minas-Rio, $5.6 billion. We are confirming our guidance for 2014 of a CapEx between $7 billion and $7.5 billion, and that includes a number of $2.3 billion for Minas-Rio. We expect the level of CapEx to start to decline in 2015, $6 billion to $6.5 billion.

Turning to cash flow and the balance sheet. Operating cash flow of $7.3 billion for the year, up compared to 2012. That includes a negative movement on -- in working capital of $1.1 billion. $400 million was due to inventory buildout that I mentioned earlier in platinum; but also the sales increase, especially in copper; but also in Kumba, as there was a strong level of shipment in December.

Net debt, below $11 billion at the end of 2013, so $10.7 billion. For 2014, we are expecting to be cash flow negative. I think the market consensus is a level of debt between $14 billion and $15 billion, and that very much in line with our own internal projection, assuming the current level of commodity prices.

Liquidity, we have maintained a healthy level of liquidity, $17 billion, with cash of $7.7 billion. $5.4 billion of this amount is outside South Africa. In term of refinancing, this year, we have only one bond maturing in 2014, in April, in fact, $1.3 billion.

We had a number of special items, including impairments of $1.9 billion on a posttax basis. Most of this item have been either reported in the first half or covered before the end of the year. Really only 2 new items, the Barro Alto impairment of $0.5 billion and Foxleigh of $200 million, both driven by what's happening in term of market and demand [ph] for both nickel and PCI. And as I mentioned back in December, we won't take credits in term of achieving our return on capital employed target for any new impairment, so that will be the case for these 2 new items. They will be excluded for any calculation of return on capital employed.

Thank you.

Mark Cutifani

Thanks, René.

René Médori

[indiscernible]

Mark Cutifani

I think the last point was an important one to make, that we made a commitment in terms of how we would measure progress. And when we talked midyear last year of the $3.5 billion that we identified to improve our returns, it was based on some pretty clear objectives around work that we had to do within the business. We advised in December, in fact, that we've nudged that number to $4 billion to get to our 15% returns. So we take that very seriously. And we understand how, over time, people can be somewhat jaundiced by the fact that the goalposts move. And from our point of view, the key thing that we're obviously going to do is deliver the 15% return. And in the end, the prices and other things will move. And if the goalposts move, then we've got to look at other things we've got to do to deliver those numbers in any case. So there's a very firm commitment to deliver on the initiatives that we've outlined and, secondly, to get to the 15% return. And so the team is very focused on what we've got to do.

And the other part of that is making sure that you're tracking with us the progress we've made. I do understand that some of the things we've done in the past have been a little more complicated and hard to track, so we're trying to make sure that this is transparent and works for all of our shareholders and for those here that track our progress with great interest.

And on Minas-Rio, obviously a critical one for us. Again, over the 2 months, we've made good progress, mine pre-stripping completed, all the key pieces of mine equipment around the site assembled and we're recruiting and training people as we speak.

The beneficiation plant. I think we made up an extra 2 days over a period that we normally lose progress, so very pleased with that. If you remember, I talked about that period between Christmas and Carnaval and that it tends to be a tough period in Brazil. We've actually made ground. So from our point of view -- and to Paulo and the team, very pleased with that sort of progress.

On the pipeline. We're over 500 kilometers of a 525-kilometer installation, so 91% progress. Again, very pleased with all the progress. And for us, at the port, Porto was an interesting one. As you learn and understand how to place these caissons against tides and general weather conditions, you tend to do better. So we've literally gone over the 50% mark in terms of caissons to be installed against 33. The next 3 months are going to be really important to make sure we're continuing to track. The good news is we're now a 50% owner of the facility. We have veto on all key operating decisions. And from a strategic point of view, I think we are in a very different position than where we were 12 months ago and certainly one that I'm much more comfortable with and, in fact, happy in terms of the way the facility is being run and the fact that we've now got a real influence on the way things play up.

And then finally, and this will be the important piece for Paulo and the team as we come back and report midyear on progress, will be the key licenses. So we're working through the progress. We've made good progress on the bureaucratic processes following the early interruptions. So certainly optimistic but still with some risks to be navigated, and we'll give you a good update midyear. So generally, good progress. As some of you know, I've got lots of contacts in Brazil. And when I started the rumor mill in -- all of my industry contacts was telling me that it -- that we wouldn't be commissioning this project until the end of 2016. I'm encouraged to let you know that the rumor mill is saying that it's starting to hit towards the first part of 2015. So in terms of rumor mill versus actual, the 2 pieces are starting to converge, and fortunately, the rumor mill is coming our way. So we've still got some ground to make up, but certainly, the rumor mill has certainly been encouraging from our point of view in terms of Brazil.

The actual schedule, key issues. Clearly, our tailings dam is actually now complete, so that's been an important milestone for us. And we've actually put power on the 230 kV power line, again, a very important milestone. And so we're making good progress, but again, a lot of work still to be done, and those licenses are going to be very, very important. But we're very pleased with the progress.

Manpower, we've got the contract on -- split into 3 parts around the beneficiation plants. So it's a pretty busy site at the moment, but certainly making good progress. I'm very happy with how those things have been going.

I thought it very important, if you recall, when we started and we did the first part of our asset review -- and I should talk about the asset review again to remind people what stands in the way of delivering budgets and short-term expectations on targets. It was the first part of the brief. The second part of the brief is what would we have to do to reconfigure the business or change in terms of money strategy to get real value. And so for example, decision reconfiguration is a good example of the second part of the brief to the team. And then the third part of the brief is, looking at the resources, what's the potential and the way we should be operating this asset in the longer term. And I think Mogalakwena and its potential contribution in terms of the platinum business and the mechanized assets was the third part of the brief.

The thing that's really impressed me is the way the business leaders have picked up all three and then really put the focus on getting the basics right, getting stability right, getting the operating performance right. That's what we've seen in the second half. And we're now in that next phase of work, which is about the configuration, making sure we can deliver into 2015 and 2016. But the real long-potential value add is the -- are the resources we have on the ground and what this business can be. So for us, 2016 is simply a stepping stone, a milestone to be achieved on creating a much more significant business, a business that's delivering real returns and continuing to improve that position from 2016. So we're working -- I was going to say both sides of the street. We're working the 3 corners of the triangle in terms of creating value.

And the most important mission for us on a short-term basis is, back in April, we looked back 8 quarters and we said that only 11% of our businesses were either delivering on budget or delivering on budget and had a business improvement plan going forward, and a lot of operations that were not on-budget but were already working on improvements to get to budget. So that's what we looked like in terms of the performance. So 21%, really, on the negative side of the equation, a big group here. And these assets are our top 10 contributors. 70% of the earnings come from these top 10 assets. So that's why we did the top 10 first when we did the review. And they were my first 10 visits in terms of going around the business and looking at what we had.

As at the end of December, looking back the last 4 quarters -- so it's not a 1-quarter picture. We're actually trying to make sure the data has reasonable validity. We're now at, as you can see, a couple of operations, still got a lot of work to do. Good news is that grouping has now moved into delivering on budgets and, in fact, have now supplemented that performance with concrete, clear and deliverable business improvement programs. So to go from 11%, delivering on budget with the improvement -- or delivering on budget to 53% has been a significant shift in the business. And it's been, short-term focus, reconfigure to make sure we can deliver and working on the longer-term possibilities. And the third part is still very much early days, but the focus has been on those first 2 steps. And for me, that's a critical, if you like, lead measure in terms of our ability to deliver on the numbers for 2014 or to do better. And for me, that's a critical measure that I will talk about each half in terms of the performance of the business and how we're going against our key measures across the portfolio.

Consistent with that, this is our value add to get to our 15%. Key projects, we've talked to Minas-Rio. BVFR will commission in the third quarter this year and will make a contribution this year, but 2015 will be their real contribution. Barro Alto, we've talked about in terms of the furnaces over the next couple of years. And the Cerrejón P40 project, even with the strike, the guys have done extremely well at Cerrejón, and again, already starting to make solid contribution.

On the improvement plans, and this is the operations net of headwinds, this year, we've estimated headwinds of about $400 million to $500 million. And now we're hitting this in the last 2 quarters with the increased waste stripping, for example, at Sishen in particular, less so the copper grades. And with that, we saw a $600 million improvement in the underlying performance of the business, $4 million taken back on headwinds. So net-net, a $200 million improvement, which is part of the driver for the improved performance in the business.

And on our Driving Value. Remember, Driving Value was -- the pipeline, we've cut a big lump of cost, as René showed you, in terms of steady costs and costs associated with projects we think have got a much lower probability of being successful, so making sure we're focused on the right things. We've made improvements on the commercial side. You know about the platinum contracts. So from that point of view, we've made some really good progress on the Driving Value part of the program. We've still got $500 million of that we're working on because this gets us to $3.4 billion improvement against the original $3.5 billion. But again, to get to 15%, we've got some more work to do. We have a range of possible opportunities. In the next 12 months, we'll unpack those to help us try and get to that 15% by 2016.

So all in all, good progress. We're actually a little bit ahead of where we thought we'd be and certainly encouraged with what we've seen. But as you can see, still a lot of work to be done.

In terms of production outlook. Again, modest adjustments based on what we've seen over the last couple of months. The one negative in nickel reflects the timing of the second furnace upgrade and adding 3 months off the back of the first furnace upgrade to make sure that we've got all of the learnings incorporated in the execution of the furnace rebuild. I guess the possible issue there is the ramp curve is where we may have an opportunity, but I think, in terms of what we've done there, we've taken a prudent approach in terms of forward-looking numbers. But we certainly get beyond the 40 in the following year, in any case.

In platinum, Chris and the guys are obviously still subject to some estimates in terms of the current union issues, but we don't believe, certainly, with the performance we've seen so far, that we're comfortable in just touching that up a little bit. But again, we'll watch the activity for the next couple of months. And from a diamonds perspective, given the work that's being done on getting each of the operation to balance, depending on what the market does -- the market is strong, we can move with the market. And I think the way Philippe articulates it, we've got some flexibility. We only deliver what we need to deliver and what we can deliver reasonably in the market in terms of making sure that we're getting the right returns. And certainly, this suggests that we've got some confidence in the market. We're certainly positioned to deliver. And again, I think that reflects the good work Philippe and the guys have done.

So encouragement, but still a lot of things to be done. And the 3 key areas of concern that we have, obviously, in terms of delivering on our return on capital employed targets: For Seamus, continuing to work hard on the cost structures. And at the end of the day, one should never waste a crisis in terms of making sure you're working hard to get your costs where they should be, particularly when prices are tight. The next 2 to 3 years -- and in fact, the next 12 months will be very important in terms of how we think about met coal going forward. We like the business. We like the position we have: quality product, very competitive costs. But whether we should be producing as much as we are producing off the variable cost curve is something that Seamus will watch very carefully in the next 12 months. But there's one thing for sure, we've got to do a lot more work to get that up to an acceptable number. So that's where the focus is at the moment. We do have the view that prices should improve after this 12 months, but again, that's a view. That's one we'll have to track carefully.

Nickel, our strategy will improve the business. As I said, we've already made $1-a-pound improvement at Barro Alto. But at the moment, nickel is going to struggle to justify its place in the portfolio. But having said that, Ruben and the team have got a very good plan to improve that position and deliver on our 15% objective. Indonesia may make the difference in terms of the position they have taken on exports of nickel. We'll wait and see, but certainly, still a lot of work to be done there.

And in platinum. And as I said, Chris is well through the restructuring. He is delivering on all of his key milestones. The next step will be how we set up the business in terms of reconfiguration. And that story will unfold during the course of the next 12 months. So we know what we've got to do. We know where we're focused. All the things we're doing will improve the position, but we still may have to make structural changes or be more aggressive in what we're doing to make sure we get to the numbers.

There are a number of things that we're focused on across the portfolio. I want to go through them point by point. You can see them. Obviously, Q4 has been a solid quarter in particular. There's no reason why we can't continue to do well as we come into the new year. The Driving Value program is all about capital allocation, capital efficiency, driving margins and returns. Key areas are heading in the right direction. Improvement foundations are being laid.

I think the point, again, I want to reinforce -- and I hear people say, "Well, you guys are in a cost-reduction strategy." Well, that's one string to the bow. And you know about the efficiency programs in Driving Value, but the second string is actually about improving the underlying operating performance and the robust -- or the robustness, if there's such a word, of the business. And that's critical because that helps you drive your margins. So it's not only about cost reduction, it's about improving the quality and the performance of the business on a sustainable basis. And that's where there's a big leverage for us as a business.

And the third element is we have great resources. If you compare our portfolio against our peers', we have an untapped portfolio in terms of potential. And so the most important thing I say as the CEO is this team is making sure that we're getting the short-term issues right, that we've got the right configuration in place. My job with this team is to then make sure that the real potential in this portfolio is tapped, and that will be the differentiator that you'll see in the next couple of years in terms of looking forward and delivery of value from this business. And for us, I don't want you to miss the 3 points, very critical, very important to us. And we're making sure that we're working on each element as a -- on a prioritized basis.

I think, in making a final point, and we talked about the team. I was asked a question this morning that I thought was an important one that we haven't expressly put here but I think is worth reflecting on for 1 minute. Obviously, we're making lots of changes in the business. We're not up there saying we've cut this or we've cut that, but we're making significant changes. And the reason we're not up there saying we've cut this and we've cut that, like some, is that we're sensitive to our employees. We're sensitive to the markets and the jurisdictions that we're operating in. And we're working to make sure we're good partners to all of our stakeholders and with all of our stakeholders.

But just to leave you with a final message in terms of the change that's occurring in this organization. When I started, I had 16 reports, direct reports. Today, it's 11. I think we've tightened up the leadership team and we've provided the focus that needed to be provided in terms of the work we do, and it's in those 3 buckets that we work together as a team.

The second point, at the next level, this group of people, this team has gone in and looked at their structures. And we've gone from 124 at the next level to 87. So we've seen more than a 30% reduction in those top 2 levels of the organization -- or the next 2 levels in the organization. Now the challenge that, that creates is a bit more of a bulge at the next level. It's just where this group is focusing on over the next 3 months to make sure that we've got our efficiencies right, we've got the right people in the right roles. So we're systematically working through the strategy, the team that we need in place to deliver on the strategy and, in the case that we've talked about, the fact that we had been short on the technical expertise. I think, Tony, you've got 8 vacancies -- or had 8 vacancies in the technical area. So a lot of changes occurred in the business. I think we've got 3 new recruits already in those 8 roles. This is a very different organization. We are approaching the task in a very different way, and the results will follow the work that we're doing. And that's what we're looking to try and help you track with us in the periods that we report on a go-forward basis.

So I hope that we have presented a story that is consistent with what you've heard in December, that is relatively straightforward in terms of the numbers and how they're being presented and how they continue to support the story going forward. And with that, I hope it doesn't take you too long to take the numbers, put them into your models and at least give you some time to spend with your families on Valentine's Day.

And I hope you have a great weekend. Thank you. Thanks very much. Very happy to take some questions. Paul, I think we've got time?

Paul Galloway

Yes.

Mark Cutifani

Okay, so I'll work right across. Yes?

Question-and-Answer Session

Jason Fairclough - BofA Merrill Lynch, Research Division

Mark, it's Jason Fairclough, Bank of America Merrill Lynch. Two questions from me, probably one for you and one for René. Just on Minas, could you talk to us a little bit about the critical path and the sensitivities around the critical path? Is it the port these days, or is it the pipeline? And then the one for René is basically on net debt. There's a few numbers floating around in the market, and I think some of them are even from you, just in terms of where we're going to max out in terms of net debt. I hear the number $14 billion, but then I also hear the number $16 billion. So could you maybe talk about the sensitivities around that net debt number and how we may or may not get there?

Mark Cutifani

Minas-Rio, and then I'll hand it across. Minas-Rio, if you look at -- and we're going to roundtable shortly, so I'm going to -- I'm basically going to hand across to the guys to speak. But I'll pick up the questions quickly. And Paulo, if you think I've missed something, jump in. Two bottleneck areas, the beneficiation plant and, more specifically, the wet plant. And in the slide there, you'll see piping and electrical works, so it's tradesman-type work. It's the detail. It's threading all the cables and everything through. We were running 34 days behind schedule before Christmas. I think we're at 32 days now, Paulo, so we've made ground in what is probably the toughest period. It still remains a risk. There are a lot of people on site, so you won't be as productive as you would like to be. So I think that's the key risk area. And certainly, from our point of view, if it holds at 32 days, there's still a good chance we'll kick ore on ship by end of the year, but that's where, I think, the most critical risk. On the pipeline, at the end of the pipeline, I think the filters is going to be an important task for us to do and commission up early because, if there's going to be a bottleneck in the process, it could be around that area. So we want to test that one out early. But Paulo and the team are already doing all of their dynamic simulations, preparing for the commissioning strategy with Tony and his team to make sure that if we see any issues, we're quick and we're working on them. And I think probably the port -- the caissons is the only other area, Paulo, that we want to see another 3 months of good work before we say we've got it pretty well attacked. And I think they're the 3 periods. René?

René Médori

Yes, thanks. Jason, in term of net debt for the current year, for 2014, we are comfortable with the market consensus of a debt level at the end of this year of between $14 billion and $15 billion, so based on the CapEx guidance that I gave you of $7 billion to $7.5 billion. In 2015, even with the level of CapEx going down to $6 billion to $6.5 billion, we still will be cash negative. Obviously, it depends what happen in term of prices, and that's why we would expect the level of debt to peak at the end of '15 between $15 billion and $16 billion and then start to decline.

Jason Fairclough - BofA Merrill Lynch, Research Division

Can I just push you on that, René? So help me understand why, barring a complete collapse in commodity prices, why does net debt continue to go up even as CapEx comes down?

René Médori

Because even at $6 billion to $6.5 billion, you are still cash negative after payment of dividend to the minority shareholders and after payment of the dividend to our own shareholders.

Unknown Analyst

JP Mulgose [ph] from Bank of America Merrill Lynch. Just 2 questions on South Africa. Could you help us to understand or to quantify what the impact of the strikes are on the platinum business right now? And then also, can you talk about how concerned you are that AMCU has got a foothold now at Kumba? Do you anticipate that we're going to see the same kind of industrial action a year or 2 years down the road at your iron ore business that we're seeing now in platinum?

Mark Cutifani

I might just answer the question on AMCU because it sort of stretches across and I just -- I get the latest daily platinum ounce numbers. And Chris built up inventory, obviously, in platinum, and we've got an impact, so I'll let him answer the question. But on AMCU, and this is one that I track very closely, both when I was in South Africa, look, I think, in terms of the strike action in platinum, clearly, AMCU has been a dominant player in the platinum industry. They have been losing members, as I understand it. And they've been ruled against legally in the gold business. So they're an emerging force, but quite frankly, their recruitment across the industry is what I would see flattening off. The fact that they have got a 5% foothold -- and I wouldn't even call it a foothold. I'm not sure if I'd even call it a tailhold [ph]. It is a process where, if you've got anything more than 5%, you do get -- have some rights, but quite frankly, the rights are quite minimal. So for me, it's not surprising. In fact, I'm surprised it's so low. So for me, that's not a concern. I think it does say that we have to work hard to make sure we've got a good relationship with the employees. But I -- certainly, I'm not flagging that as a big issue with Kumba. Particularly with the way the options work and the arrangements with the Kumba staff, for them to contemplate anything would be seriously negative in terms of their own returns. So I think we're going to work our relationships out. So I saw some concerns that I think are a bit overblown, but at the end of the day, it's a risk that we've got to manage carefully. So employees are concerned, but certainly, from my point of view, the fact that we've got the government, all of the industry, all of the social group -- most of the social groups working with us to make sure we come out with an outcome in platinum, I think that will change the landscape to some degree. And certainly, we've been very happy with the support we've received from all over the place. I mean, we'll sort it out and we'll move forward. Chris, do you want to make a comment on the platinum, the daily ounce impact?

Christopher Ivan Griffith

So we've lost about -- we lose, at the moment, about half of our production. So we're losing about 4,000 ounces a day versus a daily production of 9,000 ounces. So we're the only company that's been able to keep our processing operations running. So Lonmin and Impala have shut this. So we're still producing about 5,000 ounces a day. So we've lost just over 60,000 ounces, which is a revenue of ZAR 1.5 billion. We have been able to build up stock...

Unknown Attendee

Rand?

Christopher Ivan Griffith

Rand, yes, ZAR 1.5 billion, which is only, of course, because we're not producing it, it's lost, but that we're still selling our volumes. So we sold just over 200,000 ounces in January. So we continue ourselves because of the stock that both Mark and René spoke about. We've built that up. We've been able to give our customers the comfort that they are receiving the metal that we're contractually obliged to give them. So actually, the market is fairly comfortable. And you can see that as a result because the prices haven't picked up. So we anticipated the position that we were going to be in. We've managed that well. We will go through that. It's payday in a week's time. And then for the second month in a row, our employees will take payment [ph]. And I think it's at the end of payday that we're going to start seeing movements in this process. We also have a court process at the moment to hold some of the leaders in contempt of court around the picketing, and we also have a damages claim against AMCU. So the pressure against AMCU is rising from all different scenarios, but I think it's been well managed and not a position that we're overly concerned about at the moment.

Mark Cutifani

Thank you, Chris. I think it's important to make one point on that too. There are no jelly backs in this business. It has to be sorted. This is about the future. It will be sorted. Yes? Oh, nevermind. Do we want to take through for South Africa?

Menno Sanderse - Morgan Stanley, Research Division

It's Menno Sanderse, Morgan Stanley. 2 questions, one slightly boring one on the program. Mark, you said you were ahead of schedule on the program. Can you give us some indication of where you are ahead of schedule and why? Are you using your good leg to kick harder? Are you -- do you have some -- what -- did some things fall in place that you didn't expect to? And the second one is on, René, still coming back to Jason's point. The $14 billion to $15 billion of debt for '14 is a bit of a surprise to me given that you were so much better in '13. Is there something in working capital or in cash taxes that will be a negative outflow in -- or an outflow in 2014 which we need to take into account?

Mark Cutifani

You want to go first, René?

René Médori

Yes. If you look at 2014, we get first an increase in the level of CapEx and not much difference in term of operating cash flow in term of provision. In 2013, we had a negative cash outflow of $2.2 billion. So you would expect an increase in the level of net debt in 2014. I think you need to look at my cash flow statement, and you...

Menno Sanderse - Morgan Stanley, Research Division

I've spent many weekends on that. So I still -- it still doesn't add up. But anyway, we'll talk about it on the roundtable. I thought I'd make it. But you are delivering towards the $4 billion profit improvement program, though. So yes, the cash flows are negative, but you're delivering a lot of benefits, so something doesn't add up there. We'll do it -- talk about it in the roundtable.

René Médori

Okay.

Mark Cutifani

I think a great point too, René, is you're on the ramp at Minas-Rio. So your margins, you don't start off day 1. You're ramping up through 2015. So your net free cash flow for Minas is small as you're working through the ramp-up, and that's a 18-month ramp-up process. I think that's an important point. And you're still spending on Grosvenor as well. So anyway, we'll put that aside. Yes, and on the improvements, look, I looked at the improvement. I went to Moranbah. And we saw Grasstree and we talked about the coal improvements. I think, if you look at it, I think we took probably 12 months, Seamus, to get the real benefits of Moranbah through into the system. And Glen and the team then went to Grasstree, and they had started to hit numbers within 6 months. So for me, the heart -- the underground guys on the longwall operation have done an exceptional job and done it in half the time. And that's -- it tells you about the learning in the organizing [ph] levels, one. If you look at the copper business, I think the improvements we've seen in the higher-cutback areas at Los Bronces, the continuing improvements in Collahuasi, the change to the crusher relocation strategy in Collahuasi, very happy with what I've seen in copper. Still got a lot of work to do hitting on the smaller assets, but in the 2 big assets, very pleased with the progress. At thermal coal, for them to come back within 6 months after saying, "We're going to be down 30%," and say, "Actually, we can hold it, we can deliver here, we can do this," that, for me, was about 6 months ahead of what I would have expected them to be able to do. And the fact that Seamus is already with the team, making changes to the old structures -- he only took over on January 1. Now clearly, a lot of handwork [ph] done. So very pleased with the progress there. Sishen, already probably about 90% of the way through the final designs on the execution plan. They'll be executing second quarter in terms of the reconfiguration. And in fact, they've already done a fair bit of haul road. So I can keep doing. There's a whole range of things where -- usually, it takes you 6 to 12 months as a CEO to convince people that we've got to do stuff. The guys have picked it up and run. And that's what's impressed me. Again, Chris is working platinum. All those things have been very encouraging, so I'm encouraged by what I've seen.

Rene Kleyweg - Deutsche Bank AG, Research Division

Maybe following -- it's Rene Kleyweg at Deutsche Bank. So maybe just following on that theme. Previously, we had these sort of performance charts, the Six Sigma charts, with the fact that 83% of your projects or assets were out of control in terms of where they needed to be. Is there any way that -- just a request, would we be able to see an updated -- those charts updated for us, as they are now operating in the way that they should -- that are delivering according to the buckets, and so we can see that it's operational as it -- it's not just upside surprises, it's no surprises and things are operating the way that they should be?

Mark Cutifani

Sure. We can provide more transparency for both the good performance and those that aren't delivering to their potential. I mean, that's what we've committed and decided to do that as we go forward.

Rene Kleyweg - Deutsche Bank AG, Research Division

And just, I guess, 2 points. One, in terms of the 0.2 billion of risk run rate, the -- sorry, the 0.2 billion that we saved and the 0.6 billion that we saved in 2013 in terms of progress. Can you give us an idea of what the actual run rate is on that as you head out to the year as -- rather than what was actually achieved in 2013? So what's in the bag, let's say, for 2014 already?

Mark Cutifani

So net -- so if you look at 2013, we're up 1.5 billion contribution, with headwinds across the board, 700 million, but they sort of hit you during the course of this year. Those improvements are in the forecast numbers. We believe that we'll pick up another 200 million to 300 million as we go through the course of this year because some of that -- well, for example, Sishen. You really don't have to start hitting the Sishen improvements into 2015. So there's still a lot of basic work being done. But you've got the platinum contract in place. We're doing well on our met coal contracts relative to our competitors. They're already in some of the numbers. So there's another pickup of -- so the 1.5 billion, less around 700 million, is what we'd expect to see through 2014. They're in the numbers. There's another 200 million to 300 million that we think we might be able to pick up. But I think, being January, it's still a bit too early to call. The real numbers start hitting us in 2015. So 2014 is very much getting the foundations right. 2015 is real delivery. But at the midyear, we'll give you an idea of what the -- we will update you on the run rate for 2014.

Rene Kleyweg - Deutsche Bank AG, Research Division

And then sorry, just a last question, just a follow-up on what you were saying on -- in terms of people, okay? Topics like [ph] let it down, next layer down, where you want it. And you've moved assets in terms of buckets and you've got execution plans now to roll those out. In terms of the people that you've got in place in there, have you got the people that you need? Where is morale? What's changing culturally? Head office, I understand there are still some structural changes to be done. So where are you in terms of bringing the 6 to 12 months you said in terms of convincing people? Where are we further down in terms of bringing people along this journey?

Mark Cutifani

We'd -- clearly, we've got the next 2 levels pretty well sorted. But Tony's still got -- we just announced Tyler Mitchelson; John Van; the third, we're not allowed to announce yet, are we? No. So we will have recruited at the next level and have those in place by June. There is still concern at head office, in particular, because we are now starting to work into the next levels, which is where it's a lot tougher. And that will be work throughout the next 2 to 3 months. So by midyear, those areas will be done. Other parts of the business will have been worked through. So the next 2 levels over the next -- we'll be there by midyear, have those pretty well sorted out in terms of the key roles. Corporate office is tough at the moment. I think one thing that we did underestimate is the level of the -- because the organization model we're applying is really different, and in unpacking the detail, people are finding some of that work pretty hard. So I'm actually talking to the staff today. But generally, we've had great support across the board. And we've made a lot of changes, but there's a lot more work to be done, and we've got to do it carefully. I think we're going to have to hold it there because we've got South Africa. Give the South African team a chance to ask questions. So can I throw it to South Africa? And I promise not to mention the cricket.

Tim Clarke

It's Tim Clarke from Standard Bank. I wonder if we could just talk a little bit about platinum. You made a comment that you want to dominate the low quartiles and focus on a qualities returns type of business. Clearly, as the dominant platinum producer in a market that's in deficit and that potentially, as it recovers, you need scale to move volumes up in order to protect that industry, it's quite a different strategy to being a low-cost returns, margins-focused business. I wonder if you could talk to that briefly. And then just a sort of a couple of comments, just questions quickly. One on -- one Quellaveco, is there any progress on when we'll hear on approval on Quellaveco and what's happening with Quellaveco and partnerships potentially? And then the last one, perhaps it's just a René question very quickly. A lot of the CapEx that comes out of South Africa, a lot of it is in rands. The rand's has clearly weakened a lot, but your CapEx numbers haven't changed in dollars. Is that conservative? Or does that mean that some of the CapEx numbers are coming through higher in South Africa?

Mark Cutifani

Okay, just to pick up the first question. What are we saying is we want to dominate the low-quartile position in platinum, that is low costs, high margins, great returns. Not interested in being the dominant player in terms of production. We want to be the dominant player in terms of returns. I want that to be clear. We are not interested in volume for volume's sake. We are interested in having the best-quality ounces, the best returns in the industry. That's where we're going. It's not a volume strategy. I want to make that absolutely crystal clear. This is about quality. It's about returns and making sure that we are the ones that are generating the best value in this industry. That's where we're going, not about volume. That's point one. I hope that answers the question as clearly as I can. Secondly, on Quellaveco, we've got an 18-month program of a different mining strategy, and we're working through the feasibility studies now in delivering a project that's certainly well above our hurdles. And if you recall, the IRR hurdle and, amongst others, cost position, NPV, RNI [ph], making sure that we tick every one of our capital allocation boxes and deliver against the 12.5% IRR hurdle, and certainly looking to exceed that. That's about 18 months' work of a new strategy. How we think about that, think about partners, think about the way that's done, that's all part of that work over the next 18 months. We are not going to rush into major projects necessarily by ourselves. We like the idea of syndicating those types of projects so that we reduce our capital exposure, bring partners in, make sure it's done properly, but we will make sure it's right before we make the commitment. If that means we take another 12 months, so be it, but we're certainly focused on getting that strategy right. And the rework we did as part of the asset review doubled the returns or the potential returns of the business. That's what we're about, again, quality production, low cost, good returns, long-term asset in a great position, that's what Quellaveco is about. René, handle the third question?

René Médori

Thank you, Tim. If you look at the CapEx profile, it's predominantly outside South Africa. So the -- if we look at 2014, $7.5 billion of CapEx, probably around $1.2 billion of CapEx in South Africa. Remember, all the major projects, Minas-Rio, Grosvenor, fresh rock [ph] are outside South Africa. So it's relatively a smaller -- small proportion of the total CapEx. But also, if you look at the content of this CapEx, very often, it's in U.S. dollar. And when you buy, you commence [ph] your truck at Kumba, it doesn't matter what happens to the rand. You are going to pay in U.S. dollar.

Mark Cutifani

Second question?

Caroline Learmonth - Barclays Capital, Research Division

A quick question. Caroline Learmonth, Barclays Africa. On Sishen and the 21% right, you've noted that conditions might be attached to that right. Can you say anything else about the type of conditions they might be? So in other words, they would not be the sort that would be likely to impact your Sishen optimization plans.

Mark Cutifani

If I could say, very simply put, no, they are not likely to be any type of condition that would impact our Sishen optimization plan. Norman, do you want to say anything more than that?

Norman Bloe Mbazima

You're absolutely right. There's no changes to the actual operating mining things, even from 2009 when this thing started up to now. The laws say that the conditions have to be in accordance with MPRDA. And we are only now just starting to discuss those conditions, and we'll keep the market advised as we go along. There has been no color on what type of conditions there might be right now.

Mark Cutifani

I think, if I can say this, Norman, the definition or the flag that there will be conditions simply reflects the right of the department to impose certain conditions on the mining of the 21% right because you have to apply for it. We don't expect anything draconian, certainly not from our perspective, but we do make the point that they do have the right to make or imply some conditions. But one would have to say that the team has done very well in the conversations with the DMR. The fact that we resolved that railway issue so quickly was a really important marker for me in terms of the nature of the relationship. And across the board, we've been working very hard to make sure we get our South African relationships right because we really are about creating a partnership and making sure that, for shareholders and for our stakeholders, we're getting a win-win -- or we're delivering a win-win.

Paul Galloway

Okay, one more at the back.

Unknown Attendee

Danielle Falcou [ph] from Business Reports [ph]. In yesterday's State of the Nation address, President Zuma made a plea to unions and mining companies to stop the strikes that are leading to job losses. Can you give us your thoughts on his plea to strike -- sorry, to the unions and the mining industry at large? And also, can you just give us some color on how the shutdown at Richards Bay Coal Terminal is affecting exports of the product? And also, what sort of contingency plans does the company have?

Mark Cutifani

Okay, thank you. On the State of the Nation, I've actually read the speech. I think the President -- and I think it was actually very encouraging to hear him talk about South Africans coming together and making sure that we create the country we want South Africa to be, and that means all stakeholders have to come together and look for solutions. Now in terms of what's going on in the platinum industry, you've seen basically the bulk of the industry has agreed on affordable pay increases. And certainly, the role of the government in trying to bring us all together to make sure the platinum industry comes together as the rest of the country has, I think, is very important. And that's how I read his appeal. He's asking the key players that if companies are providing you with a reasonable pay increase which is consistent with the rest of the industry, which is consistent with the rest of the country, for God's sake, for the sake of the country, do the right thing, and that's how I read the speech. I'd say that I thought it was a great speech. I thought it was very appropriate. The fact that the Deputy President is supporting, is trying to find a way through this, I think that's good news. And from my point of view, very pleased. And we're very encouraged in terms of the conversations we've had on the MPRDA with the DMR; on the political conversations -- or if I say the government conversations because they're not really political conversations; and with most of our stakeholders. I think we've made good progress. This is the one we've got to resolve, but that doesn't mean we step back from doing the right thing. We will do the right thing, and we'll hold our ground. Richards Bay, Seamus?

Seamus French

Based on the announced duration of the Richards Bay outage, the -- it has the potential to impact our exports by about 0.5 million tonne this year. But we would expect that, in this period, the port and rail parties are doing scheduled maintenance that was planned for the second half of -- for the rest of the year. So I'm not casting that as a definitive number, but just based on the duration as announced at this point. The final number, obviously, will depend on how much opportunistic maintenance can be done in this outage period.

Mark Cutifani

Okay. I think we're going to try and take one question off the phone or take a couple of questions from the phone as well. So hopefully, they will pick up points that haven't been picked up.

Operator

We have 2 questions on the conference call. The first one is from Brian Morgan from BNP Paribas.

Brian Morgan - BNP Paribas, Research Division

Just 2 questions from my side. The first is, could you give me an -- or give me your opinion on the change of concern given the MPRDA? I mean, just your views on that. And the second question is on the portfolio review during the year. [indiscernible] resulted in a number of impairments. Do you think the [indiscernible] key now? Or were -- are there underperforming mines which you'll be looking at closely in 2014, which might show an indication of impairments during the year?

Mark Cutifani

If I could say that on the MPRDA, we had 10 items that we took to the government that we were concerned about, and I'm going to say, August, September last year, there was a real engagement that occurred and that I think we very happily resolved 8, almost 9, of those issues. And I think we're already in a varied [ph] conversation about the remaining issues. So I'm very happy with where those conversations have gone. The government has, I think -- and we've all moved and worked together, so I think we're in a good place. And if I look at Norman and Chris, I think, guys, we're pretty happy with the way those conversations have gone. They're both nodding. So again, I've seen some brickbats handed out to the government or some barbed wire bouquets. I think, quite frankly, that's really been unfair. I think the conversations have been constructive and positive. And for the cowards that sit in the shadows and criticize and don't reflect on the change in that conversation in the last 3 or 4 months, it's both unreasonable and, quite frankly, denigrates South Africa and is misrepresenting what's actually happening on the ground. Yes, there are issues, things to be resolved, but those conversations have come a long way. And I get quite fired up when I hear 1 or 2 people bitching on the sidelines. When you look at the changes to the MPRDA, very constructive. And so happy where we're going. I think the second point...

Brian Morgan - BNP Paribas, Research Division

In terms of the impairments, potential impairments for assets, which assets which marks a potential for impairment for 2014.

Mark Cutifani

That was the skeletons-in-the-closet question. René?

René Médori

Well, I -- we went through a thorough review at the end of the year. One area we will continue to monitor very closely is metallurgical coal because of the price issues that Mark has mentioned. That's where we see some pressure. It will also be -- depend on what we might decide in term of structure. So that's the area we are watching in term of potential impairment.

Mark Cutifani

Yes. And that's more an issue that's outside our control. And having said that, what is in our control is what the team is doing on the ground. And every month, we're seeing improvement. And the key for us to manage that risk is to continue to improve our productivity, both in platinum, met coal and our nickel business. And that's where we are firmly focused. We'll manage what we can control and position those positions to -- and position those businesses to be successful. And if that means tough calls, that means tough calls. I should also make the point about the 6 or 7 assets that we talked about in terms of the portfolio. What we've said is, when we did our asset review, those assets that aren't making a contribution that we think will be stretched in making a contribution have been given the opportunity to show us by midyear what they can do, and then we'll take some views on a go-forward basis. But the point I do make is, if we think something is not going to make it, you will hear about it. Or if we think it's not going to make it and we've made a decision to think about a sale, you will hear about it the day after we've made this.

Paul Galloway

One more from the phones, and that will be the last question.

Operator

Our next question is from Alain William from Société Générale.

Alain William - Societe Generale Cross Asset Research

I have a quick question regarding the roadmap to 15% return on capital employed. I just wondered if you have disclosed a kind of retention rate for the savings you are using in the bridge.

Mark Cutifani

I didn't understand that question. Sorry, the retention rate?

Alain William - Societe Generale Cross Asset Research

Retention rate, yes. Are you going to keep it all? Or maybe are you -- do you have to deliver much more and retain less? I just wanted to understand, what's the retention rates on the savings?

Mark Cutifani

Ah, so you're saying, of the things we're doing, long-term sustainable in terms of delivering on a return.

Alain William - Societe Generale Cross Asset Research

Yes.

Unknown Attendee

How much of what you've achieved so far can you hold onto? Or will you be [indiscernible]?

Mark Cutifani

Well, I'll try and answer all 3 possibilities. Firstly, the run rate that we've delivered is sustainable. That's why we call it the run rate. So that's the first point. There are other things we've done that have improved the business that may not be sustainable, smaller things that you do from time to time. But from our point of view, the numbers we have up there are sustainable numbers. And that's reviewed within the business and externally within the business to make sure that we're comfortable putting those savings up. I think that's really important. That's why 2014 requires a lot of structural work to put sustainable savings in place. That's why I'm saying 2014 was always going to be a year of hard work, with the benefits starting to throw -- show through into 2015, and obviously a critical delivery as we go into 2016. But you'll see a lot of that starting to come through in 2015. If you're asking me what are we going to do with the cash, we are committed to continuing to improve our dividend once we get through the capital programs and the improvement programs. And if I can say, we're committed to 2 things. We're committed to return on capital employed or returns on capital, and we're also committed to appropriate returns of capital to shareholders. So the dividend policy remains. Obviously, in the next couple of years, there is prudence as we look at the debt. We don't want to absolutely fund dividends from debt. But in the longer term, we think we've got to get that dividend flow right. And if I look at players in the industry in the last 10 years, 50% of the real returns delivered to shareholders has actually been in the form of dividends. So we are absolutely sensitive to and we've listened to shareholders in making that commitment. And that's why we think you need to deliver a 15% return on capital or better to be able to provide a reasonable dividend yield in terms of the stock. That's where we're going. That's what's driving our behavior.

I think, guys, we have to call it. We're going to have to rule it. More than happy to pick up a couple of people on the way through. Okay? And we're going to the roundtable? Okay. Thanks, everyone.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Anglo American's CEO Discusses Q4 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts