Glencore Xstrata's CEO Discusses Q4 2013 Results - Earnings Call Transcript

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Glencore Xstrata Plc (OTCPK:GLCNF)

Q4 2013 Earnings Conference Call

March 4, 2014 4:00 AM ET


Paul Smith – IR

Ivan Glasenberg – CEO

Steve Kalmin – CFO

Peter Freyberg – CEO, Xstrata Coal

Telis Mistakidis – Director, Zinc/Copper/Lead Commodity Department

Tor Peterson – Director, Coal/Coke Commodity Department

Chris Mahoney – Director, The Agricultural Products Business Segment


Ash Lazenby – HSBC

Menno Sanderse – Morgan Stanley

Jason Fairclough – Bank of America Merrill Lynch

Jake Greenberg – Bank of America Merrill Lynch

Liam Fitzpatrick – Credit Suisse

Myles Allsop – UBS

Sylvain Brunet – Exane BNP

Jeff Largey – Macquarie

Robert Clifford – Deutsche Bank


Paul Smith

Okay. Good morning, ladies and gentlemen, and welcome to Glencore’s Preliminary Results event for 2013. Today’s event will comprise presentation by Ivan Glasenberg, CEO; and Steve Kalmin, CFO. We are also joined in the audience this morning for Q&A by all of the divisional heads here in London. So with that, let me hand over to Ivan.

Ivan Glasenberg

Good morning. Okay, I’ll give a quick summary, and then I’ll hand over to Steve, and then come back and give more details. But as you’ve seen the results, once again we proved we are diversified major mining company. We have a diversification of the different commodities which we handle, and we also have the marketing business which once again has proved very resilient, and continues to be resilient no matter what movement we have in the commodity prices, as we always stayed with high commodity price, so we perform better, but it’s not linear to commodity prices. So once again I think the third year since we’ve been public, we’ve proved the marketing business is in fact very resilient.

We continue to deliver on our growth assets and we’re improving cost position on the cost curve. And as you know, we’ve spent a lot of capital over the years, especially with Xstrata assets and it’s moved us down the cost curve with higher quality assets.

The diversified model, we will show later when we show details. Because of the diversification, we are more balanced in the commodity side and we’re not relying on one major commodity to generate the profits as we see with some of our peers.

The good point with the Xstrata acquisition, as we said at the time of the acquisition and on the half year results, that we had synergy cost savings of around about $2 billion, that is increased as we go in deeper down into the assets, we’ve added another $4 million. Steve will take you through the details where those cost savings have occurred. And it’s not as though we don’t see more, we continue to look deeper down in the assets to see where we can get further cost savings, and we will continue working on that and trying to increase that number. We won't continue reporting that number, but you’ll see it come forward in our future results going forward.

Strong growth in free cash flow and that’s what we’ve always said. We want to be a company that generates cash flow. We’re not very eager to continue building assets. We want to return cash to our shareholders unless we see really good acquisitions, but we definitely are not in the process of building new mines and starting greenfields. We’ve said that long enough.

We do have assets which if we do wish to expand at some stage, I’ll take you through some of them later, brownfield expansions if we wish to do that, they had a low cost and they don’t take a large amount of capital. And once again we emphasize, this is a company which is – you have heads of our departments over here. It is owned by the management of the company, and therefore we very much focus to do what’s good for the shareholders, what’s good for us, the lot of shareholders of the company and what’s good for all shareholders of the company.

So we are not a company that’s going to continue spending capital just for the sake of growth, and it really has to generate returns for the good of all of these shareholders. And I think that gives you a summary. It’s the same emphasis we’ve been saying since we went public, and I think we continue to perform on that basis.

The heads of our departments are over here. All our departments are sitting in front. So during the Q&A, they’ll be available to answer any detailed questions in respect to their various commodities.

So with that, Steve, I hand over to you.

Steve Kalmin

Thanks, Ivan. Good morning everyone here in the room. Maybe before I launch into some of the numbers, just to preface the basis of preparation of the financial statements as we are reporting today. It was a relatively complicated financial report in terms of the acquisition of Xstrata been completed on May 2, 2013. So there are various numbers in financials hopefully reconciled either within the body of the financial in sales or in various appendices that we’ve given I think pages 121 to 127 of the Annual Report.

We’ve had to reconcile and bridge multiple sources of data, ultimately the numbers that I’ll be talking to primarily to make more meaningful comparison with what the scale of businesses both in 2012 to 2013 is very much looking at the pro forma numbers, as if Xstrata had been acquired by Glencore on the January 1, 2012. So we got 2012 and 2013 comparatives.

Another bit of noise that has crept into financial reporting generally, and again we’ve sort of reconcile and explain those is, the pro forma aspects of the financial, that noise will clearly disappear next year, and in two years’ time, will be out of those particular structures in the event we see the extra results being delivered through the control in company.

But the feature of our reporting and I think increasingly with some of our peers out there is financial accounting of various JVs from a statutory perspective requires equity accounting of certain structures of JVs, whereas in any internal evaluation of those operations reflecting the underlying mechanics and structure of some of those JVs. We do report them and continue to report them both segmentally, as well as internally on a proportionate consolidation.

So we provided reconciliations, and that applies to some legacy Xstrata JVs, particularly in Collahuasi in Chine, Antamina in Peru and Cerrejón Coal in Colombia as well. So we’ll be continuously reporting some statutory numbers, and then looking to unscramble that particular accounting to say this is the underlying EBITDA, cash flow, CapEx in those particular operations.

Now these numbers are then all on a pro forma proportionate consolidation, and of course some of our peers that will be reporting, let's say, BHP spoke about having seven of such operations the other day and continuing to report on the same basis. They themselves are of course partners in Antamina and Anglo and other partners in some of our others assets as well.

So lot of the bridges, a lot of the reconciliations the numbers are in there. We’ve tried to capture all permutations in there to the extent that they still – some of you out there are trying to marry all these numbers, please get back to IR, we’ve got all the building blocks, we’ve got all the bridges. We’ll try and update the models. And as we move forward, we’ll be out of this particular sort of noise in terms of numbers.

So everything in terms of making sense, as I said, our numbers is going to be reporting in discussing pro forma, pre-exceptional or pretty significant items. I’ll make mention to a few of those significant items. Most of them were covered at the half year results, primarily in connection with the Day One goodwill acquisition impairment booking that we made of about $7.5 billion associated with the acquisition of Xstrata. That number hasn’t changed between the half year and the full year. That’s still where it is.

So looking now at some of the numbers, you’ve seen, and this is obviously at the total Group level, we’ll go into some of the individual segments.

EBITDA, we’re able to from 2012 to 2013 hold that constant at $13.1 billion, notwithstanding some of the reduction in commodity prices. I’ll show you an industrial asset bridge that was the main pricing was of course the biggest negative year-on-year, but then very much compensated with cost reductions, volume improvements, transforming of assets, of course the Xstrata synergies in some respect second half of 2013 are also starting to flow through.

I’ve also shown first half and second half numbers for all those key light items, just to show that there is already being a progressive improvement, notwithstanding the actual backdrop wasn’t necessarily much better than second half. It’s really around growth in business. Assets picking up in terms of productivity and production like Collahuasi in terms of copper, lot of the other copper assets have general expansions. You’ll see some of the variations of course next year.

EBIT down 13% as the depreciation of those increased tonne start flowing through. At the net income level, you would expect that to hold more at the EBIT level. What there was in the base 2012 year which is distorting the comparison of 23% somewhat within Xstrata’s financials if you go back and look at 2012, they had booked at $640 million tax credit in respect to prior tax provision reversals that was otherwise left within the effective lowering their effective tax rate in 2012.

We haven't sought to pro forma or eliminate that particular credit of $469 million. But if you look at the tax rates we’re about 20% in 2013, which based on the mix of industrial marketing as it was in 2013, that’s sort of range of effective tax rate we would expect in 2013.

2012 was in fact much lower at about 14% because of that $469 million credit that was booked by Xstrata in 2012. And if you strip out that $469 million, the net income, 2012 to 2013 was actually below 15% which is more where you’d expected given EBIT was only low about 13% as well.

Funds from operations $10.4 billion, obviously a key driver and the ability to fund the business, distribute to shareholder and a key anchor around supporting leverage metrics at $10.4 billion. That held similar levels for 2012 because it’s very much linked to EBITDA, and of course interest and tax below that hold.

Again you’ve see quite a nice bounce in some of those metrics from first half of 2013 to second half of 2013 in cash flow of $4.3 billion, $6.1 billion generated. That’s of course extra EBITDA. Interest funding costs are coming down, generally improvements across the business as well.

I won't drill too much on the net debt credit metrics. There is a slide on that later on as well, but we are peaking clearly in net debt as we’ve now funded through the peak CapEx 2012 to 2013, and the business then is in a position to start deleveraging, and it’s compounded in an environment where operating cash flow is going up. So credit metrics, as you plot them, I’m sure within your models, if this business is just, if you like, run as the cash flows would naturally evolve over the next two or three years, you’d see a tremendous, obviously improvements subject to whatever we may decide to do with those cash flows in 2014 and 2013.

Just breaking up some of those businesses between the marketing and the industrial. I think as Ivan mentioned, resilience, strong performance on the marketing side. At the EBIT level up 11%, EBITDA up 17% to $2.4 billion, nicely within the range that we’ve previously talked about to the market. This is pre-Viterra, pre-Xstrata $2 billion to $3 billion, depending on the macroeconomic backdrop in terms of offering opportunities, tightness in the supply generally, so we were $2.4 billion within our range of $2 billion to $3 billion.

We set effective from 2014 now that Xstrata and Viterra are fully embedded and integrated in the systems and those volumes and opportunities flow through, we’d expect to rebase that marketing business for 2014 going forward at the $2.7 billion to $3.7 billion.

Within some of the components of that, of course there is continuing strong performance of the core metals and mining. Metals and Minerals business within Glencore, generally constructive physical market conditions. You would see that through premium structures and general opportunities in own particular markets. And just given the scale of business that we do have, we have – it’s made up of many businesses across all the base metals and carbon and stainless steel products. Iron ore is a developing business, clearly within Glencore as well.

You’ve seen volume improvements across the board in copper and zinc, iron core, ferrochrome for example are some of the ones that we’ve increased volumes quite nicely, and Xstrata acquisition will potentially move that even further ahead as we move forward.

Energy, off a relatively low base in 2012 was up nicely 45% in 2013 as well, but still in terms of its overall size and general weight that it can punch overall across both coal and oil, and with synergies expecting, that is a business that clearly offers potential and would need to find its next gear to get us to within the $2.7 billion to $3.7 billion.

Agricultural, generally weakness in first half of 2013, not a bad performance in second half. Viterra performing reasonably well. It was the overall laggard in terms of not delivering an even stronger performance in marketing, but generally overall, very diversified business as well which is how we’re even in a position to provide a range that I assume many of our marketing peers within that part of their business find it more difficult to do just given volatility in one particular segment, if you’re just an oil or you’re just an agriculture, or you’re just an iron core company much more difficult to provide those sort of assurances and guidance around that.

Within the Industrial part of the business, you’ll see a slide later on of providing the bridge. Overall EBITDA, only dipping modestly 4% to $10.5 billion there. Some big headwinds clearly in commodity prices at the headline level, you can see copper prices clearly for the year down about 8% year-on-year, nickel prices was about 14%, 15%. Gold and silver not commodities you’d typically associate with the Glencore, but we do get sizable byproduct credits in gold and silver. That clearly has an impact as we report earnings, particularly in the zinc business.

Copper clearly also has some gold on operational like Alumbrera for example that has quite a bit of gold output as well. So overall, we’ve held EBITDA reasonably flat. We’ll see a bridge later on. Metals and Minerals clearly the main stay of that. Obviously with the strong Energy business as well, that in fact was up 2%. Copper in particular have a very strong year-on-year performance 2012 to 2013 with volume growth up 26%. African copper, Antapaccay, Ernest Henry, Collahuasi also clearly having a bigger second half performance in that particularly business. Ferrochrome of course another commodity, not a huge scale business but for their size, they saw $300 million, tripling of EBITDA and being a reasonable performance clearly with strong volume growth as well.

The Energy side of the business, called clearly weak spot in terms of the coal price environment. We’ve shown average realized prices down generally around 20% year-on-year across both the coking and the steam clearly having a big impact. And a lot of that has been – a lot of hard work has gone into the assets settles around the efficiencies, operations, shutting down module operations that saw different some of that coal price pressure as much as possible. We see some of the graph later as well. And overall, good portfolio and ready and waiting for the inevitable up-tick in that particular commodity.

And Agricultural very small base, but again a much stronger second half performance as well.

Just reflecting what Ivan had said earlier on around the Xstrata synergy proposition. We announced a number of $2 billion back in September last year. We’ve revise that number up to $2.4 billion. The slide talks about passage of time and the combination of the Phase 3 operational. So that’s going deeper into the operational sites themselves around procurement, around shared services, around duplication, around just sort of tackling fresh pair of eyes, of course as you look towards some of these operations, but it’s still an ongoing process, all the business heads that are here today by all means in Q&A. If it’s a question of looking at their businesses, we’ve been through the budget process. We know where the next three to four years is tracking in terms of costs.

This is a business that still has billions of dollars’ worth of cost. No doubt there is opportunities to eat into that further as we look through the business. But some of the progression of that $349 million marketing opportunities we’ve kept at the $450 million and lot of that expected to largely flow through in 2014. $58 million additional funding synergies through the repositioning of the company, well within the conventional BBB industrial appear in some of the margin spread benefits associated with that, both in the bank financing as well as the bond financing.

We’ve seen that, a lot of that’s been delivered. We’re about to also refinance and look at what we do with our bank facilities also in the next two or three years that would seek to deliver that. And I think that’s actually conservative number that we’ve used as well. So we’ve got up to the – if we go to – I think this probably explains it better as well, the additional incremental $349 million synergies getting us to $2.4 billion.

This is the last time we report formally on the synergies associated with the acquisition. So if the ongoing delivery of additional Phase 3 synergies in general improvement will just flow through the underlying business performance, both at a corporate level and industrial performance, and to the extent, it’s material in progression of all the individual assets themselves or the company generally, we’ll seek to give some color on some specifics.

So across those categories, you can see the $58 million additional on financial synergies, procurement an additional $53 million, of course you’d expect that to be ongoing initiative as we look towards the combined purchasing power of the Group across our top 20, 30 suppliers. The corporate restructuring part, there is additional $36 million. And at the operational side, an extra $200 million to $612 million up to $812 million and that’s spread across various other businesses, as you can see on the right graph. So coal is found another $43 million up to the $619 million. Copper another $100 million also, up to the $288 million, a little bit in nickel and a little bit in zinc as well. But as I’ve said ongoing process and we’re at $2.4 billion.

This is a not a target, this is not identified. This is to live with, this is bang, this is happening. It’s flowing through the business even as we speak. And to some extent, if you look at the second half performance of 2013, there was already – some of these synergies were clearly flowing through in the corporate side and some of the asset side as well.

This as I said was the industrial bridge EBIT looking at the progression which is 21% flattish at the EBITDA level. You could see the impact on pricing $4.4 billion across the years as well.

Over the next page, I think these two pages somewhat work hand in hand. We’ve sought to – maybe I’ll come back to the slide. This looks at Glencore’s sensitivity at the EBIT level EBITDA given depreciations relatively flat for given level of production.

This shows the impact across the business for a 10% movement, looking at sort of 2014 scale of operations. So on the commodity side by far, copper and coal leave us with the biggest upside and downside in terms of commodity exposures. And then you’ve got sort of rounding out to, you would have zinc and nickel and ferrochrome bringing up some of the other operations.

Of course as we grow in commodities like oil for example, and we expand that, clearly a 10% movement in oil price at some point in time is going to be more than $70 million as we grow that part of the business. The currency side of course clearly is very sensitive to clear the Aussie dollar, given the scale of operations down there, 10% movements $620 million followed by rand and to a lesser extent Canadian dollars, all of which are contributing to the business as well.

So if then go back and you try and sort of work those sensitivities, you’ll come pretty close to what this slide is getting us. Well $4.4 billion as I’ve said on pricing. $2.4 billion of that was in the metal side, and $1.3 billion was sold that was copper including gold as being a byproduct there, $643 million from zinc with silver being an impact, and close to $400 million on the nickel side with the variation. And coal itself was close to $2 billion of price variation, just itself.

On the volume side, $1.3 billion. That’s sought to, as I said defrayed some of that price. And again Metals was the large contribution of that, $1.2 million or so. And predominantly copper contributing in volume benefits. Africa of course, we’ve seen the 43% improvement there and to Antapaccay, Collahuasi, Ernest Henry a bit as well with Alumbrera being the one slight negative in terms of volume growth.

Cost benefits as well. Again, most of that is copper, $636 million or so, on the copper side. And coal delivering $582 million there in that cost. And that’s ongoing cost reductions, efficiency delivering lower cost tonnes, synergies of course that could be levered – that are operationally base would flow through that number.

Currency relief of $1 billion positive flowing through, Metals about $500 million and coal at $500 million as well. That helps of course copper, zinc in places like Australia ferroalloys of course in South Africa where it’s a major driver for them, and the coal business both across Australia and South Africa and to some extent South America as well. Additional depreciation, the $389 million positive is mostly corporate savings. A lot of that is part of the Xstrata sort of residual bucket that was out there in terms of – there was about $200 million, $250 million of what was corporate other overhead, which is largely been eliminated plus a few other bits and pieces.

So if we move to balance sheet then on Page 13. We provide some of the numbers there. The Page 123 is the page on the financials where we provide the sort of pro forma cash flow and reconciling between net debt. Opening net debt of 29.5% to 35.8%. And if you look at that, yes, it is an increase of $6.3 billion. That’s still the continuation clearly of the CapEx program close to $13 billion pro forma for 2013, which was the main driver of that. So from 29.5% [ph] to $10.4 billion FFO. The operating cash flow generation $12.9 billion, CapEx dividend $2.2 billion and $1.8 billion of working capital.

The working capital movement pro forma for 2013 was predominantly the Industrial side of the business, and also predominantly what came from the Xstrata side. As you recall, when we were here at the half year, working capital movement was about $1 billion increase pro forma and now it’s at $1.8 billion.

Some of the movements there – this is an area that we still fairly new into the acquisition, and first it was about getting synergies, getting efficiencies. I think we’re in a position now on the balance sheet side, just managing working capital of Glencore’s DNA, Glencore’s philosophy, Glencore’ tools in its chest if you like is much better equipped to manage working capital build up, that otherwise might have been in smelters, it might have been in various process things as to whether we can manage that more efficiently, whether it needs to be on our balance sheet, whether there is a smarter way of doing.

So most of the $1.8 billion, even in the – you can see in the financials, one of the reconciliations was to look at the proportionate consolidation of those three JVs. Just in those three JV, there was $341 million of working capital build. Some of that of course was in Collahuasi, as they’ve expanded their operations and clearly performing and mining on a scale that is more supportive. And Xstrata pre-acquisition was about $1 billion of working capital build within the operations and to Antapaccay, Alumbrera, around [indiscernible] that also may have to do with sort of short life and have mines during the sort of next four or five years.

And some of the smelters at CCR, Altonneorte, others as well. This is an area that we’d look in 2014 in particular to say – I’d certainly not expecting working capital to go up from now in terms of those Industrial, but can we be a bit smarter about how working capital is managed within the bigger Industrial base that we clearly have today.

Looking at the full year at December 31, 2013, we’ve got FFO net debt of 29%, starting to improve on the first half 2013 as you recall, we had 28.2%. That was rolling 12 months. So we think we’ve turned the corner clearly in terms of credit metrics having come from 35% to 28%, 29%. And second half annualize – so if you just repeat that performance in an environment, we leveraged really steadied within the business at the moment, you would expect that leg up to the 34%. And of course the leverage metrics whether you do net debt EBITDA, if you’ve got cash flow is purely a function of denominator and top line and bottom line, and operating cash flow is being aided by synergies, is being aided by volume growth and net debt now with its peaking CapEx and that trajectory getting down, so all goes well clearly for credit metrics.

And of course stakeholders, agencies, credit providers are clearly in tune to that cash flow and deleveraging story that’s there from ’15 onwards. And of course subject to what happens with the Las Bambas in 2014 that has quite a big balance sheet impact clearly as well.

Looking at CapEx, which is probably the one area that I think complements the financial report better than any other sections because it’s not really covered as neatly within a financial report as one might otherwise be okay. So this is just looking at the actual Industrial CapEx as its come through the books, the $12.8 billion pre PPE sales that was a little bit of $200 million or so as well.

Nothing too much to talk about other than just providing a snapshot and looking at the sustaining level of CapEx $4.1 billion. That’s the level – $4 billion to $4.5 billion is where we will see it in the next two years. And in fact from ’16, ’17, we’ll see it drop to between $3.5 billion and $4 billion. So that’s the average $4 billion sustaining of maintenance CapEx over that three or four year period.

And of course if we then go onto the next page, you can see the big expansionary CapEx, that’s continued clearly during the year around $8.5 billion. Las Bambas’ $1.7 billion of that during 2013. Koniambo of course was a major undertaking and it was clearly during 2013, it continues during the ramp up phase at the moment. So more call it expansion in Australia in three big projects there; the Rollestonne, Ulan and Ravensworth as well. Katanga Phase IV, Tweenfontein and a variety of others.

That number clearly guiding down if we look across some of the chart. I think the key graph is the top right hand side. This is where we were just to show where we are in terms of CapEx now and how we see that progressing forward in ’13, ’14 and ’15.

The Investor Day updates in terms of the CapEx guidance which was $12.1 billion, $8 billion and $5.9 billion. Looking at 2013 itself, $380 million increased in terms of how its finished up 2000, it was purely timing associated with Las Bambas of having had $380 million of CapEx fall in that side of the line as opposed to CapEx that otherwise would have been in 2014 or 2015 previously.

The overall size of that CapEx is still – there is a slide later on where we’ll talk about major project update, where we show the CapEx profile of the $5.9 billion and $3.5 billion and expand up to 2013 with $2.4 billion to go. You can see that $1.8 billion and the $0.6 billion there for Las Bambas. So it was clearly a timing issue and it doesn’t come out of the others because when we looked at ’14, ’15 those numbers were excluding in Las Bambas, the $8 billion and the $5.9 billion.

One of the new groundfield projects which we are pursuing, and again there is a slide on that later on in terms of major project update, and Telis can talk a little a little bit of that more later on is an new shaft concentrate expansion over at Mopani in Zambia, which really transforms that operation from being a high-cost shorter mine life operation to one that now – it is really a new mine if you look in terms of the tonnes, the cost structure and the overall profile of that particular operation.

So the overall size of that brownfield expansion is a $772 million. There is a slide on that later on, comfortably above 25% in terms of IRR or return on equity. And we’ll talk about that later on. In terms of efficiency and the overall handling of material of the underground material it really is a game changer for that particular operation.

So that was just a highlight of one of the brownfield, the only really new brownfield that’s come up since that day that’s come onto the approval status. Little bit more budget into the oil exploration and other that’s gone into ’14 and ’15 relative to what was there in Investor Day. And maybe just one item to comment on which is really just shifting between what otherwise would have been another component previously. So it’s not an increase in overall cash to the business, but there was new accounting standard that came in effective on January 1, 2013, IFRIC20, that talks about in big open-pit mining that some of the costs that previously might have been expenses by the OpEx needs to be capitalized as part of stripping costs, depending on the size and the strip rates shown in the identification of particular shells. This $300 million today that’s currently being – so it’s technically CapEx that gets capitalized and then depreciated over relatively short period of time this tends to be.

So this $300 million that we would expect to impact ’13, ’14 and ’15, that’s predominantly come from the copper side of the business in terms of some of the big open-pit operations, some of the South American ones as well, Alumbrera, Antamina, Collahuasi etcetera, etcetera. So it’s a new standard. When we were back in September, we were still getting our heads around exactly what the implication the accounting, working the auditors on exactly how that was going to be. So $300 million previously would have been OpEx that’s now in CapEx.

So that would – at the margin explained a little bit of the copper EBITDA performance. It was a very strong performance. It was strong operational performance, but there is a little bit of cost that otherwise now go into this deferred stripping.

As with other and even more so than other mining companies given the big CapEx profile that we’ve had as well, that trajectory now from $12.6 billion, $8.7 billion to $6.6 billion, we’ll CapEx declining 31% and then a further 24% in 2015. This still is within the CapEx budget if you like, there still is one or two unapproved brownfield expansions that displays all this for that. So there is a little bit allowance for things we are looking at that I would say is very likely. And when we do announce that we are doing these one or two things which I would expect to happen, that would not increase the CapEx amounts per say. So there is a bit of allowance for one or two brownfield projects that are currently getting close to given the go ahead within the business, and we’ll of course provide the data as and when we’re in a position to do.

And the bottom graph just shows our trajectory relative to some of the peers. I’m sure you can work out who the others are. And little bit of information on the dividend, the 5% up to 16.5 cents. Clearly it’s a function of confidence in outlook and generally financial position. And key in that is clearly the big deceleration, the CapEx and recognition of the level of merger synergies achieved. So $2.4 billion of the synergies that’s cash flow coming through the business every single year that wasn’t there before, that was positive in respect to second half results, and will clearly be beneficial to our 2014 results as well. And you can see some of the timing.

I think with that, I’ll hand back over to Ivan. Thank you.

Ivan Glasenberg

Okay. Let's go through some of the issues where we see the future of the company, and just go through some of the growth factors etcetera. This gives you why we’re confident on the future of our company. I believe we’re in the right commodities. We’ll talk a bit about various commodities individually, talk about what we’ve got there, where we see the growth there. The synergies that have occurred with the Xstrata as I said are going well. I still think there is more to come and a lot more work to be done, when we get deeper down into the assets to get the benefits over there.

We highly diversified as I said earlier with the commodity side and the trading side of the business, and we are moving more and more on the lower end of the cost curve and our assets are producing well where we’re moving towards the lower cost base. As can be seen over there, that shows you in the various commodities where we’re moving a lot of it is due to the efficiencies we’ve manage to get from the Xstrata assets. And now the amount naturally if you throw a lot of capital in that assets and lot of the Xstrata asset we spent a lot of capital to build great big assets as I always talk about, all the low end of the cost curve, where they gave us a great return on the investment, time will tell, but it definitely has moved us down to the lower end of the cost curve.

So you have to look at that with product efficiencies, the growth in U.S. as we’ve got around the company have moved us down into that end of the cost curve. So now if commodity prices don’t move and the margins are definitely – they’re going to start increasing considerably.

What are the commodities we’re in? The major commodities which we’re in that gives you an idea and where we see the future of these commodities we can talk in more detail with the heads of the department if you’ve got more detailed questions. You all know where we see these commodities, where the situations that are occurring with each one of these commodities. Copper, you know there is growth. The demand in China continues where they believe China 7.5%, 7% growth. The Chinese are consuming 40% of the world’s commodity.

The world’s copper, we got to grow and produce another 3% copper every year and that runs about to 500,000 tonnes per year. Now can the world keep producing that amount of copper every year? This is what we’ve got to see, there is the talk of the oversupply, we read about it which is occurring in 2014, but a lot of those mines to believe the oversupplies occurring in 2014, and Telis can talk in more detail with you later, whether those are already coming into a production or lot of them are delayed, a lot of them are replacing old mines, and therefore did not – it is not new production in the system as you will know, we built the Antapaccay mine, but it really replaced Tintaya. So a lot of these new mines which everyone is talking about oversupply is in fact replacing old mines and a lot of them are delayed.

The other commodity which we’re in is zinc. It’s a commodity that has not been a great commodity for many years, but as you all know, it’s going to be – there had shutdowns in 2013. We shut Perseverance. You have Lisheen shutting down. You have Skorpion shutting down. In 2015, you have the big mine in Australia, Century shutting down. So there is lots of shuts. On the zinc market, Daniel can talk in more detail there also, but we don’t see any new big production coming on stream. Dugald River that was meant to be replacing part of Century, we all know is being delayed and is having problems.

The new big one is nickel and we can debate this. It’s clear that with the nickel ore restrictions, the exports from Indonesia which did come in place, now I believe they would come in place and they have been applied, I think it’s since the January 14, I think, Kenny? January 14, they are in place. They are no nickel ore exports during the second half of January and February from Indonesia.

As we all know, China produces around about 530,000 tonnes of nickel pig iron from nickel ore imports. The bulk of that does come from Indonesia, small amount from the Philippines, but if that has been stopped, you’re talking about 1.8 million tonne more, but 530,000 tonnes being production in China will now have to be moved to Indonesia and it’s going to take time for these nickel pig iron plants to be developed in Indonesia, delays in permitting etcetera. So we got a time factor, how long it’s going to take to replace the $530,000 tonnes in China is going to be interesting.

So you could an interesting scenario in nickel, but ask Kenny any more details you want to know on that one. He monitors that one daily as a trader besides our own production which we have nickel with Koniambo coming on stream and the size we’re going to be in nickel is a very important part of our business and especially on the trading side as well.

The next one, coal. It’s clearly we are the biggest seaborne coal producer in the world today. So coal is a big factor. Coal has had a negative outlook. We know the situation. Market is not looking great at the moment. The pricing is not great, and that too we’ve been helped with the depreciation of the exchange currencies in both South Africa and Australia that has helped. So the mines are all profitable. A lot of mines in Australia are underwater, I think we have a slide showing how many mines and what percent are losing money at these current prices. A lot of the Australian mines are still producing because of the take-or-pay agreements where they lose less by still exporting, but the market is looking interesting.

The big demand that is occurring in India, Tor can give you the numbers there, and the amount of demand that is growing. India has gone from 150 million tonnes last year to around about 185 million tonnes import this year and continue to grow with the demand as new power stations being built in India, and the supply side of the various countries tightening up, and especially United states reducing their exports from by 65 million tonnes. We’re vacant to about 50 million tonnes this year.

It’s going to be an interesting market and no big new growth supply coming from Australia and South Africa and Colombia etcetera, but overall, the question is how much Indonesia will put out into the market about the current 400 million tonnes. So that gives you an idea of the commodities which we – the major commodity we’re producing and where we see the outlook. So we generally are pretty positive in what we see in the market going forward.

Next slide shows the Xstrata assets which we picked up. And as you can see, the Xstrata assets which we – when we bought Xstrata, they were in the development phase of these assets, a massive capital spend on the Xstrata books, around about $7.6 billion capital spend. The good part is it’s nearly done. Most of these projects are completed. A few left to go, but the remaining CapEx of about $1.76 billion.

So you can see, detailed in for you the Antapaccay, the big expansion at Antapaccay. Ernest Henry Underground, the Bracemac McLeod and actually the big is one is Koniambo coming into production this year after a massive capital spend. Slower production than Xstrata predicted, but this year, we’ve given you the figures what we think we will produce. And Kenny will take you into more detail about Koniambo, but it looks like it is going to produce okay.

Then we deferred some of the expansions. We are not going ahead with the Collahuasi P2 expansion. We’re not going ahead with the Raglan expansion right now. McArthur River Phase 3 is going in, but most of the other ones have completed and are in the commissioning phase.

What we do have – this gives you an idea of what we have in Glencore portfolio today. All the commissioning of the assets which we spoke about in 2014, the ones that are occurring in 2015, the new Synclinorium shaft at Mopani, and then what Steve mentioned about the commissioning, a potential new big shaft at Mopani in 2016.

So most, or as we said, we would show that the capital expenditures, how much we would start capital expenditures, we’ll have maintenance CapEx in this company of around about $3.5 billion to $4 billion and when the expansionary CapEx concludes in 2015, the $2 billion or whatever it is, unless we have go ahead with any of these brownfield expansions, we should have minimal CapEx in this company as displayed in the previous charts.

But what we do have in the company. We do have these potential easy brownfield expansions which we can go ahead with, as we’ve always said, greenfields we scared like [indiscernible] because of the cost overruns and the difficulties with them, but if commodity prices do start moving and we do get what the miners are saying in cutting the CapEx expenditures which will reduce the new inflows of commodities into the system, it should bode well for prices. If that occurs, the company has a room to move with cheap add-on brownfield expansions.

We have then that only take you through each one of them. There is no secret in the Congo, we’ll have Copungo [ph] up to 500,000 tonnes production, 300,000 at Katanga, 200,000 at Mutanda, but we do have the expansion of the sulphides at Mutanda, another large amount of capital less to be spent and we could add another 100,000 tonnes there at Mutanda.

We have the expansion at Coroccohuyaco in Peru, where we can develop that brownfield expansion was brownfield because you have the old Tintaya plant which was stopped and this is all which you can feed into the old Tintaya plant, but Telis can take you through that, but that’s a large amount of tonnes of copper, you could add to the more very low capital expenditures.

So the company is geared to move if you go to move with very low capital expansion and only these brownfield expansions with absolutely no execution risk.

Looking at the company, we’ve spoken about it earlier. We are diversified. We’re different to our peers. We have a good mix of commodities. We also have the trading part of the business, and as we said, how resilient that is and not linear to commodity prices, we believes that gives us an edge on our competitors, gives us an added value. In also the trading part, we’ve been emphasizing it all the time, the trading part also gives us idea, we got a better idea of what’s happening on brasses, we can mock at the product from producing units we believe in a better manner.

There is more blending opportunities. There is more arbitrage opportunities, driving the trading part of our business. Also the trading part of our business gives us the ability to recognize other investment opportunities we’re talking to numerous supplies around the world. So we see opportunities before our competitors can see opportunities on any acquisition part of the business if we wish to do acquisitions and you see we always look at potential acquisitions and we’re always looking to do synergies with our partners or anyone around who have mines next to us where we see synergies are available, we will always be pushing for that to get better returns for the shareholders.

Health, safety and environment etcetera. That is an area we've got to push as an company. We are not leading in that field. We do have more difficult operations. We don’t need to use that as an excuse, but we do operate deep underground mines. We do operate in difficult regions which we go to, therefore pushing those areas. We are working hard in that area. We are improving. The improvements we see during the first part of this year are substantial and that is in the area we aim to be a leader. We have applied to be a member of ICMM and we should be admitted there this year.

So we think we are getting that to the right levels and hopefully within a year, two years’ time we will be a lead in that field. And the success we have seen in the short amount of time we’ve been spending on that is pretty relevance, so that’s boding well for the future.

So finally, one of the concluding remarks that I can say, really the industry is looking interesting. If you turn into Page 38 or 39 of the presentation, I believe this is a key part that we should be looking at. Right here on the slide that’s 38, 39. And we all know what I’ve said about the industry, the problem that happened over the industry. Demand is always been good. No one can talk about the demand, whether believe China 7%, 7.5% growth, United States is looking stronger. Demand has been strong in the past. We do see demand for the commodities in which we operate. Demand is good.

The big question is, are we going to increase supply and what is the world going to do supply. And you see what has happened in the past. Too much of the orange, not enough of the blue and that’s what shareholders have got pretty upset about, and that’s why if you look at the slide up on maybe Page 38, the Slide 38, look what’s happened to the equity side of our business. We’ve been down. We’ve had demand increasing, unfortunately we increased supply. We pushed on commodity prices and that’s why we have suffered on the equity side, the valuations of the mining companies.

If the change has occurred in everyone is talking about reduction of CapEx, reduction of new expansions, no new big expansions and if we all believe what the mining companies and ourselves are saying, is ain’t going to be new big supply kicked into the market and if demand is there, it should bode well for pricing. And pricing on most of the commodities except the ones where people are putting expansion, brownfield expansions should bode well for the future.

So we see the market looking pretty good on the commodities in which we operate. Big reduction of CapEx, we will reduce CapEx. And as I said, we’ve got the diversified model. And key thing we have in Glencore, we continue to emphasize, it is a company where management owns a substantial part of this company, and we are not going to grow for growth sake. We’re not going to pull the assets just to pull the assets to get larger. And if we have excess cash and we can find the right returns, and today we have high hurdle rates for everything anyone wishes to buy, unless we get decent returns, we’d rather return money to our shareholders.

So that’s where the company is based. That’s where we want to set ourselves up for the future. And I think that concludes. That gives you an idea of how we want to grow this company going forward. I think we’re open for questions. Paul?

Question-and-Answer Session

Paul Smith

First question from Ash at the back.

Ash Lazenby – HSBC

Hi good morning everybody. Ash Lazenby, HSBC. Couple of questions please. Just on the synergies side, you talked about $2.4 billion in annual synergies. You set scope potentially for more. Could you just give us an idea maybe where your best guesses would be in terms of where you might actually see those additional synergies being realized? And then secondly just a hypothetical scenario. Say you sold Las Bambas today, and you got $5 billion for it in the bank tomorrow. What would be your best guess again as to what you do with the cash? Thank you.

Ivan Glasenberg

Okay. Where do we see further synergies going forward? As you see we haven't gone deep down into the assets. We haven't really pushed at the asset. We’ve done more of the corporate stuff and we’ve cost there. On the coal side, I think coal because Peter Freyberg came across with us, and we knew that those assets are lot better because a lot of those assets were owned by Glencore and were sold to Xstrata.

There we were able to push down to reduce the costs at the asset level, and I think we cut out how many thousands of people Peter in the…

Peter Freyberg


Ivan Glasenberg

3,000 people at the asset level. So we knew we had to go, we had to hit too quickly. On a lot of the other assets, we still got work to do.

On the copper side, we still got work and go down into the various assets. It’s certain assets. The same on the zinc side, we got to work to do over there. We’re continuing to do that. So I think the new biggest synergies will start coming down at the asset level which we haven't really pushed yet. So that’s on that one where we see that.

Regarding Las Bambas, what will we do with the cash if we sell it? Steve, you can answer that one.

Steve Kalmin

Well, I guess it depends what opportunities these guys obviously in the front bring in terms of any redeployment of that capital, because as Ivan said, we had set what we believe is appropriate hurdle rates in terms of redeploying that capital that will be clearly beneficial to shareholders and that would expect us to make either brownfields and also bolt-on acquisitions in the current environment, that facilitates growth, that certainly comfortably exceeds any sort of cost of capital calculations that one may come up with.

So there is sort of continuously a fertile ground looking at some of those things and we’re alert in the life to proceeds, but of course Las Bambas is of such a size, what have you think in terms of both proceeds in and then CapEx saved over the next two or three years. I think as we’ve mentioned in the last six months in previous times, I think it’s likely to be a combination of some sense for reinvestment, but not for reinvestment sake. It’s clearly – at least we have the capacity to start doing things that currently we’re little bit more constrained there in a combination of some deleveraging and some return to shareholders.

Exactly what that sort of proportion maybe, it depends on clearly the sort of reinvestment climate I think is the obviously the main driver there.

Paul Smith

Okay next question. Menno?

Menno Sanderse – Morgan Stanley

Good morning. It’s Menno Sanderse of Morgan Stanley. Coming back to the reinvestment opportunity. If we take 20% to 25% IR lever that you talked about in the past. Can you give us some indication of how many of your assets you think are there today? How many still need volumes to come through from CapEx that’s already sunk, and how many need prices to go up really before to hit those levels? And secondly, if you look at your geographical suite, are there any countries in the last six months that you think maybe should pull back a little bit or maybe you should increase the hurdle rates?

Ivan Glasenberg

Yes, let me answer the end part of the question. Are there any countries that we’re concerned about knowing the place in which we operate? Each country has its own difficulties. We can talk about, whether it’s a first world country, third world country, all of them have different difficulties, one is increasing royalties, one is increasing taxes, the other is more difficult to operate because of the infrastructure. So I wouldn’t sit here and say there is any one country that really concerns us right now where we wouldn’t put more capital. We’re pretty well geographically spread. We’re not too large in any particular country. So if opportunities occur in any of the country in which we operate, I think we would go ahead.

Today, we put a higher hurdle rate. The market allows us to put the way the balance sheet is. It makes sense to put a higher hurdle rate. Naturally if Las Bambas occurs, we could look at reducing that hurdle rate or if you could generate more free cash flow.

On the existing assets and the capital spend, I didn’t quite understand. Steve, maybe you can…

Steve Kalmin

Yes, I think you need to differentiate between legacy Glencore assets where we literally drawn – cash had gone into those business and it’s much more visible what the returns are back tested to Xstrata. That’s a bit of notional. I mean a big part of our business there reflects the capital that we had to bring into the business on the acquisition date that you have to more assume lower WACC type bases than initially what our hurdle rate is.

So lot of Xstrata acquisitions you’re bringing to the book is probably at 8% to 11% discount rate just to kind of pick a number at the time that clearly – even they deliver into those maybe below our hurdle rates for incremental capital, but I think if you look at the legacy Glencore, the ROEs and returns in the marketing business are still extremely good and within that sort of 40% to 50% if you look at some of those numbers.

And some of the returns from the capital that we’ve some cash in. If you look at some E&P returns you’re certainly getting good returns there. If you’re looking at the African returns that we get Prodeco is an asset even in the current sort of price environment, given the capital that went into that. So I would say we have got a pretty good track record on the cash that have gone at the Glencore side. The share for share transaction makes it a bit more difficult, and given the assets that we had to bring into the books and the low – at least the lower than hurdle rate, that we had to bring those books, superficially I don’t think, I mean it may not be delivering as one would expect for incremental capital.

Ivan Glasenberg

But I would say in all the Glencore assets, we’re definitely getting those returns.

Paul Smith


Jason Fairclough – Bank of America Merrill Lynch

It’s Jason Fairclough from Bank of America Merrill Lynch. Two questions on coal if that’s okay. First one just some headlines today, Ivan, quoting you as being in discussions with Rio Tinto on a coal JV. Maybe you could care to elaborate on that? And then just secondly, you also mentioned the take-or-pay issue in Australia. Could you give us some color as to your exposure on that? Is it costing you anything today, and then when it comes to the Wiggins Island, are you going to end up as the ultimate backstop on that asset?

Ivan Glasenberg

Yes, good questions. Okay, on the JV on coal. It’s clear. Everyone knows it in the Hunter Valley there is a lot of synergies between us and Rio Tinto in the Hunter Valley assets. There is a lot to be done, where we can get substantial synergies. So and actually we’re talking to Rio Tinto, but it takes time for both sides to assess each other’s asset but it’s something we look at.

We have been talking to them for a long time, how far we will get and how soon we can reach an agreement, I don’t know, but it’s something that clearly makes a lot of economic sense.

On the take-or-pay, I think, Tor or Peter are the best to answer that, and how that take-or-pay, where we are going and besides and they’ll talk about our take-or-pays but the problems is lot of the other mining companies that take-or-pays and they spoke about – there are some companies underwater where they should potentially cut back production, but the loss on the producing and exporting is lower than the amount that they have to pay on the take-or-pay. So that’s sort of keeping a bit on tonnes on the market, it really should come out of the market.

Our exposure, Tor and Peter can give you exact details regarding Wiggins Island and the effects of it and how much we’re done to in our take-or-pays.

Peter Freyberg

Yes, Jason, we do have exposure on take-or-pays, and we’re working steadily through that. The way to address it is that we are where possible putting tonnes through there, where it makes economic sense. We have also been able to try that for some of the take-or-pay exposure that we have. And as far Wiggins Island is concerned, that was again, not for one down [ph] as many people believe Phase 1 was geared for Rollestonne and some other operations that we are pushing as hard as we can to fulfill their tonnage.

With regard to being ultimate backstop, we obviously monitor all of the other producers and what they are doing. We also understand the bank guarantees and the capability of meeting their obligations. So we do expect that there will be other producers pushing through that port, when it’s commissioned in the next 18 months.

So there is progress in that area. What it costs us on average per tonne across our portfolio is Australia is a fraction of what we’ve cut in our savings. So it has been bump in the road, something that we’re managing, but we think we’re getting it under control.

Steve Kalmin

So then Peter, maybe – I mean some of the other in terms of Wiggins Island, some of the other sort of take-or-pay providers are there is some strong in terms of sort of ultimate backstop, you have Yancoal, you have Wesfarmers, you have another project that’s through Cockatoo [ph] that looks like they’ve just done a big recapitalization. I assume it’s to go ahead with the development of a coal mine. So some of the forecasting and tonnes be on when we’ll come through our system is not too bad at the moment.

Ivan Glasenberg

And some people need more tonnage when they’re negotiating with us to take some of our tonnage.

Jake Greenberg – Bank of America Merrill Lynch

Good morning gentlemen, this is Jake Greenberg also from Bank of America Merrill Lynch. Just a few questions on Las Bambas. On Slide 15 you showed the CapEx profile over the next couple of years assuming Las Bambas sales. So if sale doesn’t go through, what’s does the CapEx profile look like then? That’s the first question. The second question is in terms of the negotiations that you’re having with the Chinese. Is it just about price, or are there other issues to be discussed? And then thirdly in the press, and I think you’ve made comments that obviously you’re just not going to sell it if you don’t get a good enough price. Can you give us some guidance about what you consider a good enough price? What is the minimum that would you sell?

Ivan Glasenberg

I think Telis can help you on the second part of the question, but the first part, we do show you what the CapEx is, I think that is on Slide 15.

Steve Kalmin

I think I’m going to give you credit Jake for being able to add up the two numbers. So our CapEx would be $10.5 billion with and $7.2 billion.

Ivan Glasenberg

Yes, it’s well done there. Unfortunately Steve didn’t added up for you. Okay. So we’ve told you exactly what it’s going to be going forward. What 2014 will be, what 2015 will be. As you will know the agreement we had with MOFCOM is that we basically have to sell it at the high of capital being spent up to-date or the independent valuation of two independent banks. And therefore, if we don’t reach an agreement within that area – if we don’t reach that level with the – we don’t have to sell it. So it’s up to us what price we’re prepared to sell it at. Maybe Telis will tell you what price he is prepared to sell it at, but I’ll put him on the block later.

So we’re negotiations, it’s clear. We run did run a tender process. There were are a few bidders on the asset. The leading there were in fact two Chinese bidders at the start. In the end we went with the preferred bidder which was Minmetals. We’re in discussions with them. I would say unless Telis can say, otherwise it’s just not a price discussion. They’ve seen the asset. It is an asset that we have de-risked as time went on. We took over Xstrata in May 2013. Since then we’ve done a lot of work on the asset. We’ve changed a lot of the management. We’ve put in some Glencore managers into the operations.

So therefore we believe we’ve de-risked a large amount of the operations. It’s clear. We have this $2.4 billion to spend going forward. We’ve already spent around about 52% of the capital. The assets should be producing around about July 2015. So we de-risked a lot of it. We got lot more comfortable with the asset. We know how to resolve it. We know the reserves are definitely larger than we envisaged. We know we can now handle a higher production towards the front-end better than we thought we could before. And swaying to the price, Telis you want to comment anyway?

Telis Mistakidis


Ivan Glasenberg

There you go. Anything else you want to comment?

Telis Mistakidis


Ivan Glasenberg

Sorry Jake.

Paul Smith

Next question. Liam?

Liam Fitzpatrick – Credit Suisse

Good morning. Liam Fitzpatrick from Credit Suisse. Two questions. Firstly on the cash returns. Some of your peers have put out some fairly specific net debt targets. And once they get to those, they will be looking to increase cash returns. Can you perhaps give something in terms of net debt or gearing ratios that you are targeting, after which we could see a more sizable increase in returns? And then secondly, just on the cost savings, the $1.9 billion target for 2014. Can you give us a feel of how much of that was actually achieved in the second half of ’13 on an annualized basis? Thank you.

Ivan Glasenberg


Steve Kalmin

Thanks, Liam. Maybe in terms of net debt, I think we gave some – it’s not specifically in this presentation. It’s some of our presentations last year. I think both on both on merger completion Investor Day half year, we sort of spoke about at least being FFO net debt 25% plus which we sort of there anyway comfortably. And when we say comfortably, we then look towards our future performance, our CapEx, the degree of risk that we see embedded in the business as well and our net debt EBITDA less than 3% -- I mean less than 3x.

Now the agencies of course have their ways of calculating those ratios, clearly they are slightly that nuances in both in terms of haircuts to RMI. Then maybe take some other commitments, pension deficits, these things into their deck. So we know that calculate their targets that they are clearly look towards. But we want to be as I said comfortably strong BBB, if we see ourselves sort of moving too far into the upper end or just having too much sort of financial headroom in terms of that credit trajectory that otherwise would see us even moving to sort of, say a single A.

I mean we would think that to get the balance sheet that doesn’t work well for equity holders at that particular point in time. So I think those are the sort of credit metrics we need to watch it, we need to look at the reinvestment opportunities clearly within the business. And then once you start seeing those metrics, net debt EBITDA FFO net debt starting to sort of trend also in your numbers in the way the agencies to sort of BBB plus and sort of beyond. Those would be the triggers for us to say we’ve got – the balance sheet is getting a bit lazy.

In terms of second half cost savings 2013. So the $1.9 billion is definitely not half of that if you just – obviously we took over Xstrata in May, so that’s eight months. It’s obviously not zero. It’s not half split the difference. It’s hard to calculate it sort of precisely, but there certainly would have been hundreds and millions that would have flowed through in terms of synergy benefits in the second half.

Of course the corporate overhead for example that was all done and cleaned up within almost Day One, but there was a time period. The real head offices you’re sort of Zug and in London, I mean that was sort of Day One. Then you go to the regional and took sort of three months as you work through Toronto and Brisbane and Sydney and some of those offices.

So you’ll probably get a way to that. I’d said – I’m just having it without any grades so the precision I would say a quarter of that would have been a reasonable assessment.

Paul Smith


Myles Allsop – UBS

Myles Allsop from UBS. Just three questions. On thermal coal, you are saying prices were down 20% in 2013 year-on-year. If you look at spot today, and assume that prices remain at spot, what would your realized thermal coal price be? What would the delta be in 2014? And then in terms of the situation in the Ukraine and Russia, obviously you’ve sourced a lot of oil and grains from that part of the world. Could you give us a sense sort of the risk profile? I guess there is sort of downside to volumes, upside to pricing potentially, but just how you are thinking about that risk profile sort of at the Group. And then just the final question around the board reconstruction and the appointment of the new chairman, where we are on that process?

Ivan Glasenberg

Okay. I’ll answer the last two and then leave the coal guys to answer to coal price. Regarding the board reconstruction, well, the main process is we got to the find the chairman. Now we have Tony, as our internal chairman. So we’re looking – we’re going through a detailed process. As we said, we will make the decision by the AGM, and by the AGM we will have the chairman in place. I’m pleased to say we have gone through the process diligently through a lot of potential candidates.

We’re down to a shortlist. We’ve always said that chairman has to be someone who ran a major company, and actually you look at the caliber of the people we got on the board, and definitely somewhere understands our business. I’m happy to say the shortlist does include those candidates we have. We’re down to a few guys. And we’ll be making a decision before – we’ll definitely consult with shareholders about the parties on the shortlist and talk to our major shareholders to get their input on the various parties and we’ll have the person in place by the AGM. But I am pleased to say there is a good shortlist.

Regarding your second – the other question, Ukraine. That’s something that has occurred very quickly and occurred over the weekend etcetera. Exactly the ramifications how it affects us etcetera, we’ve got to monitor. Hard to stay right now on the grain side, it’s not major. It’s a small part of our business. We don’t have large assets in the Ukraine. It’s not a large part of our book. Oil, naturally oil exports from Russia is an important part of our business. Now if anyone believes something is going to happen there, of course that disrupts more because that kind of disruption could have arbitrage effects around the world, and we don’t know, but that’s something we got to monitor the exact repercussions, I don’t know yet.

Regarding coal and the spot price, how it affects the overall book. Tor, you want to talk on that?

Tor Peterson

I’ll refer to the coal price. We sold a significant portion of our tonnes already for 2014 forward. We had done that in 2013. I think we’re not really in a position to say where our final realized price will be for 2014, because it’s some of our ongoing contract negotiations with our longer term buyers. Additionally, keep in mind that we’re actually not 20% down from where we were in 2013, closer to 13%, 14% because a lot of that – while the benchmark price may appear that our product mix is different, I think that’s in coal where you see – where we see in terms of optimization of the blending capabilities that we have from our equity based tonnes in addition to our marketing.

Also Forex becomes a major factor there too, looking at it from a 2013 to 2014 price comparison and maybe in a smaller form. After this we can discuss if you want more specifics on price details as well.

Paul Smith


Sylvain Brunet – Exane BNP

Good morning. Sylvain Brunet with Exane BNP. Two questions on the quarter. The first one on trading again, to get a sense. In the second half if you were to choose to reduce your activity, or if what we’re seeing in profitability is mainly the function of the market? The second question related to Slide 19 where you show on the Industrial part of core moved by one quarter down, given the cost curve is moving at the same time, because everybody else is cutting cost and Forex is helping. What is the dollar per tonne cost reduction you get in mine to get there? And the last question is to get a sense of the contribution from Viterra in this financial year, and your expectations for next year? Thank you.

Ivan Glasenberg

Okay. I think instead of me answering, the coal goals can answer the question, definitely Peter Freyberg runs our coal operations on the production, how he got down on the cost curve and what level he is got. And on the pricing, you can talk about that, Tor.

Peter Freyberg

Sylvain just on the cost to start off with. Currently, the 15th percentile on the thermal is about $57 FOB. We have managed across our thermal business in the last year. I know it didn’t jump out on the slide, but to cut about $850 million of unit costs out. Now that’s not including FX. FX gave us another $500 million. And obviously we got some benefit from increased volumes out of lower cost mines. So we have stripped out a very significant proportion of our costs and still see some further potential to do that this year.

So moving well below that $57 mark is what our target is and it’s not out of line with what I said in the September presentation.

Tor Peterson

Could you repeat what the question you asked on the pricing?

Sylvain Brunet – Exane BNP

If essentially you chose to reduce exposure, are we thinking counterparty risks in coal? And the performance in the second half was much lower than the first half, was it your decision to market?

Tor Peterson

In terms of what?

Sylvain Brunet – Exane BNP


Tor Peterson

In terms of trading, yes, it’s a variety of – it’s a function of not a counterparty risk at all, it’s opportunities and evaluated just from a risk perspective with respect to qualities in pricing. In fact, we had a very strong fourth quarter from a trading perspective with lesser volumes. That’s just a selection of where we pick to mix and how we decide overall in our trading book.

Steve Kalmin

And Sylvain, it’s also – I mean Energy includes coal and oil. Coal was more consistent throughout the year. Oil would have had a better first half compared to second half in terms of what the market backdrop would have offered at that particular point.

Sylvain Brunet – Exane BNP

And coal was consistent throughout the year?

Steve Kalmin


Ivan Glasenberg

Chris, you want to talk about Viterra and the contributions there?

Chris Mahoney

Yes. Viterra performed pretty well in 2013 about as expected, particularly in the second half of ‘13. That’s largely because of a good Canadian crop. Canadian crop was a record crop by about 30%, 35%. The south Australian crop was not a record crop, but it was decent. And I would say particularly because of that Canadian outlook, the prospects for Viterra for 2014 are pretty good. Because of the large crop, there will be product to move all year along even through the summer, and I think the Canadian farmer carryout will be pretty large as a result of the big crop.

There are some rail issues in Canada, which are being well publicized, that’s restricting the volume a bit but the margins have been good and will continue to be good.

Paul Smith


Jeff Largey – Macquarie

Hi, Jeff Largey from Macquarie. Steve, I just wanted to understand or clarify one comment. You talked about the marketing business in rebasing. And I may have heard $2.7 billion plus, that was EBIT. I guess I’m kind of trying to understand what the building blocks are if we can look at 2013 as kind of a baseline here, given that we understand the business doesn’t stay linear in terms of performance to as – linear relative to say commodity prices, but what are the building blocks. If we think about the $450 million of synergies on the marketing side, what percentage of that is flowed through maybe in the second half of 2013, or say, since the closing? What percent – can we expect all of that to be reflected I guess year-on-year more in 2014? And then looking at the different segments, Metals and Minerals, Energy, I mean where are the building blocks were we see this rebase?

Steve Kalmin

Okay, Jeff. Thanks. The $2 billion to $2.7 billion in terms of anchoring the bottom end of that – because we were $2 billion to $3 billion before Viterra, before Xstrata combination. So the buildup of just resetting that base was a function of the $450 million as you mentioned, that’s coming from Xstrata side, which is combination of Energy of course because you’ve got coal in there as well, but most of the metals, so you got copper, zinc, nickel, ferroalloys, smaller because we’re doing a lot of the nickel marketing anyway before as well in terms of Xstrata. So copper, zinc and coal would be two-thirds. One-third is sort of not a bad guidance there.

And the Viterra on the EBIT side, looking about $300 million, that’s what drove the sort of rebasing of the $700 million. And that’s really looking towards 2014. It takes a while to get in there and penetrate and look at the volumes. Xstrata came with pretty committed in sales of contracts which clearly need to run off as well over a period of time, before it’s able to seamlessly come in the overall way that Glencore would do. It’s not getting in distribution as well.

So it’s more of 2014 story. And that’s both, clearly there was bit of Viterra of course, but I mean Viterra we really didn’t properly from a sort of integrating and being able to get cost savings, we’re unable to properly do that until really way into 2013, even second half, because for a while we were – we bought it close December 2013, we were warehousing huge businesses there to other partners for a while. We had to sell the Agrium piece. We had to sell the Richardson piece. We were holding pasta and malt businesses as well.

So we were carrying all this complexity. And in the fact at least on a corporate organization, Viterra was almost more complicated, and more to do almost in Xstrata. And that was on a different scale, but it was incredibly complicated integration. And so it’s more of 2014.

Ivan Glasenberg

And also the sale of the assets took time etcetera, some of the non-core assets etcetera. But the other thing you also got to remember with Xstrata, we never marketed – besides nickel, we didn’t market their tonnes. Mostly the tonnes we just had – and especially in coal, we just an agency agreement so we really weren’t getting benefits in that, so we would get the benefits going forward now. And as Steve says, ’13 had lot of – mostly coal was sold, so we couldn’t bring it into the Glencore book to blending the arbitraging and all the way we make money, whether we can only really start that in ’14. And especially also with copper concentrate, zinc concentrate etcetera, we did not have the off-take agreements as we have now.

Now we can move it into our book and then Daniel and the team, I you took zinc, there is a lot of movement they can do with it, but they can only – really started doing it in ’14. And I think even less and I guess more in ’15 because there also contracts running out to what happening ’14 which only run out in ’15 and further on.

Paul Smith

Okay, time for one more question. Rob?

Robert Clifford – Deutsche Bank

Yes, good morning. Robert Clifford with Deutsche Bank. Just on capital allocation. Could you give us some – by way of illustration, can you talk about some of the projects that you’ve not approved or that have not gone through over the last six months or so, and how you thought about those?

Ivan Glasenberg

Projects. Brownfield projects or new acquisitions or what?

Robert Clifford – Deutsche Bank

Either Both.

Ivan Glasenberg


Robert Clifford – Deutsche Bank

Both. Either brownfield projects or new...

Ivan Glasenberg

Yes. Look what we’ve done in Glencore. What we do in Glencore is we always say, we don’t sit here and say – and this is what I’m trying – we don’t emphasize, hey, we got to get big in oil, we got to get big in iron ore or let's go find an iron ore asset. So we’ve never ever done that. So if we don’t have iron ore, I’m not telling you to iron ore guys, go find us an asset. Let's buy it all cost. So that’s not how we operate. Heads of the department over here, they are all, as I said before, they have opportunities. They see opportunities, because they’re dealing with third-party suppliers around the world, so they get many opportunities and they are looking at opportunities all the time.

So they’re all bringing opportunities. What we’ve done the way the balance sheet is today. We’ve put a high hurdle rate. We don’t wanted to go and buy something if it doesn’t give a high hurdle rate. So what have done? We did buy Clermont. You saw we bought Clermont, and that does meet the hurdle rates the way we structured it to get with our partner, Sumitomo, and the way we did the leverage at the asset level etcetera. It gave a very high return the way we’ve done it. And there was an opportunity, Rio Tinto were selling at the time. They weren’t that many bidders and we believe we got it at a good price so we can get the right returns.

What if we walked away from – and many assets we’re looking at, looked at, etcetera, it’s no secret. We were looking at the Shell disposal in Australia. The asset they had there, but we couldn’t compete, Vitol bought it, but at the numbers they bought it, it didn’t meet our hurdle rates. So unfortunately it’s not something Alex could add to his portfolio. So there are assets we walked away from, and we all have – sorry Tor. Northparkes. As Telis says, we looked at Northparkes, the numbers that had went to the Chinese, I think what’s it, Molybdenum Company bought it. It is a fairly big number.

We weren’t prepared to pay that number. And as I’ve always said, the stuff that the big mining companies are selling, they’re selling at higher NAVs than their shares are trading at in fact. So you look at the stuff is not so juicy that’s out there. So we believe there is a lot of stuff we walked away from. But if we can't find the hurdle rates as I said, we did to Clermont, there is certain expansions that we’ve agreed to go ahead ago with the brownfield expansions and there are other brownfield expansions we’re looking at that meet the 20% type rates RORs, we will go there.

Paul Smith

Okay. Ladies and gentlemen, thank you very much.

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