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Executives

Mark Cutifani - Chief Executive Officer, Executive Director and Member of Safety & Sustainable Development Committee

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

Duncan Graham Wanblad - Chief Executive Officer of Base Metals and Minerals

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

Paul Galloway -

Philippe J. C. Mellier - Chief Executive Officer of De Beers Group

Paulo Castellari-Porchia - Chief Executive Officer of Iron Ore Brazil

Seamus French - Chief Executive Officer of Coal Business

Tony O’Neill -

Analysts

Jason Fairclough - BofA Merrill Lynch, Research Division

Menno Sanderse - Morgan Stanley, Research Division

Anna Mulholland - Deutsche Bank AG, Research Division

Rene Kleyweg - Deutsche Bank AG, Research Division

Liam Fitzpatrick - Crédit Suisse AG, Research Division

Tim Clarke

Bruce Williamson

Brian Morgan - BNP Paribas, Research Division

Fiona Perrot-Humphrey

Ian Rossouw - Barclays Capital, Research Division

Anglo American (OTCPK:AAUKY) H1 2014 Earnings Call July 25, 2014 4:00 AM ET

Mark Cutifani

Welcome, ladies and gentlemen. Thanks for joining us today to work through our first half 2014 results. For those that -- I'm just going to step right back and make sure the microphone is not deafening anybody. Is it just me or can others hear that? You can all hear that? My pacemaker? Thanks for that, goes with the hip. Look, I was going to ask if I could request a little bit of sensitivity during the course of this morning's proceedings. For those who may or may not be aware, René is a Paris Stade-Germain fan and they recently acquired David Luiz for $40 million. Was it a good investment, René? For those that watched the Brazilian-Germany game, I think Mr. Moreno is doing some good work.

Anyway, thanks for joining us. We'll kick straight into things. To start with the report card upfront, good news is that we're making inroads in safety. Our environmental performance is improving. Production, we are 7% up against where we were last year, despite the headwinds that we're sailing into. And if you remember, we said that 2014 was very much a transition year, particularly when you look at the headwinds we were sailing into. So we were very pleased to see that from a controllable -- or an operating controllable perspective, production and costs, we've been continuing to improve and in fact, off production and costs, the improvement to EBIT is around 26%, so around $600 million for the first half compared to where we were last year. So certainly, from our point of view, the things that we are driving appear to be having a real impact and certainly, the foundations we are putting in place, we would expect that to continue to improve over the next couple of years.

At the same time, we still have some challenges as we move into the second half, with copper grades, lots more waste to move at Sishen, De Beers seasonality. So there is still some challenges and some of those headwinds that we're sailing into 2014 haven't gone away. But the good news is the first half has actually proven to be better than we had planned or, certainly, anticipated, and that's the pleasing thing about these results.

At the same time, in terms of the major, if you like, project imparities, Minas-Rio FOOS is on track. We'll give you a good overview of where we are there on the project. We've also got a film that we'll include here.

Platinum restructuring, Chris's work is on track, good to see the strike is resolved. But we haven't changed our projected pathway. We have earlier than anticipated announced which shafts we will be looking to exit from in the course of the next 18 months.

At Sishen, ore production has been going very well. We've certainly seen improvement in waste stripping, but there is still a lot more to be done. So for me, that remains a key issue that we have to work through and make sure we're on top of, but we certainly look like we're on top of this year's ore production. And certainly, the trends are moving in the right direction on overall waste stripping.

And on copper, I'm very pleased with the turnaround. And the work that Duncan and the team are doing in the copper business have been great, I'm very pleased to see the results.

Again, starting right from the top and dealing with the key issues, we still remain confident that we can deliver on the 2016 ROCE target. And obviously, we've seen price weakness since our midyear targets. But if you just reflect for a moment on where we were this time last year, in fact, when I joined the business in April 2013, our forecast for ROCE for midyear was somewhere between 7% and 8% this time last year, that is the first half of 2013. Now we really got our wind up in May and June and did pretty well and ended up delivering an 11% ROCE off some good improvements in -- or early improvements in copper. Met coal had really started to see some of the benefits of the operating model kick in. De Beers was starting to show its metal. So certainly, we improved. Since then, we've improved volumes in cash costs so that if we were back then, we would have delivered a 14% return on capital employed. Now this platinum strike has obviously had an impact. That's taken 1% back off us. And then if you look at price and inflation, another 3 points taken off. So from our point of view, we're less than 1/3 of the way through the improvement program. We still don't have any of the projects delivering on their potential. And we still have the value leakage area, we're only about 50% of the way through the program. So from our point of view, the foundations are there, the key things are being addressed and all things being equal, we believe we can deliver on the 15% target in 2016. We think we're in a fairly solid position and certainly ahead of where we thought we'd be this time last year. So we're very confident. We're happy with the progress. Still lots more to be done.

Now I'll just focus on our performance before René talk -- gets up and talks about the financials. From my point of view, safety is always a key measure that I look at when assessing a business to see if it's in control and being managed well. Encouragingly, we've seen an improvement in safety performance. In the last 9 months has been the best performance we've ever achieved as a company, both in terms of fatalities and our general safety improvement performance. So encouraging, but at the same time, when you lose any colleague, it's been a bad first half. So encouraged by the improvement, but still a lot of work to be done.

And in particular, in South Africa, we've been improving. I do have to make one observation that with the platinum strike, the exposure hour's reduced and we do talk about frequency rates. If I back out the average injury rates from last year and put those into the first half, then our improvement is about 20%, not 31%. So there's still a step change, bit more to be done. But you also have to remember that Chris' work last year was pretty remarkable, there were significant improvements delivered in platinum, so from my perspective, the foundations are right, but still more to be done.

On environment as well, tidying up the operations, making sure the disciplines are in place. Again, we're seeing a reduction in noncompliance issues, and our consumptions on our key environmental targets are going in the right direction. So we're pretty happy with the progress generally. But again, as a function of planning, scheduling, the disciplines on the site, we're heading in the right direction, but I think we still got a lot of work to be done.

On the financial highlights, or in terms of the financial highlights, Operations I've said have been a solid contributor to the result. Clearly, price is impacting the operating profit, but earnings -- pretty solid and that really is a function of where the improvements were delivered, in particular, De Beers and our wholly owned operations versus Kumba, for example, where we have a high degree of minorities. But again, René will break that down for you, so you understand why we've had 2 different movements there.

Capital expenditure. We've been tightening down very hard on our standing business capital, improving our efficiency. So the improvements that you see in the operations have been reflected in the reductions in capital across the business, and that includes Minas-Rio. I think Paulo and the guys are doing very well. They're tracking well on their costs. There are some timing differences on spends, but on an underlying basis we're tracking under the $8.8 billion. So whilst we're staying with the $8.8 billion, I'm certainly pleased and confident that we are going to come somewhere under that and very happy with the performance that's being delivered there.

The other thing that I think is really important to focus on here is the commitment to the dividend. The dividend or if you look at our balance sheet and debt at $11.5 billion, again, we're ahead of where we were, where we anticipated we'd be due to the operating performance despite the prices. So we've also improved on our forecast for year-end debt, which, again, René will talk to. And that reflects, again, the improving performance despite some of the headwinds, including price, that we're sailing into. And that also reflects our strong commitment on the dividend, the $0.32. And I think that's another important message to the market about our confidence in where we're going.

Iron ore, solid production from Sishen, very good production from Kolomela. Good performance trends. Again, pleasing to see some improvement on waste stripping, but quite frankly, not enough. We've got to get it to 70,000 tonnes. Norman and the team have been working for about the last 4 months doing the design work on the operating model. And we go live on the operating model in August. And so the next quarter or this quarter, in particular, it will be really important to start to see that lift in the waste tonnes. The good news is the waste associated with ore is in good shape. We'll certainly, in my view, deliver on the 35 million tonnes. The really important area now is the pre-strip, which determines how much ore exposures you have in years 2015, 2016. That's where the focus is and from what I've seen so far, I think that they'll get there. And the team has done some good work, which includes the redesign. If you remember, Tony and Norman talked about the redesign of the Sishen pit. That's completed. It's now being built into the schedules. And when we said this was an important change to the program, just to give you a sense of what that actually means, you've seen the configuration change where you have the big cutback areas that we showed in the design. We've actually split those up and cut them very differently so it improves our access to ore. But very simply put, over the life of mine, we've cut out 600 million tonnes of waste that would have been mined with no loss of ore. That's about a 15% reduction in the life-of-mine waste stripping for the operations. So that's a cost reduction of between 5% and 10% through the life of the mine. That's significant in its own right, represents more than $1 billion worth of value today if we brought that ore back to today's value. So a significant improvement in the design. And it also facilitates more flexible access to the ore, both in terms of physical production and the quality that we're able to deliver to the plant in terms of the longer-term positioning. So the work Norman and the team are doing in terms of the operating model will be very important in making sure we deliver the benefits of those changes. And I think they're well on track, I'm certainly very encouraged of what I've seen so far and I do encourage you to ask Norman the hard questions about what the change is because, I think, his articulation to me about 6 weeks ago is as good as I've heard in terms of what the operating model consists of. And I think that's a worthwhile one if you're interested in asking the question.

On Minas-Rio, good progress. We're basically commissioning across all of the operations or all of the basic operations, so I'm very pleased to see where we are. And we have a video that we'd like to show you. We were going to play the Brazilian anthem with the video, but Paulo asked me to show some reverence and to respect them in mourning. So if I can wave my arms and let the video begin.

[Presentation]

Mark Cutifani

Thanks, guys. For those that were watching closely, they weren't valet logos on their jackets, they're Anglo American logos. We really have made tremendous progress and we will deliver through this year, I've got no doubt. Key area of work -- you would have seen the 3 operating licenses. Literally, Paulo and his team are tracking those licenses through their processes. We don't see any major issues. None of the issues have been highlighted or no major issues have been highlighted. Just to explain, the operating license, what they do is they actually check to see that the license or the approvals that were granted to the project and what we've built are consistent, then they issue the operating license. So again, we don't anticipate any major issues. And we would hope that all of that's done by the end of August. From our point of view, it's not a real issue until we get to November in terms of the processes that we follow in any case. So we do have leeway so -- but from our point of view, at the moment, it looks like August is about the right date. We're in good shape.

In coal, again, a great set of operating results from Seamus and team. Unfortunately, the price hasn't been playing ball. Whilst we're encouraged by what we're seeing in the marketplace at the moment, we're still -- it's still a tough market to play in. All we can do is ask the guys to keep working as hard as they can on the cost, and they've made tremendous gains in the cost -- and these are in Australian dollar terms, so if I take the U.S. dollar terms, I think it's more like 30% in U.S. dollar terms. So very competitive operations and both Grasstree, Moranbah -- and we'd certainly expect Grosvenor to be knocking on the door of low quartile performance. During the quarter, Grasstree also broke a longwall weekly production record for the world. And the operating model, I think, has certainly proven its worth, virtually doubling productivity across the met coal business. I'm very pleased with the progress. And from our point of view, Grosvenor is also tracking well across the business.

In coal, the consolidation of the 2 coal business occurred the start of this year. The reason I thought this was an important chart to show is, if you look at where we were in met coal in Australia, our productivities in South Africa are more than 50% below our productivities in Australia. And that's why we said we're got to bring the business together, learn both ways what good work is being done and look to see how we can improve performance here.

In South Africa, 2 key issues. Structurally, we were at 90 less days a year than we do in Australia, so that's a big issue for us as an operation. And the second part is around operating practices and skills. We certainly believe we can make big inroads to the operating practices and skills to make a significant improvement in productivity. But the second part, which is the structural hours work, is a much bigger challenge, something I think we have to take on across the mining industry in South Africa for the country to be competitive. But we certainly know how we can improve our operations from what we can see today. And we see other opportunities right across the portfolio that goes beyond our thermal coal business. And the real issue here is whilst we're showing in U.S. dollar terms an improvement in cost, obviously, the rand has helped. This is the real trend that we have to turn around. Now this is -- when Seamus started, what he had to start with in terms of met coal, we can turn that trend around, as I said, by focusing on the implementation of the operating model. And Seamus is about 3 quarters away through the implementation of his operating model in South Africa at certain operations. And again, if you want to ask any questions, I'm sure he'd be happy to answer. And he's got some good thoughts on cost differences and productivity differences across the 2 jurisdictions as well.

In copper, very good performance improvement. Certainly, at Los Bronces, I'm really pleased with the improvements in mining. Again, it's about getting the pit planning and scheduling right, the pit configuration has been improved. The downside of this chart is with improved waste movement and operating performance, you do increase your operating costs because you're moving more waste. But that's good news. But we're also still seeing some wet weather, we've got snows at the moment. But overall, the trends are in the right direction. Very pleased with the performance. And whilst we will see grade reduction during the course of the second half, the underlying performance is significant, and more than half of the performance has been delivered by other cost -- other factors or the controllable factors, not simply grade, in the first half. So good performance there.

Nickel. The story keeps getting better. More than doubling of our production in an 18-month period. We've taken $1.30 out of the costs. The furnaces today are operating at about 91% of capacity and for those who are aware where this problem's been encountered in other operations with the furnaces, they have actually lost 18 months of production. We've actually managed through -- we've got the assets up to 91% capacity. We will have the first furnace go down in October. It's scheduled to finish the actual construction and then ramp up to full production to be ready by Q2. One of the opportunities we have is that if we can take the learnings from this, take it into the second furnace and bring that forward, what we’d like to do is have both furnaces at full rate by 2016. Now we don't have that delivery in our improvement plans. We certainly do have the bulk of that delivery, but if we can get a bit more and have the 2 furnaces operating at full capacity, there's some upside in terms of our operating targets for nickel. So that's where Duncan and the team are focusing their efforts in the nickel business, been very pleased with the progress and certainly, Barro Alto is looking like a good asset and, certainly, one that we see potential for significant improvement as we go forward.

Niobium and phosphates. The expansion, we're in the -- just about starting the commissioning. The Boa Vista Fresh Rock project, still some hard work to be done to that but by the end of the year, we should be in good shape. You'll see that from our point of view, about mid next year, a bit after mid next year, we'll be at full rate. And that's really a transfer from the old rock side resource to the fresh rock resource. So you'll see some of the return numbers drop away for a period of time, but they'll kick back in fairly strong, once we got the project up to full rate. And it will be at full rate for 2016, and it will make a contribution.

Despite the challenges in platinum -- and Chris is here for any questions that you might want to explore in terms of platinum. For me, good news to see the strike has ended. Nobody wins out of a strike. I think it was important to send a very clear message that we won't be bullied into coming up with an outcome that is not right for the business in the long term. And ultimately, I think for South Africa, it was very important that the platinum industry stood together, and for that, I'd like to say thank you to our 2 colleagues in the industry that stood with us, and we stood together as a team, in making sure that the outcome was manageable in terms of the long term.

Despite those challenges, Chris and the team kept the operations going at 60% capacity. If you have a look at the cash numbers, what they achieved was remarkable in terms of the circumstances. And whilst all this was going on, Mogalakwena just kept getting better. Again, Chris and the team had been focusing on the design, the operations, achieving stability and control. And as they've improved that, they stepped up the production. For the first half, we actually exceeded the 360,000-ounce production rate, which is a full 12 months ahead of where we thought we could get it. And so, I guess, Chris, the crisis has helped us move this along a bit, but they've done a great job in the operation, and if you remember the downstream process, he never went on strike. So that was also a great outcome.

De Beers, Philippe would say that I've saved the best until last. I think, the one thing about this set of results, the path from solid progress across all of the 3 fronts in the business, the most satisfying thing is to see the contribution that's starting to come from De Beers. The guys have done a good job operationally, got control of the assets. Orapa, Jwaneng are all showing -- if you look at these daily production numbers, lots of downtime. As we go on forward and we've looked at the control and the disciplines in the operations, we're seeing less of this. So even though the peaks haven't changed, the fact that you've got less down days means the averages were improving. And that's what we're talking about in getting the assets performing without capital. And that's the key, if you can keep the divisor constant or even reduce the divisor and get the numerator delivering, that's how you drive return on capital employed and, ultimately, cash flow and dividends for shareholders. So good performance.

The rough diamond sales, the markets are pretty strong. China is in good shape. India is starting to pick up with Mr. Modi's election. The sales, the prices we're receiving are reasonable in the market, they're not overbaked. So we're looking at preserving the long-term market integrity for our products, obviously. So very happy with the progress and very pleased with the work that De Beers have done. And if you think about where we were 12 months ago, scratching around 10% return on capital employed, first half has being 13%, and we certainly expect the De Beers team to keep going from strength to strength. And certainly, from our point of view, I think it's now the single major contributor to our earnings results. And I think that's something people haven't been thinking about, the diversity in our portfolio is a great strength. And as we go forward and we look at the commodity prices that yourselves and others are forecasting, we're in much better shape compared to our peers in most areas. And so from our point of view, very pleased to see this and very pleased to see the results.

From a longer-term perspective, we think De Beers is well positioned. Again, an attractive market position, it's a globally recognized brand. It is different to the other packages within the business, but the one thing about Anglo American is we understand the diamond business. We understand De Beers. And we make sure we leave in the room, the room -- or leave in the portfolio the room for De Beers to be different. And I think it's very important. It's a consumer-facing brand. It's one we respect, we understand, we nurture, we support, where we can make a difference, but at the same time, make sure Philippe and the team have got the room to operate in a market that's very different from many other parts of the business. What we haven't done as a business is learn enough from De Beers and take that into our marketing and other programs. And that's Peter's job in making sure that we take those learnings across to other parts of our business. And this certainly has made a big difference in the marketing side and, certainly, saw some real contributions occurring in the first half of our results as well. So very pleased, very pleased to see the De Beers results. For those people that don't believe we've said enough about De Beers, I hope we can start addressing that balance. And as I said to Philippe, when you deliver the numbers, we'll do more talking. And so Philippe, well done. And for us, very happy to see that we can demonstrate that there is real value in putting the whole package together and turning what looked to be, maybe, a high priced acquisition into one that creates real value for the long term for the Anglo American shareholders.

With that, I will hand across to Mr. Médori.

René Médori

Thank you, Mark, and good morning, everybody. Let me start with the scenario of our financial results for the first half. We reported earnings per share of $1. You see the impact of the platinum strike. We lost 440,000 ounces. The impact at the EBIT level was $385 million, and the impact at the EPS level, $0.16. Underlying operating profit down 10% at $2.9 billion, flat if you exclude the impact of the platinum strike.

Let me explain the difference between the 3% increase in underlying earnings and the 10% increase in operating profit, primarily due to the mix and the strong contribution from De Beers. De Beers has lower minority interest. It has also a more lower tax rate. De Beers contributed, on an attributable basis, 33% of the group operating profit and the earnings level 37% of the group earnings in the first half. Here is the reason why we have an increase in underlying earnings is lower finance charge. Some of that due to higher capitalized interest, as we see with the Minas-Rio project, but also the fact that we retired some high coupon bond in the first half of 2014.

CapEx, up 15% at $2.8 billion, all due to gross CapEx. The level of SIB CapEx and stripping was flat year-on-year. And then the net debt level, $11.5 billion at end of June, lower than what we were expecting at the beginning of the year. And that we'll give you a guidance for the end of the year, which is lower than what we discussed 6 months ago. Attributable return on capital employed, 10%. If you were using the June 2013 past date, 11%.

Turning to the operating profit waterfall on the next page. You see the price variance impact, $1 billion. The decline in iron ore prices and metallurgical coal prices, offset by a positive FX variance of $800 million. Inflation for the group was 5%, including 7% in South Africa. And then you see the benefit in terms of the stronger cash performance that Mark described earlier. 2% reduction in cash cost in real term as the benefit of the 7% increase in copper equivalent volume, but also cost initiatives, especially in metallurgical coal. Now the 2% increase net decline is after a negative impact of 1% associated with high stripping across our main operations.

Price variance, as I covered earlier, $1 billion. Mark mentioned the benefit of our portfolio of commodities. If you look at the graphs, since the beginning of this year, we have seen a 12% decline in met coal prices, 28% decline in iron ore prices, at the same time, we have positive price momentum of nickel, platinum, but also De Beers, price were up 7% for the first 6 months. There was, in fact there was a price increase in the last site last week, which means, on average, for the Anglo basket of commodity, the price decline since the beginning of the year was limited to 3%.

You see negative De Beers price impact. That was all due to mix in the first half of 2013. De Beers sold low -- fewer, lower quality goods to the Indian market. There was a recovery in the first half of this year, so you got a negative mix impact year-on-year. Copper, a mark-to-market negative adjustment of $64 million. At end of June, we have 192,000 tonnes of copper, which we have provisionally priced at $3.15.

Turning to the exchange variance. Overall, $755 million, $526 million due to the decline year-on-year of the rand. The average for the first half is $10.70 compared to $9.22 in the first half of 2013. The rand has been relatively stable since the beginning of the rand. The movement of 1 rand has an impact of $380 million at earnings level on a full year basis.

Sales volume variance, positive $0.5 billion, supported by the 7% increase in copper equivalent production. On the bottom of the slide, we have outlined the impact of the platinum strike. We lost 440,000 ounces of platinum. The inventory movement was 300,000 ounces. The impact of the strike in terms of the P&L associated with the fixed cost at the mines which were affected by the strike is $385 million. And then you see a positive cash flow impact of $340 million, as we were able to maintain the level of sale by drawing down the level of inventory.

In the second half, as we are ramping up the level of production as increase, we expect to be at full capacity towards the end of the third quarter. Then we saw that this positive cash flow movement will be reversed but not to same extent, probably around $250 million.

Cash costs variance. I mentioned the decline across the group of 2% in real term. In the middle of the slide, you see the -- how did that translate in terms of unit cost movement for the various business unit in nominal terms. Declining copper, Coal Australia and De Beers, and then in South Africa, the impact of South African inflation, also in the case of Kumba, the increase in West stripping. On average for the group, it's a 4% increase in nominal terms. In U.S. dollars, with the benefit of the FX movement, it's a decline of 6%.

CapEx, $2.8 billion for the first half of this year. And you see all the increase coming from Minas-Rio. We spent $1 billion on Minas-Rio compared to $600 million last year. We are expecting to spend $1.2 billion in the second half of this year. Our guidance for this year, we have reduced our guidance by $0.5 billion, $6.5 billion to $7 billion for the full year, while we have maintained our guidance for 2015, $6 billion to $6.5 billion.

Net debt, $11.5 billion at the end of June, including the positive movement on the working capital that I mentioned earlier, but also the lower-than-expected CapEx.

In terms of guidance for the end of this year. At spot prices, we're expecting the level of debt to be between $13.5 billion and $14 billion at end of December 2014. And then at end of '15, the level of debt should peak between $15 billion and $16 billion, again, at spot prices using our CapEx guidance and also before the benefit of any disposal that we are progressing.

We also announced this morning the final agreement with Lafarge. So we have agreed to sell our 50% stake in the joint venture to Lafarge for GBP 885 million. The sale is subject to the completion of the Lafarge/Holcim merger and the divestment of Lafarge Tarmac has been accepted as a remedy. But that provides us a backstroke in terms of divestment of Tarmac. Thank you.

Mark Cutifani

Thanks, René. Ladies and gentlemen, just to help conclude and move through into a wrap, I just thought I'd pick up one point that René made, which I think is a very important one. If you recall the unit cost changes in the business, you'll see across copper, nickel, met coal, we've made significant improvements in their unit operating cost. And that reflects restructuring, the business improvement initiatives, the furnace work at Barro Alto, that type of thing, and that's been going very well.

On the other side of the coin, we've got the South African assets that have been increasing in cost, that's with labor inflation, energy and other input inflation issues. And certainly, the weakness in the rand has helped, certainly, put a lid on that impact in terms of earnings. But we've got a -- we have to make more inroads in our cost base and if I look at the 3 key businesses, just so you know what we've got in mind. In platinum, the portfolio restructuring and the focus on our mechanized asset -- assets is really about changing the whole structural cost base in our platinum business, and at the same time, dealing with ongoing inflation because of the nature of the business and the way we can slow that whole progress. I think that's a really important point to make. The second point I wanted to make is at Sishen, the implementation of the operating model, the redesign of the pit and the work we're doing at Kolomela is, again, an action to deal with that structural cost base and turn those trends around. And third, the reason we consolidated the global coal business is we wanted to take the structural changes that we've made in Australia and other parts of the global asset base into South Africa and step change the whole change program. And so for each of those 3 positions that René showed, we've got very specific action plans and programs coming -- starting to come through that will impact and attack that cost base. So I just want to make sure that point wasn't missed before I go into the improvement program, which gives you a bit more color in terms of the overall approach.

Now just got a few slides. I've been asked a few times by people during the last few months, "What are you doing and what's happening where we're seeing structures and improvements, or what can we see coming forward in the next 6 to 12 months?" Well, firstly, we want to be very clear about where we are from a strategic point of view. We see our diversity as an advantage in terms of opportunities, in terms of what we can do across the portfolio is the first thing. Our focus on assets within the portfolio and the critical assets that can drive results is certainly something that's very important for us. The focus on capital, on upstream value drivers, so we tend to look at spending our capital as close as we can to the resource because that's where the big margin impact can be effected and certainly, that's where we're focusing the business. Our portfolio, focusing on those top 15-or-so assets, and the next category of assets that we think have the potential to be dialed up is where we're focused. And those assets that we think have marginal potential, potential or -- marginal potential to move the dial for us are the assets that we're looking at, either making significant improvements or exiting at the right time.

The capital discipline, the discussion about ROCE, and at the end of the day, you could talk about return on equity. I could use about 5 or 6 other measures. The thing that appeals to us in terms of the ROCE measure for us as a team, is it focuses on the denominator and the numerator. You have to get both right to deliver real value. And for us, we think it's the right measure to drive the right behaviors across the group.

We're happy to talk about return on equity. We're happy to talk about other return measures. But we think that's the best measure, albeit not perfect, to measure those behaviors. And then there's the change model. And for people that have been asking, I've got 3 slides that explains what we're doing in terms of the change model. First, and to be fairly simple about the process, in many of our operations, now we're looking at an organization at a commodity level. So let's call it copper. We could call it nickel. We could call it one of the other major commodities, thermal coal. We have, from the head of that part of the business, around 10 levels, and it does vary from commodity to commodity. We believe, on simple principles and based on what we've done across the business, it should be no more than 5. We're looking at simplifying -- we're looking at stripping out bureaucracy and making sure that decision-making and the touch points between the leader of the business and the person doing the real work on the ground is no more than 5, based on the principles, a lot of experience in this industry in terms of what works.

Now what you've seen so far -- and I've already told you about the board, literally, has been renewed since 2009. And in fact, René is the only individual still remaining from the board and he's looking very strong and robust. The executive leadership, we've gone from 16 to 11, plus we've also made changes inside the 11 that we have in terms of new recruits. And at the next level, we've gone from 124 to 88. Now the real hard work is at the next level, so that's all done. This is where the hard work is going on, and the guys sitting in the front row here are doing the really hard work in restructuring the next 2 levels and unpacking and unpicking this bag of spaghetti into a structure that's leaner, more aggressive and, in particular, more focused on productivity and delivery. Now that takes time. And in some cases, the level of complexity across the business varies. But it's about having the right people in the right roles. And only when you do that can you start to delever, delayer and declutter the organization. And that's where we are as we speak today.

The second part of the program is making sure that we understand the resource and the mining strategy that is applied to the resource to get the best value. I still stand here today after 38 years in this industry, and I don't care if you're talking about a major or a junior. 50% to 80% of the mining assets in this industry are not using the right -- don't understand the resource, aren't using the right mining strategies and aren't applying those mining strategies in the right way to drive value from the resource. We're no different to that group. We think, by the time we finished, we'll have made -- at least we'll have made material changes to mining strategies across at least 50% of the assets. In this case, we're just using Mogalakwena, and Chris and the guys got on to this case very early, this is early last year. And you'll see, this is the pit, a plan view. And these are the cutbacks, where you're taking a machine and working on one level from this point, working your way through this direction. And when you have a long cutback like that, designed as you have, and you're taking it out at an exit point in the pit, trucks have got to travel all the way back through this way and then back to our plant. Or if they're going the other way, it could be the other way. But it's a very inefficient way to set out a mine in these long strips and these long cuts. What we're better off doing is making these smaller so that you can be more flexible and open the pit up in a smaller area so that you make it much more internally efficient and you cut out big tracts of waste that you wouldn't otherwise have to mine. To put it simply, or to define it simply, that's what the design looks like after drilling the -- after Chris and the team had done some drilling -- should go back. No, I guess forward. After Chris had completed the drilling and had redesigned the pit, again, they had dropped out significant amount of waste for more than $1 billion benefit out of the first 15 years life of the asset, and they've improved the access and flexibility of the mine. And instead of trucks having to drive this full distance, they can now drive -- when they're mining here, very quickly out of the pit direct to the mill, which in some cases, can mean a 20% to 30% improvement in truck flexibility. So it's all about cost. So you take the waste out and you make the pit more efficient, and that's a significant driver in value. And that's something we're looking at as the second part of the strategy.

Once you've got that right, you then look at the way you run the assets on a daily basis and we then flip into industrial thinking mode, where we look at the capital we have installed and make sure that we're working that to its potential. That means, instead of having this massive volatility on a daily basis on tonnes through the plant, what we try and do is get rid of all these bad days so that we don't necessarily change the peaks. But by getting rid of the bad days, planning our maintenance, planning the work in far more detail so we execute to the plan and we don't continually miss what we try to achieve so that the mean, the average tonnes per day increase, and we've gone from -- and in fact, if you look back -- forward here, we’re at 3,000 tonne a day in the nickel business. Where are the 6,000 tonne a day? And see how tight the daily numbers are there, that's a shut down. See how much difference that's made. We haven't done anything, we've spent no capital pushing the top line up. What we've done is we got ourselves organized, getting rid of the silly things that happen on a daily basis to drive the average. That's what value delivery looks like in this entry. Don't spend capital, get the revenue line working to your advantage and open up your margins. So our business improvement strategy is about people, the right people in the right roles. It's about getting the resource and the mining strategies right, and then running the assets to their potential, as you would an industrial process, assuming that you're competing with everyone else that's got exactly the same parameters you've got and you got to compete for margin across the business. And that's the key in terms of our change model. Some areas, we could do things very quickly. Some will take a lot more time. At Sishen, a much bigger change required, so Norman’s steering his team through a 4- to 6-month change process. They go live next month. And again, I'm expecting to see another step improvement in the business.

We then took the data. When we did our asset review last year, we just took the data from our operations. And if you look at this type of volatility, what we do is we run an analysis. What if we got rid of these down days? What's the potential we could have improving the operation?

And what if we're able to take this from what we call the P75, that average -- move that average from here to here? What's that worth in the business? So you've seen it in nickel, you've seen it in copper, you've seen it at Mogalakwena. You've seen it in a number of the assets that we've shown.

And by improving the stability -- and this is against last year's 2013 operating profit. By just improving the stability across the business, the $600 million worth of benefit to the earnings line, by just getting the capability right, getting the stability, and then moving the mean to the what we call the P75, the 75% performance level is another $1.7 billion, and then if we change our operating configurations something like $200 million a year, in the end we didn't use this to design driving value. The team went into their businesses pulled apart the fundamentals and focused on those improvements, and we're ahead of schedule.

What this did was show us that those numbers that we had focused on were quite reasonable and, in most cases, probably conservative. This will inform improvement as we go beyond 2016. Driving value is about getting focus to deliver on the potential we could see in the first 2 to 3 years. This is about positioning ourselves for the long term, and some of that $500 million that we talked about in terms of the gap will come from the things we've identified here. We've already identified what we need to do to close that gap that we had identified, some of it coming from this work, some of it coming from the other stuff the guys have identified. So we certainly see think we're in pretty good shape.

For the first half, again the big assets delivering most of the performance. We've actually stripped out the projects from this data. So there's 59 assets, not 69, which would have been the last chart you saw. We've already identified 7 assets of the 25 over here, Tarmac, the 6 platinum shafts. There are other assets that we're reviewing as we speak. We have actually completed the review. We're now looking at when and how we either improve or make a decision to exit. And that will be on an opportunistic basis, but we finished the review, we know what we'll do going forward. We won't say much else other than to tell you the day after, the transaction's been done. That's our intention.

We're happy with the progress we've made on driving value. We're certainly ahead of the game. We're tracking about a $1.6 billion annualized benefit. We were targeting $1.4 billion on a full year basis, so we're already tracking ahead of that target. And I do, on a full year basis, expect that to improve your, although copper grades will take a little bit of that back. But we are in good shape and certainly ahead of the game in terms of where we thought we'd be at the end of the year.

In terms of those businesses that need to make a difference, iron ore Brazil, obviously, no revenue yet, so as soon as we get that producing, that will start to have an impact, a positive impact. Coal Australia and Canada, very much a price story in my view. Seamus and the guys are continuing to work on costs and take high-cost assets out of the mix. But still some work -- still more work to be done, but very much a price story from our point of view. Nickel, Barro Alto, certainly seeing significant improvement. The furnaces will turn that one around and certainly, we think, has the potential to do better than 15%. And platinum, you know the restructuring story that were going on there. Niobium and phosphates, the BV, our fresh rock project will turn that around. So we've got strategies for each one of those assets or asset packages that aren't delivering on their potential, that will each make a contribution by 2016.

Guidance numbers on a go-forward basis. We had made an adjustment, a downward adjustment, on thermal coal, reflecting the Cerrejón pullback on the dust issues that we're -- we're in a drought situation in Cerrejón. The market also is not that great for thermal coal at the moment, so we've pulled back on the P40 spending to reflect the weaker market. So from our point of view, that's not a big change. And platinum, again a minor adjustment back, just reflect what Chris is expecting to do from a -- on the south front post the strike. But all other areas are pretty strong. Diamond's up, met coal doing well, nickel continuing to do well and copper in pretty solid shape off the -- off a very strong first half.

So for us, back to basics, getting the safety, production and costs right. We've hit our key milestones from a portfolio point of view, Tarmac, platinum. There will be other things that we'll talk about as we look forward, but we're not putting any timelines on that because it is about being opportunistic.

Financial delivery, we've talked about the key targets. We're very confident that we're on track in terms of the ROCE targets for 2016, and we are committed to the dividend.

In terms of the divestments, as I said, we will keep you posted on where we're going on that front, but we're not putting anything out at the market on a forward-looking basis because it is about being opportunistic. And from our point of view, we've closed the gap on all of those operations that were dragging, so we're very happy that we've made good progress, and we'll make a decision on a divestment where it’s -- when and where it's appropriate.

To wrap, I just want to make a couple of observations again on the portfolio. We talk about being a very diversified miner. This is our bag of spaghetti chart showing 2013 price points, what's happened with each of the commodities. You saw the 28% that we've seen this year in iron ore, met coal here, other products. We've seen strong improvements in nickel. Palladium and platinum are starting to show signs of life. And don't forget in palladium, it's going to take quite a while for that pipeline to be filled. And whilst we're in good shape, some of our colleagues are really struggling to get up, Chris and the guys did a very good job securing all the faces before we had the strike. I'm not saying we won't have some hiccups, but really sort of going well in terms of the startup relative to, I think, our colleagues in the industry.

But as you look forward -- and these estimates aren't our estimates, these are consensus estimates. Now I'm not an advocate of consensus estimates, I'm just showing you what those numbers look like as we go forward against our basket price.

And if I just strip it down a little bit to pressures, the pressure sweep going into the consumables market, base metals, infrastructure and consumables or the bulks in infrastructure and energy, which shows we've got a very good spread of commodities in their own right, but also a good exposure to downstream markets, it's an interesting mix when you de-clutter the bag of spaghetti. So we're well diversified, not only in commodities and geographies, but in end user markets as well. And based on your numbers, our view is that our price decks still look to be in reasonable shape, and I'm using your estimates for the price decks through the next 2 or 3 years. So from our point of view, we think we've got the things that we can drive in control. In the end, we'll let you make a decision about the price deck. But from what we see so far, we think we're in good shape to deliver. The key for us will be to do better than we were targeting to make sure we give ourselves a bit of room. And the fact we've got some diversity in the portfolio might help us delivering that number at the end of the day as well.

So I thought that, that was an important point to finish on because it is about being strategic. It is about how we're positioning the business. We are the diversified miner in this space. And from that point of view, we think we have some strategic advantages over our colleagues in the industry. Our job is to run the business well and help deliver our outcomes against that profile.

With that, I'm very happy to take questions.

Question-and-Answer Session

René Médori

Jeff?

Mark Cutifani

Yes, Jeff?

Jason Fairclough - BofA Merrill Lynch, Research Division

Mark, it's Jason Fairclough from Bank of America Merrill Lynch. Two questions. I guess really one question, a portfolio question. If I look at nickel, obviously you're turning it around. It's an interesting place to be at the moment because of the price action with the Indonesian ore ban. Is it really a part of the business in the longer term? And then secondly, just on De Beers, a real standout in terms of its contribution to profit. Do you think the value of De Beers is being appropriately reflected within Anglo? And I guess will it be, ever?

Mark Cutifani

To go with nickel, we're still thinking hard about nickel. If you look at what's happening in Indonesia, obviously that's had an impact on the market. But the other things that interests me on nickel is the fact that a number of producers aren't delivering on what they say they think they can produce. The one thing we've demonstrated with Barro Alto, it is the turnaround story in the nickel industry at the moment. So I think we're demonstrating an ability to operate very effectively in this space. But in terms of nickel in the market, it still is one of the commodities where I think there is a fair bit of nickel around. So we're going to keep our mind open. We're going to focus on getting Barro Alto to its potential. And whilst it's got a nameplate of 36,000 tonnes, I'll let Duncan declare what he thinks it can do. But from our point of view, we're going to keep an open mind. We're not -- we've not made a final call on whether it'll stay in or out of the portfolio, but, from our point of view, get the business delivering to its potential. It will make a contribution in 2016. Where it fits in the portfolio will be determined by the view that we take longer term, and we'll tell you a day after the decision has been made. Second question. Duncan, did you want to add something on the nickel side, Barro Alto?

Duncan Graham Wanblad

You were doing a great job there.

Mark Cutifani

You weren't going to up the ante..?

Duncan Graham Wanblad

I'll [indiscernible].

Mark Cutifani

In terms of De Beers, no, I don't think it's being valued in the portfolio in terms of its potential. But to be fair, it's a matter of the results that we're seeing. We're now starting to see De Beers' real potential. And under Philippe's leadership, I think in terms of production, in terms of the delivery on their promises, they are delivering. And I think people will see that as a differentiator, a positive differentiator for Anglo American. And I can see no reason why it shouldn't be, over time, reflected in our share price. If you look at our business, the nature of the portfolio, the diversification, we are unique in this industry. And from my point of view, I think that's a very strong argument for investing in Anglo American. So that's the view we have at the moment. We'll see if that plays out over the next year or 2. We always keep all of our options open. But at this stage, we certainly are getting a lot of interest from shareholders on the fact that our diversification is so unique. And if one wants to talk about late-cycle commodities, we're seeing it today. I don't think the market has yet picked that up fully, and I'm hoping that us talking about De Beers today might put a bit more -- or shine a bit more of a light on that issue inside the portfolio.

Menno Sanderse - Morgan Stanley, Research Division

It's Menno Sanderse of Morgan Stanley. Just 2 questions, one on copper. Can you talk us a little bit through the profile of the cost? Clearly, you had a fantastic 12 months. Grades high, throughput high. What's going to happen in the second half and next year? You're seeing grades coming down, but can you offset it by throughput, and therefore, what are the implications on costs going to be for copper? And secondly, on CapEx, you're pushing some of the Minas-Rio CapEx into next year. You didn't change next year's CapEx because you did have what is $1.5 billion of contingencies/uncommitted CapEx for next year. So what are you taking out of that uncommitted CapEx to compensate for that Minas-Rio CapEx moving into next year? Saw you highlight that Kolomela will still be potentially done.

Mark Cutifani

Okay, then, I'll deal with the first part. The second half, we are -- we will see a decline in copper grades, and we flag that pretty clearly, particularly at Los Bronces. Collahuasi had been doing very well. De Beers, we're in the lower season part of the year, although, certainly the market looks strong. So we are flagging that we are in the tougher part of the year. But certainly, indications have been pretty good so far. We are pushing the waste movement at Sishen. That will be a good news story but will have an impact on unit cost, as it does. And so there, the headwinds we're sailing into, offset by the fact that the platinum business is back in business, will certainly help. So we're sailing into those headwinds. In terms of unit operating cost, I think the big gains that we need to deliver in the next 12 months are around our South African assets. So it's productivity at Sishen. It's what can Seamus and the team do in the thermal coal business. And I'm not going to put a forward look on that other than you've seen what we've done in other parts of the business. It's a matter of what the guys believe they can do in their respective areas. And Chris is restructuring the platinum portfolio, and it is a radical restructuring of the portfolio and what we can do there. And you could probably do those numbers by looking at the various operating costs from the respective entities to get a sense of what that might look like. René, do you want to pick up any points there in terms...

René Médori

On the CapEx side?

Mark Cutifani

On the CapEx figures.

René Médori

Yes, I see 2 key drivers beyond the reduction. First, I mean, we have to -- Minas-Rio, some of the spend is moving next year. But also, we are being more efficient on this SIB CapEx. So we are spending less this year and next year. So that will be the hit of the initiatives that are being progressed by Tony O’Neill on the technical side, and we are more selective in terms of new projects.

Menno Sanderse - Morgan Stanley, Research Division

And just what are you taking out of the uncommitted CapEx for next year to compensate for the fact that Minas-Rio is shut-in next year?

Mark Cutifani

Well, yes, I should -- let me, well, pick up a couple of points on the operating side. Seamus has done some really hard work in pulling his mine development dance, so he's been pulling some inventory points back but keeping his operations balanced. So he's not robbing Peter to pay Paul, he has done a lot of restructuring at Dawson and in his met coal operations, making sure he's got the development balance right. We've done the same process through each of the operations. So Norman's doing the same sort of work. You've got Chris in platinum. You've got Duncan across his business. You've got Philippe working hard, looking at the spends that they've got across the portfolio. So really looking at the same sort of efficiencies, trying to pull those back 10% to 15% now in terms of the operating cost. We look at capital as cash, the same as we look at our operating costs. So we're trying to deliver the same sort of performance improvement outcomes, as we have on the operating, to the capital side. So we're looking at 10% to 15% there. It's always a little bit different, and you've got to be a bit careful comparing apples with apples because Chris, Norman, Duncan have all been improving their productivities in waste movement and increasing waste. Opening up the pit, which has an operating impact around, I think, at least 1% -- somewhere between 1% and 2% on their operating costs because we've improved our efficiencies in the open cuts. So the good news is that we open the pits up, we might be able to do a little bit better on grade because we've got more ore exposures, but you're seeing an immediate cost impact. But the efficiency ultimately comes back and supports your bottom line. So it's all being done for the right reasons. And again, I'm being careful not to put a number on it because we'll do that in our guidance at the end of the year. But it is improving, the fundamentals are improving, and the numbers should improve over time.

I'll come next, and then I'll work back across.

Anna Mulholland - Deutsche Bank AG, Research Division

Anna Mulholland at Deutsche Bank. Other questions on platinum. In terms of your proposed portfolio restructuring and the timing of that, when do you think you can complete that overall process? And if the sale is your preferred choice and if that becomes apparently not doable, how would you wait? What do you then?

Mark Cutifani

Chris and I speak with one voice, and he's much better looking. So I'm going to let him answer the question.

Christopher Ivan Griffith

[indiscernible]

Mark Cutifani

Do you want to use the microphone here, Chris? There you go.

Christopher Ivan Griffith

Thanks, Mark. Look, we haven't given the time on the restructuring and the -- well, on the sale, Anna. Look, I think we'll do well to have done this here next year. Both Mark and I have been clear that we would prefer a sale, but a listing or unbundling is a very real option for us, and it needs to be a credible option. And we'll push, we have got expressions of interest both from those who have money and those who don't have money. But we'll try and do this, and I think we would have done well to have done this next year. But they are, in the regulatory environment is probably where we have our biggest hurdles rather than going through the normal process of putting the assets up for sale. So if we do it next year, it'll be a good outcome. And we don't do the sale, there's a very credible option of a listing of those assets in South Africa.

Anna Mulholland - Deutsche Bank AG, Research Division

And then Just one follow-up. In your release this morning, you talk about the potential to access other platinum assets, the other ones you specified. What's the time frame for that, well, for your press release set of actions?

Christopher Ivan Griffith

Well, seeing as though those are Mark's promises, let me hand over to Mark.

Mark Cutifani

I've got to say that I'm not sure which assets you're talking about. The ones...

Christopher Ivan Griffith

[Indiscernible].

Mark Cutifani

No, there's -- the ones we flag are the ones we -- no, no, no.

Anna Mulholland - Deutsche Bank AG, Research Division

Oh, okay.

Mark Cutifani

No, no, no. So what we flag is what we have an intention on. If I could make a general point. No asset is protected in terms of delivery. If it doesn't deliver, if we don't see value, then, ultimately, we' going to make some hard calls. But we've been very clear about the assets we've identified in platinum. And for us, we're about 6 months ahead of where we said we were. And as Chris said, it's about stakeholder engagement, and that's got to be done carefully. If we do it right, then we're less worried about the exact timing. It's about doing it right and making sure that that it's sustainable both ways because we're talking about a long-term business here with tons of potential in terms of value creation. We’ve got to make sure we get it working to its potential.

Rene Kleyweg - Deutsche Bank AG, Research Division

It's Rene Kleyweg with Deutsche Bank as well. Just could you give us a bit more color in terms of the top 400 people within the organization and the change of personnel program that's going on across that? I think in the videotape, you referred to the fact that 40% of people had changed in the top layers. Could you just give us an idea of how the changes are progressing, the speed of change across that group, what types or the time frame you have in mind in terms of completing that process, when they get vetted down and then when that translates into operational performance, change in practices being implemented, et cetera, and if there's any big variations within the different divisions in terms of how that's progressing?

Mark Cutifani

Okay. It's a broad question. Let me start with the executive. Firstly, the improvements that you've seen in copper, nickel, the changes we're seeing in niobium and phosphate, the fact we've transferred all of our staff from São Paulo to Belo Horizonte, I think we've moved 40%, Duncan?

Duncan Graham Wanblad

A little bit more now, yes.

Mark Cutifani

Yes, about 40%, and we've reduced the numbers. And the delivery of improvements in nickel, in copper hasn't been through the efforts of the fairies at the end of the garden. Duncan, the new leadership, Hennie, Ruben in nickel, they're the guys that have led the change that you're seeing in terms of improvement. Now to be fair, some movements and changes were already in place. But the focus on getting those pit areas right and the other improvements arranged -- the new furnace strategy, has been the leadership. That top 2 level change that I've talked about has been those guys. You've seen similar work. Seamus and his team, the consolidation of the met coal and thermal coal businesses. You've seen the impact in met coal. I think it'll take 12 to 18 months for the same sorts of improvements to start showing through in thermal coal in South Africa. In Chris' case and with the changes, I think you've already changed about 30% of the team already, Chris, in terms of since you've been in role, you're starting to see some very clear directions from a strategic point of view in platinum. Mogalakwena, Richard Cox has been there 12 months. That's what good leadership does at the asset level in our business. We've seen it in South Africa. An individual can make that much difference very quickly, and I think he's done a great job. So in terms of those areas that we're now moving hard into in terms of impacting, it's a 12-month-type program. What we expect -- and the reason we said 2016 was about the right time, it takes that long for the team at the top 3 to 4 layers to have a real impact on the business. We're talking about a doubling of the earnings in 2.5-year period. And so, if I could say, the top 3 levels and the restructuring of the next 2 will be well on the way through that process, and that impact will be on the earnings that you see in 2015. That's a big part of what we're doing. So at that point, I'd also make one other point in terms of restructuring. I think we've seen a 30% reduction in your manpower levels, forecast 30% in the Base Metals division. Seamus, I think you've seen about a 30% to 40% reduction across met coal. A lot of work to be done in thermal. Tony, 70% changes in terms of personnel in the Technical division operating Johannesburg. I mean, there’s a lot of tension and anxiety in the organization because that's the level of change. Of the 12 direct reports reporting to Tony, I think 10 are new people. We've got one vacancy. And so it's pretty radical change. And you've got to get -- that's -- those top 3 levels done. We're just about finished, and now we're at the next 2 levels, which is a 12-month process in of itself getting those structures right. Norman's going through an exercise at Kumba at the moment, probably another 3 to 4 months in getting the logic and the planning right, and then another 6 months to roll that through the whole organization. So there are the orders of magnitude. Okay?

Yes, Paul?

Paul Galloway

We move on to South Africa.

Mark Cutifani

Yes.

Paul Galloway

And then we'll go through to the room next door.

Mark Cutifani

Well, I've got one commitment here, and then I'll go to South Africa, okay. Can we get ready in South Africa for next question? Okay.

Liam Fitzpatrick - Crédit Suisse AG, Research Division

Just got in there. Liam Fitzpatrick from Crédit Suisse. Two questions. Just on the ROCE target, am I right in saying there's been a slight change from 2016 to end of '16? Is that true? And why is that? Is that because...

Mark Cutifani

It's full year. It's just full year. 2016 full year, 15%. No change.

Liam Fitzpatrick - Crédit Suisse AG, Research Division

Okay. And then at current prices, do you think -- is that $3 billion sufficient to get you to the 15% ROCE? So that's question 1. Secondly, on copper. I think it's the third time you've upped your guidance for the year. We're now guiding to a big decline in 2015 and '16. I mean, how reliable is that guidance at this stage?

Mark Cutifani

Duncan, you want to talk to the copper positioning in terms of your grades at the moment? Because you have seen some improvement. I haven't got...

Duncan Graham Wanblad

Yes. Thanks.

Mark Cutifani

So that...

Duncan Graham Wanblad

Okay. Thanks. The increase in guidance this year on copper was really driven by the performance at Collahuasi more than anything else and the fact that they ended up in a high-grade zone for a lot longer this year based on the fact that they didn't get there last year as they had originally planned. So that really is driving the performance in the copper output this year. We're going to see some of that turn back in the second half. I told you before we mined a high-grade zone of Donoso this year, in Los Bronces. We're moving into a low-grade zone now, we were already kind of mining at about 0.7, 0.72, and that's going to continue pretty much through the rest of the year. So that'll come back a little bit, and we'll have similar, more concomitant impact on the costs through to the end of the year as well. Next year, Los Bronces grades are okay, and Collahuasi grades come down a bit. So we get a bit of a netting off between those 2. But I actually think that we will look at the guidance that we've got for '15 and '16 again in quarter 3 this year based on where Collahuasi actually is going to end at the end of this year. So we may adjust that again later this year for the outer years.

Mark Cutifani

Okay. And just to answer the question on ROCE, we're on track for the $3.4 billion. We've identified where we could get another $500 million to maintain the integrity and make sure we hit those numbers with a little bit of headroom. If I can give you a simple rule of thumb. For a 5% difference on the achieved bucket -- basket price, there's about a 2.5% impact on ROCE. I will let you make your own decisions with respect to what the basket price looks like, but there's a really important point I want to make for investors. On short-term objectives, that is the delivery of the $3.4 billion initiatives, the executives held accountable for the annual delivery of the milestones that they have in their short-term bonus objectives. The 2016 long-term performance incentive is on the basis of delivering the 15% irrespective of what happens to the basket price. We know what we have to do to close that gap. And our bonuses are based on the delivery of the number irrespective of what happens. So we're focused in our interest to share it with shareholders in terms of the delivery of that outcome irrespective of what happens in the world. We're going to deliver the $3.4 billion as a hardwired guarantee that we're going to double our impact in terms of the earnings in the business, and then try and give ourselves some headroom if there's a bit of weakness in the basket price. But at the same time, we know exactly know what we need to do if there is a gap in the pricing, and that's what we're working to close if that's the way it turns out to be. I hope -- does that answer it? Yes?

Can we do a South African? We'll come back and try and pick you up after the South African question. So yes?

Tim Clarke

Tim Clarke here for Standard Bank. Just 3 quick questions, please. Sorry, Tim Clarke from Standard Bank. Three quick questions, please. The first one is just on diamonds. I'm just interested in a little bit more color on the price, the mix versus price result that you delivered. It was a very strong result. And then perhaps you could also comment at the same time just on what peak kind of production level could be reached in diamonds. Are we at peak? Or is there still a bit of peak to come? And then just to follow on Mark, your suggestion. We are interested just to hear in Australian coal versus South African coal what those potential benefits are, where you're -- where Seamus is seeing some benefit. And then lastly, just on Minas-Rio. If my calculation are correct, we've spent $6.6 billion to date. So I just wondered if you could update on the timing of the residual spend. So it sounds like quite a lot of money relative to how far you are.

Mark Cutifani

Okay. Philippe, can I ask you to pick up?

Philippe J. C. Mellier

Okay. In terms of price, so it's a little bit difficult to understand pricing. So from January to the end of June, we increased price by slightly less than 7%, as it was shown. As an average, we increased prices on the first half by 4%. As an average. But at the same time, the mix was slightly lower -- or yes, slightly worse versus last year because the Indian goes -- last year, Indian market was not that strong. And this year, the first half, the Indian market has been picking up. So we are selling more Indian goods, which are of a lower quality and lower prices on average. So we have an impact on the mix of 8% negative. So 8% negative on the mix, 4% positive on price. At the end, the performances is minus 4%. But last year, first half was a little bit of a special first half because the Indian market was very weak and unexpectedly very weak. So this is why we have this difference. It should normalize by the second part of the year. For the price forecast, obviously we don't comment. It's really linked to the marketplace. So we shall see. René said during his presentation that we have increased slightly prices at the last site, which ended last week. So we are still increasing a little bit, but we shall see what's happening by the second part of the year.

Mark Cutifani

Which is a very encouraging result.

Philippe J. C. Mellier

Yes, the demand remains pretty strong, yes.

Mark Cutifani

Okay. Paulo, can I ask you to pick up the question on Minas-Rio and the timing of expenditure?

Paulo Castellari-Porchia

Yes. Thank you. So basically, there is $2.2 billion to go. As René mentioned, $1.2 billion for this year. Basically, if you split the $1.2 billion for this year, we look at construction items -- construction works still remaining and the pre-operations work. More or less $900 million out of the $1.2 billion is around construction, out of which more or less half relates to remaining work at the breakwater, electromechanical works at the plant and the remaining costs when we're winding down the pipeline contracts. And then for next year, the billing remaining is really around some additional land that we need to buy. And of course, we're doing it timely and wisely around land acquisition. There's also commitments around the licensing that are pending and some other work on the environmental conditions.

Mark Cutifani

Okay.

René Médori

And some mining equipment which we bought.

Paulo Castellari-Porchia

Oh, you're, quite right. There's some mining equipment, more or less $100 million -- $80 million this year and then another $100 million next year.

Mark Cutifani

Okay.

Paulo Castellari-Porchia

Thanks.

Mark Cutifani

And Seamus, on South Africa versus Australia in your best clicking accent?

Seamus French

Tim, just some broad differences. Australia, and I'll break it down, undergrounds and open cuts. The Australian underground productivity typically is about 12,000 rum [ph] tonnes per full-time equivalent. The same mines and underground mines in South Africa, but it is a different mining method. So, it's continuous mine versus longwalls, it's a little bit unfair. It's about 4,000. Open cuts, which are more comparable, the same sort of equipment, is about 10,000 in Australia versus 6,000 in South Africa. The differences are roughly 60% what I'd call rate and availability, and then 40% resourcing time, which Mark mentioned. So rate availability is primarily a skills issue, and the resourcing time is a bit more complex in terms of rosters and in terms of public holidays. In terms how we addressed it, the -- we've gone through a process of benchmarking, so we've compared comparable equipment right across all the assets globally. We know where the opportunities are. The second dimension is margin. We're obviously going to focus on those, on the equipment and those assets that provide the greatest margin. And the last dimension is life. Some of the South African assets are undergoing life extension projects. So a primary focus is the assets where there's the greatest opportunity, the best margin and where we have the mine life. Those 3 assets are Zibulo, Greenside and Goedehoop. The last point was -- probably one point I need to make, though, is the biggest single difference between the South African assets comparing to the Australian assets is there is unlimited upside on the Australian assets because of infrastructure. So the positioning of our assets in Australia, we've got access pretty much equidistant from 3 major ports. It's very different in South Africa. So we have to be far more selective about our improvement efforts in South Africa because everything goes out through The Richards Bay Terminal and unless we can get significantly more access at The Richards Bay Terminal, we're obviously limited in terms of the upside potential, which means what we do is we reconfigure -- we reconfigure the portfolio around the logistics limit.

Mark Cutifani

Okay, thanks. So Seamus, is it fair to say 50% on the things that you can control with the implementation of your operating models? So you can close 50% of the gap? The other 50% is really structural in terms of work time? And a limiter on top of that is, we've just got to keep an eye on the infrastructure? Is it a fair way to summarize it?

Seamus French

Yes. Yes.

Mark Cutifani

Okay. Can we take one more question from South Africa?

Bruce Williamson

I have one more question on South Africa. Bruce Williamson, Imara Asset Management [ph]. Could you give us a feel for what is happening or you're thinking on greenfields exploration within the group?

Mark Cutifani

Tony, would you like to have a...

Tony O’Neill

Essentially, greenfields will be focused in copper in particular. We will do some greenfields on iron ore work, particularly looking to the last 20 to 30 years out, and also basically in coal whether we can discover any first world assets. In logistic cargoes [ph], basically it will give us a competitive advantage going forward.

Mark Cutifani

Tony, and the other issue in terms of greenfields is the supplements we're doing on the brownfields side with respect to existing commodities. So we see lots of opportunities on the ground. I might take one more question from South -- but Bruce, does that answer your question?

Bruce Williamson

Yes.

Mark Cutifani

Okay. Happy to take one more question from South Africa. Please, sir.

Brian Morgan - BNP Paribas, Research Division

It's Brian Morgan here from BNP Paribas. Just 2 questions, if I may. On the met coal in Australia and the longwall cutting hours and the productivity improvements that we've seen there, has the low-hanging fruit been plucked? Is there more to come? Second question is on Rustenburg. Can you envisage any circumstances that might arise, say, in the next 2 years that might change your thinking with regards to you selling Rustenburg?

Mark Cutifani

Seamus, met coal, low-hanging fruit.

Seamus French

Yes.

Mark Cutifani

Luckily, he's tall. So he can get the high-hanging fruit as well.

Seamus French

The major improvement, as you say, was that the long lives in Australia are Moranbah and Grasstree. Moranbah was a story of 2 quarters in the first half of the year. The first quarter was 110 hours. The average for the first half of the year was 88 hours. We would see the 110 as being the norm at Moranbah. So on the first half performance, we're targeting over the next 3 years broadly 20%, as an annual performance, 20% higher than the first half of the year at Moranbah. And Grasstree, less upside, probably in the 5% to 10% range. So yes, there's more to come.

Mark Cutifani

Okay. And Chris, can I ask you about Rustenburg? Very good. Thanks, Seamus.

Christopher Ivan Griffith

Thanks, Mark. Now I think we've made our decisions around Rustenburg and Union. And I guess that you could say, well, if the price lifted, would we be concerned about that we're selling assets that can make money? I think that the really important issue is that we're not selling Rustenburg and Union because we don't think that they can make money. We think both of those assets have been consolidated, given themselves lower call, so lower planned production from those assets. We're now in the process of optimization. And so we think both of those assets can make money for the future holders of those assets. However, we, in a capital constrained environment, cannot put capital into all of our assets. And instead of spreading our capital thinly across all of our assets, we need to make choices. And those choices are not in Rustenburg and Union, but it is important to know that we think those assets can make money. So in a higher priced environment, we think that they will be great assets for a future holder, but we will not be spending money there. And therefore, they're not -- we're not the best holders of those assets. So we will be moving on, and we don't see future scenarios that would mean that we would change our choices. Thank you.

Mark Cutifani

I think Chris is saying it the right way. It's about the strategy, not about a tactical consideration. It's about restructuring the business, and that goes beyond platinum. This is the way we're going to run the business in the future, focused on those assets that in the long term can deliver real returns. That's how we'll improve and continue to improve our position against our competitors and make sure we deliver real returns through the price cycle. Fiona? I'll take one more question after Fiona as well.

Fiona Perrot-Humphrey

Fiona Perrot-Humphrey from Rothschild. You gave a safety graph. Can I ask -- I mean, I know on the mine, there are improvements made. But Anglo's pretty unique in seeing real violence around the platinum strike, murders even continuing now. Can you say what management is doing about addressing what really is kind of a war of attrition between these 2 unions and the spill-off into your employees in South Africa?

Mark Cutifani

Chris, do you want to pick that up or you want me to talk to it?

Christopher Ivan Griffith

No, no.

Mark Cutifani

Very good.

Christopher Ivan Griffith

I think very importantly, the difference in the 2012 strikes to the 2014 strikes were very, very different in terms of the amount of violence. So there was more -- there was certainly -- there was some violence, but it was at a completely different level and scale that we saw in 2012, and I think that is positive. We as a company put a -- had a much, much firmer view of discipline. We had, for example, taken -- really early on taken AMCU to court to make sure that they obey the picketing rules. We had taken very firm steps against individuals who are overstepping their mark. We had taken and declared that we would sue AMCU for damages. So I think we've taken much firmer steps and that has certainly helped. But AMCU as a union have been much more disciplined. So the level of violence and intimidation is of an order of magnitude lower. At the same time, we have been engaging with AMCU, we’ve been engaging with government. And I think there’s been all hands on deck to try and make sure that people respect other people's rights. There have been some isolated -- more isolated incidents of violence recently, but I think it's just up to all of us to make sure that there is respect. We ourselves within Anglo Platinum have got a building bridges program where -- from what we're calling bridging -- Building bridges from Tshenyego to Tshiamo. So from hurt to wellness. Everyone's focusing on changing the culture of engagement in the platinum industry. So I think this is work in progress, but we are making good steps. And I don't think we should let the isolated incidents that we've seen recently in the platinum industry deter us from thinking that we're making progress.

Mark Cutifani

I think the other point to make is that in my personal engagements with the government, it's very clear that they have a commitment to deal with this across the industry and across all industries. Cyril Ramaphosa even yesterday made the observation that they should be considering secret ballots in Union votes. I think that would be a great step forward for the country. And for me, it's encouraging to hear those sort of comments coming from the government. I think that's the type of change that we have to go forward together with, and I think it's a broader issue in South Africa that we'd work together on. We're really encouraged to hear the government talking about those sorts of initiatives in Zuma's strength and his commitment to making sure that from a security point of view, people are protected. And I think those 2 things will make a real difference.

Last question then we'll go to the roundtable.

Ian Rossouw - Barclays Capital, Research Division

It's Ian Rossouw from Barclays. Just, I guess, a question for René around the net debt forecast, which is expected to go to $15 billion to $16 billion in 2015. This could obviously change with approvals and disposals. But how does that compare to your thoughts around the dividend and dividend growth over that time and your long-term net debt target of $10 billion to $12 billion?

Mark Cutifani

There you go, yes.

René Médori

First, this guidance is based on the current spot rates, the spot commodity prices. It's $1 billion lower than what -- the guidance I gave you 6 months ago. Remember, I said we would peak $16 billion. That's excluding the benefit of some of the disposal plan. We are speaking generally probably around $3 billion to $4 billion of disposal over the next 2 years. In terms of dividend, we have maintained the dividend. We have indicated that we will expect to maintain the dividend at this level while we are going through the CapEx program and we complete Minas-Rio. We have maintained a very high level of liquidity in excess of $17 billion. And as we reduce the level of CapEx, we also strengthen the balance sheet, we will also reduce the level of iron ore productivity.

Mark Cutifani

I think if you remember, we had this real debate about the forecast capital 6 months ago, and what we said is the capital forecast or the debt forecast don't include contributions from driving value. So in spite of a lower price deck, we're $1 billion better than we thought we would be at that time. And so that can make the conversation we have at that time with the improvements we've seen in the business reflected through to net debt. And so we're pretty pleased with the progress. A lot more to be done but it's been very good, and I think we're showing an appropriately conservative approach. And with that, certainly from our point of view, real commitment to the dividends based on the better performance that we've seen out of the business.

Guys, I think we're going to now convene for the roundtable. Okay? So thank you very much.

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Source: Anglo American's (AAUKY) CEO Seamus French on H1 2014 Results - Earnings Call Transcript

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