Glencore plc (GLCNF) CEO Ivan Glasenberg on Q2 2019 Results - Earnings Call Transcript

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About: Glencore plc (GLCNF)
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Earning Call Audio

Glencore plc (OTCPK:GLCNF) Q2 2019 Earnings Conference Call August 7, 2019 3:00 AM ET

Company Participants

Martin Fewings - Investor Relations

Ivan Glasenberg - Chief Executive Officer

Steven Kalmin - Chief Financial Officer

Peter Freyberg - Head of Industrial Assets

Conference Call Participants

Jason Fairclough - Bank of America Merrill Lynch

Myles Allsop - UBS

Liam Fitzpatrick - Deutsche Bank

Sergey Donskoy - SocGen

Sam Catalano - Credit Suisse

Grant Sporre - Macquarie

Sylvain Brunet - Exane BNP Paribas

Ben Davis - Liberum

Martin Fewings

Good morning. Welcome to our First Half Results for 2019. Thank you for joining us here today and by webcast. This morning we have our CEO, Ivan Glasenberg; our CFO, Steven Kalmin; and our Head of Industrial Assets, Peter Freyberg.

I'll hand over to Ivan to commence the presentation.

Ivan Glasenberg

Thanks, Martin. Okay. Good morning. Okay. To give you a summary of the results for the first half, as you can see EBITDA is $5.6 billion, which is down 32% from the previous half last year; would be $5.9 billion pre the $350 million which we mentioned during the production results in respect of the cobalt loss on the mark-to-market on the non-cash part of that.

Cash generated by operating activities before working capital changes is $5.4 billion, which is down 21% from the previous half, previous first half of last year. And net CapEx cash flow is $2.2 billion. The ramp-up/development assets, which we all know about and talk about, which is Copper Africa and Koniambo, has weighed down on our earnings and that created a negative EBITDA of $0.4 billion during the first half of the year.

These assets offer significant upside when we hit steady state of production levels. And as you know, with ramp-up assets you always have these problems and we continue to have these problems in both Katanga and Koniambo. That's why we have Peter Freyberg here today and he will take you through the process and where we are getting on those two very important assets to the group, which will be major producing assets, both nickel, cobalt and copper, which we will generate for the future battery car industry.

We have a strong cost position for our key commodities. And if you look at the first half cost performance on these key commodities and if you just look at copper alone, excluding the African copper, our production cost was $0.72 per pound. And as you know, that is extremely low compared to our competitors, et cetera, so we're really at the low end of the cost curve on those assets and those are long-term copper assets.

Looking at zinc, you can see our costs are low $0.03 including the gold credit; excluding the gold credit $0.40 per pound. Nickel, excluding Koniambo, once again one of our ramp-up assets, $3.29 per pound. And thermal coal, our average cost across the board of $46, which leaves healthy margins, with the coal prices during the first half at $32 margin.

Marketing, as we always say, a diversified part of our earning activity. It's a constant earner. We always say it even in difficult times. It's between $2.2 billion to $3.2 billion. And as you'll see in the first half of the year there at $1 billion. It's down 35% on the previous first half. But if you exclude the cobalt -- and we explained the situation of the cobalt, where we transferred the cobalt from the mine into the trading operation and we took it at the market price at the time and thereafter we go to mark-to-market. But if we exclude that, we would only be down 13% on the marketing during the first half.

The balance sheet, in extremely strong shape. And as you know, we have tried to operate with a much more conservative balance sheet. And all our debt facilities have been renewed in March/April. And bond maturities continue to be capped at $3 billion, maturing in each year and not more than that in any particular year.

The net debt of $16.3 billion, that's at the upper end of our target, which we mentioned. We would like it at around about $16 billion, but that is after the $1.1 billion of leasing liabilities which were recognized as reported debt during the first half of 2019. In terms of the new leasing standard accounting policies, we got to capitalize the leases and you put the debt on your balance sheet. And that was previously treated as operating leases, but Steve will talk in more detail about that later.

Planning. We're planning to reduce a healthy 1.24 net debt-to-EBITDA ratio towards the 1 range, which we've always said, we'd like to keep it within the 1 range and we'll get at there, we believe, within the next six to 12 months and that's where we'd like to keep it in the current uncertain economic environment which exists today.

Looking forward, full year Marketing adjusted EBIT is tracking towards the middle of our range $2.2 billion to $3.2 billion. We should be within halfway of that range and that's the guidance, which we believe we'll get. That's excluding the $350 million cobalt loss which we spoke about earlier.

Forecast Industrial production is weighted towards the second half of the year. And we will be increasing production in both copper, zinc, nickel, coal and oil and that should increase the production in the second half of the year. And Peter will talk about where we're sitting there on the ramp-up assets to ensure we get those larger increases during the second half. Extensive operational and cost improvement initiatives are underway and we think we're getting there in most of these assets. But once again, we'll get more detail of that later.

Safety, year-to-date, it has not been good. We've had 11 fatalities at eight incidents. That's not a good level. Most of these are at the focused difficult assets, but a lot of work has been put on that to improve it. We've restructured our HSEC and human resource teams and we're reviewing the group approach to safety. And that's another point that Peter will give further detail, how we are addressing these issues and what we're doing to ensure that we get zero fatalities at our operations around the world.

Integration of sustainability is a strategic priority of the firm. We act on this commitment through transparently reporting our performance and progress. And over the first half of 2019, we have released and published our Human Rights Report; our new Water Report; Payments to Governments in 2018 declaring all the mines' taxes we're paying to the various governments and including part of our trading activities with government organizations; Sustainability Report, Modern Slavery Statement report. So those are more detailed reports which we're releasing within the company and continue to do more of that going forward.

So with that, I think, Steve would talk about the financial performance of the company and in more detail how we performed. Thanks.

Steven Kalmin

Thanks, Ivan. Thank you all here this morning and for those that may be listening in on the call as well and through the webcast. Just on page six, a few of the headline financial relevant details as well. I'll get into more detail on some of them going forward. But unfortunately, we don't have iron ore. So hence you see this picture as opposed to some of our -- some other industrial mining companies that will be showing year-on-year improvements as we go through.

I'll show the various variances down the track. As Ivan said, $5.6 billion, 5.9 billion reflecting the $350 million cobalt, down 28%. The commodity -- lower prices for our basket of commodities was the main drag during this particular period, particularly coal and cobalt. And, obviously, we've made some moves in terms of cobalt with the announcement of Mutanda. Also, I'm sure there'll be questions on that later on and Peter will talk about that and try to address the lower price environment and the over supplies we've seen in that particular market.

Marketing, Ivan has spoken about that as well. I think a pretty solid performance outside of cobalt which has been well flagged during the last six to nine months as well.

I'll talk about that on the Marketing side. I think the middle right-hand side is quite relevant. I put that out something you may not normally see, cash generated before working capital changes as a more -- as a better cleaner proxy for the cash flow generation this particular year -- or this particular period which irons out the noncash elements of the cobalt and the likes. So, you can see that only down 21% compared to maybe 30% down in EBITDA. And it also normalizes or avoids the mismatch in our tax payments in this particular period during H1 2019 which would affect the funds from operation number of 3.54.

We did have some catch-up taxes that we had to pay in respect to 2018 earnings, particularly Australia, a little bit in DRC as well. You'll see that on Page 13 of our financial statement where we had a tax liability $1.1 billion at the end of last year it's down to about $500 million.

So, the overall funds from operation reflecting both interest and tax should normalize going forward as that lag effect of tax now works its way through the system. But the $5.4 billion despite all those commodity prices and despite everything that we've come through and some volume weighted more to the H2 at 20-odd percent reduction in that has driven a pretty good cash flow generation performance. And we'll look at the net debt movement as we work our way through the system as well.

CapEx there's a slide on that later on, but that's tracking well within our annual guidance of around $5 billion. We're $2.2 billion at the half year. Net debt, as Ivan said, obviously, impacted by $1.1 billion of the lease standard. That's a standard that's been brewing for a while around effectively converting all lease top obligations.

Including for us it's not just about a set within the industrial and maybe a handful of trucks and a few other piece of infrastructure that may have been the source affecting some of our chartering commitment, shipping leases, and these things which may present themselves.

So, $1.5 million -- I mean $1.1 billion for a business of our scale and diversity is a relatively small number. I would have thought against what people may have thought when it presented itself there and $4.7 billion of distributions this year and continuation of the base distribution plus the buyback of $2 billion.

So, where did things present themselves within both the Industrial and then we'll get to the Marketing component. This is the largest component. We're just a warmup for the keynote speaker later on. Peter Freyberg will be talking later on through the business. A big part of Glencore's overall portfolio clearly resides within his mandate and he will go into and stress the work that's happening and obviously, confidence in the pathway towards going from negative cash flow around Copper Africa and Koniambo towards a quite material positive cash flow in that during the next 24 months.

But the base business outside of that I think if we look at some of the numbers on the extreme right in terms of EBITDA margins there, they've held in very strong cash flow margins, reflecting the competitive cost bases that we have within those particular businesses.

So, copper ex-Africa 40% -- 52% margin unchanged from where it was previous year, obviously, dragged down overall with Copper Africa itself. Zinc held in pretty flat as well including by-products that we have within that business. Nickel as well that will -- is somewhat volume-weighted. We'll see a big tick-up in the nickel business as we go the full year, so those EBITDA margins will be expected to increase. And coal has held in at about 40% as well.

So, of course, commodity prices, I'll show the bridge on the next page has been the major variance period-on-period, maintained strong cost performance in margins within our base business. And clearly Copper Africa, it's not just about prices, it's also cost -- huge cost pressures that we've faced, particularly, in this particular period. Some should be temporary around regional pricing structures around reagents, consumables, asset price, and the like. So, I'll talk about that later on as well.

That also reflects the current margin pressures and sort of economic situation at Mutanda. It's not just about pricing and tax and the like, it's also asset prices and consumables in the region as well. And coal we've been able to hold pretty flat for the year at around $2.1 billion, a little bit lower on pricing, but offset by additional volume contributions from some of the acquisitions we've done in the last couple of years.

If we do look at that -- just the industrial bridge, the biggest bar by far will be the price at $2.2 billion. Half-and-half we've shown some of the price reductions, obviously, cobalt at nearly 60% period-on-period. Zinc's out there as well. Coal and its various guises mostly thermal coal cross both the Atlantic as well as the Pacific. What's missing as well is lead was also down 20% affecting the zinc business quite a lot of production in lead as well and increasing our position there.

What made up that $2.2 billion? About $0.5 billion was coal on the pricing impact, $1.8 billion was then metals, and of that Copper Africa itself was $0.8 billion of which 0.6 -- $600 million was cobalt, so by far the largest impact there. Zinc, lead was about $0.4 billion, most of that -- half of that in Australia. Nickel $0.2 billion including some cobalt. And other was the rest of copper and some chrome as well. Hopefully, some of those commodities will see some improvements going forward.

Cost was largely nothing period-on-period. Obviously, some ups and downs, but largely offset each other. FX provided some relief and Australia, South Africa, and Canada are some of the bigger examples of that. That is providing additional tailwind as we speak at the moment and I'll go through a bit of a mark-to-market at the end.

We capped the books off at the end of July for about $12.8 billion current spot. If we mark today it's not very different from that. There's been some metal price reductions, but equally today, you got the rand close to 15. Big benefits to our chrome and the coal business is down there. You got the Aussie dollar dip below 67 also overnight. So -- and then the oil prices which is a big consumer in diesel going into our various businesses.

And we've segregated for you just the cost volume impact of Copper Africa and Koniambo. That's not the price impact which was a negative $400 million. A lot of factors are feeding into that and Peter can cover those in more detail later on. But we've almost -- on Katanga which feeds in there we've had almost no cobalt sales. We're still working through the uranium issue. We are producing but we're not selling the cobalt will eventually be sold. That will manifest itself within that particular variance.

The reagent costs through asset line and the likes and I'll talk with how extreme some of those movements have been. Extra maintenance also carried out at Mopani, particularly through the smelter. The first period of the DRC mining tax is also having come through. It effectively was effective around 1st of July, 30 June last year. So, we didn't have any of that in the first half of 2018. All that's come through the first half of 2019, so a big increase there. And, of course, at Mutanda, we've had some lower copper volumes come through.

So, how does that look in a slightly different way of industrial contribution, cost developments, and volume developments? We provided on Page 42, later on you'll some of the detailed bridges between some of our guidance expected contribution in EBITDA for the first half compared to actual. And I would say we were across broadly in line on zinc, nickel, a little bit behind on mostly on cost due to by-product credits coal. We would have been a beat on some costs to do with currency as much as anything else. Copper would have been a miss around costs in particular where Africa in particular has been a large drag, as you can see through the bottom right. Hopefully that drag has peaked around the sort of maximum cash flow consumption within those businesses.

And we'll look to restore those two increasingly to breakeven through paying for themselves and ultimately being a significant cash generator as we go through. So in the $1.3 billion copper, $1.6 billion was ex-Africa, $0.3 billion negative on Africa. And the unit costs, whether you look unit cost ex-Africa or including Africa, the low cobalt prices was clearly a major effect.

To give you some sense of cost pressure within that business which would have affected both Mutanda and Katanga; asset prices for the -- were up 31% period-on-period and we consumed a lot there and that was one of the catalysts for obviously building our own asset plant there which we should have up and running through the first half of next year.

Once we've got the asset plant up and running, the pricing will be a -- it will drop to 1/3 of current prices. That's the sensitivity that we have. So there's a 35% increase in asset prices. Line prices are up 75%. These are some key price consumables within those particular business.

And also through the genesis of the power upgrades of the Inga and the transmission lines, you still got a period where we're having to do -- have a mix of some imported power into our business as well which is twice as expensive. We should be within the next few months, we should be able to function within DRC 100% on domestic power situation.

So you could double power price on about 1/3 of our power to be imported at Katanga during the period as well. Within zinc as well, you'll see partial timing differences during the periods on some buildup in inventories. We had 59,000 tonnes lower sales against production within the zinc business as well which we should catch up some of that as we go through.

Within the marketing, Ivan obviously touched on this, very strong performance on the energy side. Oil was the standout over there during the first six months a very strong performance year-on-year.

Coal actually weaker year-on-year somewhat offset by particularly a weak Atlantic Basin around competition with gas carbon tax and the like which we can both demand in the general structure of that particular market. All these things should turn around obviously at some point.

2018 I would categorize as a very -- as quite a tough benchmark of relatively high watermark both within the metals and in aggregate at $1.5 billion. Annualize that you're very much at the top end of our range as well. And even last year as much as we have $1.5 billion at the beginning of the year, we closed more around $2.5 billion.

So I think for a full year tracking against last year and tracking comfortably within our range as well. What's somewhat lost in all this which is just worth giving a little insight into that other color at the bottom is our Agri business which really is a share of net income now which was peanuts for the year around $20 million. $20 million that is the share of net income after interest, after taxes after some big amortizations on some revaluations of that business was done based on sales.

The underlying business was actually at EBITDA level was up 6% period-on-period. So quite a strong performance at the Glencore Agri business. Meeting budget within that business which is pleasing after quite a tough 18-month-or-so period within that business and that does herald the prospects of starting -- we haven't paid dividends out of that business since we set up the Glencore Agri JV a couple of years ago.

The prospects of dividends coming through into the future, and obviously increasingly material nature has improved and we should start being able to access that subject to whatever their own development and growth objectives may be. And that's something I'm sure none of you have got it in any of your models.

Necessarily as we go through that would feed itself through into cash flow FFO and the likes as we work through. So don't forget about Glencore Agri. It's still bubbling in the background. It's actually performed quite well during the first six months of this year.

CapEx very little to say on this other than as you were. Full year guidance still unchanged at the $5 billion and the $4.8 billion or so average over the next three years. Bottom left these are some of the projects being worked on in the respective businesses. In six months' time we'll come back and just update on what the production profile then looks like over next two to three years as well.

So tracking obviously just $2.3 billion, if currencies stay where they are, as I said that provides a bit of a tailwind, not just at the OpEx line but also at CapEx because a lot of CapEx today is really capitalized OpEx around anything you spend money that has an enduring benefit beyond 12 months.

A lot of underground development across the business all the stripping and the overburden removal just gets capitalized as part of these numbers as well. A lot of that spend is in Aussie dollars, it's in pesos, it's in Peruvian, it's in Rand, it's in these currencies.

So we haven't reflected that yet in a real mark-to-market, if you sort of say we're going to show later on, on the $12.8 billion mark-to-market maybe we're $12.6 billion, $12.5 billion at the moment CapEx as well. Taxes and interest would be lower. It doesn't change the net cash flow lower.

Balance sheet a few numbers over there. So, $16.3 billion net debt around the top end of our range as well influenced quite a bit by the new leasing standard $1.1 billion. Page nine of the financials provides the full bridge between the periods from the cash flow generation, the CapEx, working capital, buybacks and some noncash movements leasing effectively noncash.

And the assumption of some debt in a couple of the acquisitions we did as well the Astron refinery down in Cape Town took on about $200 million or $300 million of debt as well.

As Ivan mentioned we are -- our long-term range is still the maximum 2 times through the cycle within the $10 billion to $16 billion. We'd committed -- or noted about six months ago to try and hover or be closer to the 1 times. That still remains the near-term objective looking to get there in the next 6 to 12 months. It's not an absolute die-in-a-ditch target. We just like the 1.24 to be heading south as opposed to north as we manage the business going forward as well.

Liquidity is very strong freshened up all facilities, so good position there. Capital allocation slide is unchanged. Just a few points to note there would be the non-core target at asset disposals, still remains something we are working on, progressing the range of options with a goal to deliver as I said still at least $1 billion of long-term asset monetizations within the next 6 to 12 months.

Just post June, we've done a couple hundred, 150 to 200 of smaller things that if aggregated many things. Maybe even there was a close of a small Brazilian ore mine, Ferrous Resources which Vale had bought. We had 3.5%, 4% of that. That generated $30 million, $40 million the other day.

There are some vessels some shipping that we've accumulated over the years. We're monetizing some of those. There's potentially a couple hundred million there. We're halfway through that process as well. Some U.S. infrastructure, still on the West Coast but U.S. is something that we're looking to progress.

We're looking at potentially getting out of the upstream business in Chad. There was some noise on that, so process on the go there. And just long-term loan monetizations is also something I would put into that. We have some longer prepayment structures to -- that had been at levels higher than we think that they make sense to be in the long-term fashion.

I think there's going to be some reductions there all of which could look to meet the $1 billion target and reduce debt accordingly.

So, if we'd now get into the building blocks for a spot for a 2019-type number we're on page 15. Let's get quickly to page 16. I think it's quite important on the -- which is the volume and some of the weighting from H1 towards H2. So we've shown actual production guidance 2019 for our expected commodities. We're going to see a pickup in copper ex Africa 75,000 tonnes. So we were five -- 475,000 first half you can see, so that means mathematically 550,000 in the second half. Where is that coming from?

Collahuasi will bring in another 20,000 extra tonnes period-on-period. Combination of grades and timing of maintenance and the likes in North Queensland, which is where we had severe flooding impacts across our Mount Isa operations. We're effectively at six to eight weeks with no -- of no product moving towards the refinery. That can pick up 30,000 tonnes and then some other bits and pieces.

Zinc, you've got quite a big increase H2 and H1 as well. To meet the 11,95,000 you're going to have to do 659,000 an extra 100,000 or so because zinc will bring about 20,000. Again that has to do with timing of treatment of third-party material and some safety stoppages that we alluded to Isa again, which is Lady Loretta as well as George Fisher will bring another 30,000 some of which is just ramp-up of Lady Loretta. It's also to do with the North Queensland flooding and the entire system being down. And McArthur River as well generally due to seasonality and weather tends to have a better second half as well over the first half.

Nickel will also pick up a lot 73,000 H2 over 55,000. Hopefully, delivering those tonnes in a better nickel price environment, which is one thing that has responded quite well. It's not just Koniambo as Peter would talk to later on, that's less than half of that, but you've gone iron ore Canada again maintenance shuts and barring itself through a maintenance shut that was shut through most of April will bring another 4,000 or so. So nickel is the biggest at least in percentage terms. And in absolute terms, it's looking to go from $100 million or so in the first half towards $700 million or $800 million EBITDA contribution.

Coal will bring an extra 9 million tonnes second half. Colombia, Australia and South Africa all contributing, but some of it M&A some of it timing. And then oil is quite a big step-up due to Chad results of drilling program that we have down there. So all of that does explain quite a bit as we go back to page 15 where are we in a full year sense. Maybe right to left, coal $3.9 billion full year. That's a slightly lower second half, reflecting macros coal prices and the likes.

So $2.1 billion first half, but we've been getting better volume. It does reflect a lot of fixed pricing that we already have within that business. And some updates whether it was yesterday or last week, but we did this as of last week the coal team is pretty confident that that's still in where they project that business roughly to finish for the full year as well on the coal side.

Nickel is the big jump as I said, $0.7 billion, up from $100 million, which is really a function of volume coming through in Canada and Australia, and Koniambo being less bad, hopefully in the second half than it was in the first half as well and higher nickel prices all of which is -- in fact even nickel pricing mark-to-market that today can add another $100 million potentially onto that as well.

Zinc will be pretty much as it was $1.9 billion for the full year $0.9 billion plus $1 billion. Higher volumes coming out of zinc. Macros have taken that down, clearly a bit, but also we produced a lot of gold and silver within that business, which has increased 10% to 15% or so. Don't forget some of the precious by-products that we have as well coming through.

And copper is -- goes from $1.3 billion to $3.1 billion, so $1.8 billion. Africa is broadly the same $0.3 billion, another $0.2 billion. Maybe in the second half, there'll be a step-up from the rest and that's to do with North Queensland and Collahuasi. And cost generally still looking good in the rest of the business as well.

So putting all that together in a -- what is the cash flow generation, what might be the prospects and the equitizing and the debt movement and the shape of everything going forward, adding all that together, Marketing at the midpoint of the range, you got $12.8 billion EBITDA into the spot, so slight recovery from the $6 billion or so pre cobalt this year.

CapEx still at $5.1 billion. Maybe there's some -- there's a bit of buffer in there. We'll see how we go on the CapEx. And that's cash tax and interest on a more normalized basis as well as we seek. So $4.8 billion of cash flow. We've given all the building blocks to that. I think the big bold thing and that's a good segue eventually into Peter's presentations will be the free cash flow temporary -- temporarily impacted in that $4.8 billion to do with African copper, which itself Mopani, Katanga is running negative around $1.2 billion in this particular year.

So you got about $0.5 billion negative EBITDA and about $0.7 billion of CapEx as part of our $5 billion. So you got $1.2 billion negative. And with steady-state production and plans accordingly, we should get to comfortably more than $1 billion of positive free cash flow and at around $1.6 billion of EBITDA. Those two businesses two years down the track are not particularly heroic assumptions. We've used $6,500 forward copper and $15 a pound realized copper -- realized copper to -- realized cobalt to derive.

So there's a $2.25 billion cash flow turnaround story, which is clearly, the first thing is just to stop the red, which will add $1 billion or so and then to deliver the positive cash flow. And that's the big potential as we have going forward there. And to give some bit more in-depth analysis behind that and hopefully the confidence that the plans can get there, I can hand over to Peter at this stage. So thank you, Peter.

Peter Freyberg

Thank you, Steve. Thanks very much, and good morning to everybody. So I'd just like to introduce myself. It's my first time in this forum with Ivan and Steve. Peter Freyberg, here, who heads up the Industrial Assets within Glencore. I think you're all very familiar with the commodities that we manage and my role is to manage the industrial assets that fall under those.

The overarching strategy for the way that we run the business really remains the same in the sense that each commodity department working together with their marketing and trading leads establishes strategies for those businesses that are appropriate for the markets that they operate in, whether it's in terms of volumes or the types of products that they produce. And my role within that is to make sure that within the Industrial side we have the right structures and strategies to deliver what we need to deliver.

Also looking across the business making sure that we have the right capabilities and skills and systems to make sure that we deliver what we say, we're going to deliver in a reliable fashion. The intention certainly isn't with establishing this new role to build a large overhead in the business. The intention is to make sure that each of these commodity departments can do what they're designed to do and deliver what they have to.

At this stage, I have a very small team working with me, principally today on HSEC. We've also got some people working on operational excellence, projects and systems development, most of which at this time have actually been parachuted into assets where we need them. So it is rather a small team and the intention is to keep it that way for now. Part of what you see there as well is the fact that we do have technology groups.

So Glencore Technology working underneath the copper department and Expert Process Solutions XPS working under the nickel department and all of them fall underneath those specific commodities. They work across the business in terms of support. And this year in particular, they've been of great value in terms of the way that, I've used them in areas where we've needed them.

So just talking about that and just quickly looking at what is happening in technology. There tends to be a focus on some of the challenged assets that we have and we are going to spend most of this morning talking about the challenges and how we're addressing those. But Glencore does have the technology capability in minerals and metals processing and we've been doing it for a long time. And it's quite interesting to actually see that 22 of the 26 ICMM members actually are using our technologies that we've developed whether it's IsaMill or IsaSmelt or processes that are developed by XPS.

We are seeing – and the philosophy and approach going forward will always be the right technology applied in the right applications for the right purpose. And we do make sure that the underlying fundamentals of the business are right to support the technology applications that we do. We're seeing some of these processes rolled out to businesses today. And I was at one of the assets in Kazzinc where we've seen some of the work on atmospheric leaching with some of the more complex lead-zinc clause there. And certainly in terms of support we've seen a lot of work in the challenged assets.

I spent most of the last seven months actually traveling around and trying to keep the ties and meet the team. The fact is that there are over 150 assets across Glencore. We are a highly diversified business both in terms of commodities and geography. That presents some tremendous opportunities for us and is a big part of the value component of the business. I have managed to cover I think most of the South American copper and zinc assets. Not that long ago, I was up at the nickel assets late last year having a look at what's happening in Canada. I have sampled the alloys assets in South Africa looking both at Vondako smelter and sort of the radium works that we're doing there.

And I've obviously spent a bit of time at Koniambo and Kazzinc. But also in that time I've probably spent – I probably had about five or six visits to both the Congo and Zambia, which is areas that we have a lot of work going on at the moment as Steve and Ivan alluded to. What I have seen across the business is some excellence in terms of some of the assets in the way that they operate.

We've got some world-class mining practices and safety practices and some of the best processing operations that you get anywhere. We have a very dedicated team across the business a lot of driven people as well. But where we do have some anomaly areas that do need addressing and perhaps one of the things that I have seen is that there remains a strong correlation between safety, performance and operating excellence.

So generally, where we have safety issues, we probably have operating issues as well and that's certainly been the case in Africa. The focused assets at the moment what I'd like to talk about today is what's happening in Copper Africa and also the work that we're doing around Koniambo to improve performance there.

Just starting off in Africa, Mopani we had an absolutely horrible start to the year. And in the first few months we actually had six fatalities at the Mopani operation occurred in three incidences and resulting in us actually suspending the operations and bringing in a team a very large team to try and help us understand what had gone wrong there. The fact is that Mopani two years ago had operated fairly well and improved its safety very markedly, but in the recent history has lost control of that.

We have a got a team. We've made tremendous progress, and I'll talk you through that a bit later. But it wasn't just the underground and the safety. We also had a shutdown of the smelter. As you're aware in June we shut the smelter down and we brought forward a retrofitting of that smelter that was actually scheduled for next year. So, the second half of this year essentially there's no metal production at Mopani. And we're looking to start it up and ramp it up towards the end of the year.

What I can tell you is that we have made progress with the safety. We do understand how we want to operate the mine. We've got the right people doing the work right now. And we have a plan and we will be able to take that forward and get to the production levels we've invested for and what it's supposed to do.

Katanga, excuse me - last year, Katanga was in ramp-up mode. It produced 150,000 tonnes of copper and we had indicated to the market earlier this year that we were targeting around 285000 tonnes. But as we ramped up we've identified some bottlenecks some maintenance backlogs and we've readjusted that plan to the point we're now expecting to get around 235000 tonnes this year.

Obviously, there are issues and there have been challenges with the cobalt qualities and the cobalt production. As early as February this year we'd already identified solutions that didn't require the IX plant. So we started producing on-spec cobalt at perhaps a lot of quantity than we would like. But we are progressing those plans. And then ultimately we'll build an IX plant there to make sure that we can deliver fully. But again, this is not a particularly large operation. It's certainly being ramped up and has all of the normal ramp-up issues you would expect. But the plans we have in place and the team we have in place will enable us to get it to the 300,000 tonnes per annum, copper 30000 tonnes, cobalt at a sub-$1 with by-product credits cost of copper.

Then talking briefly about Mutanda that you will see in the announcement this morning. I'll just take you through some of the issues there and how we see its future playing out. But we are transitioning that to a care and maintenance phase later this year, and it will be shut before the end of – or at the end of the year.

And then on Koniambo, we had a tough – a very, very tough a very difficult first half. We produced under 11,000 tonnes of metal and we're certainly targeting significantly more than that. So we fell short by 8000 to 9000 tonnes of what I would have liked to have seen come out of that operation. But there are some things that we understand in terms of the fact that we ended up taking both furnaces down during that first half.

We continue to have some power problems, but we are working through these. And we've got three initiatives running there at the moment that again make me reasonably confident that we can get that moving forward, and that we can have a business there that delivers reliably what we invested for and what we designed it to do.

Looking at -- focusing in now at Katanga and Mopani. Steve would have taken you through the numbers of where we are and where we possibly could be. Certainly, the first half this year was only 109,000 tonnes of copper and 6,000 tonnes of cobalt at Katanga. You end up with very high unit costs driven by two things obviously: one is the denominator in determining that, but also very high input costs.

And when you have these huge asset prices that we've seen and these increases in the asset prices and we're importing asset, as we indicated their supply will only be brought next year. We're talking literally hundreds of thousands of dollars a day that we're paying for the asset that we could be saving once we run that ourselves.

The 109,000 tonnes, we're targeting 235,000 tonnes. The chief bottleneck that we found this year was around the Electrowinning plant. It's a very straightforward maintenance catch-up that we have to do there. So, for us to start doing about 260,000 next year going up to 290,000 the year after that we don't see major bottlenecks between us between now and then in terms of how we deliver that.

I will take you through some of the work that we're doing across the different parts of the operation, but we are -- we do see 300,000 tonnes being quite achievable 30,000 tonnes of cobalt as a long-term steady life of mine. In fact in the short-term, we may see that tonnage because of the grades in the areas that we're mining.

There are certain costs out that are required and you will have seen that in the notes to this page to get to the $1.65 a pound. We've been through very detailed processes to understand our business and we have already identified very significant costs out that we can take through a diagnostic phase.

Mopani. Mopani is -- the numbers in the first half are just -- the unit cost is where it is simply because there are tonnes there. And certainly for the year, it looks worse as we won't be producing in the second half and we're carrying all of those costs. But it is -- we're in a phase where we are rebuilding the smelter and we have the right work happening on the mine and we are positioning for a restart next year.

There will be a small shutdown in the smelter next year to do some work that we couldn't bring forward to this year, but the smelter will be operating from the start of next year. We should be able -- over a steady life of mine and you can see that we've got two different levels from Mopani there.

We believe that 140,000 tonnes is a doable proposition. We have the hoisting capacity. We are building a new concentrator. The smelter is obviously -- can easily accommodate that, and we continue to smelt other people's concentrates as well.

So 140,000 plus some additional tonnes if we optimize the underground the way that we would like to and that brings us long-term to a positive $300 million EBITDA out of that operation at those prices that Steve was indicating the $6,500 copper.

That would put both those African assets at around $1.6 billion, and obviously would allow for some tax and capital. But as we indicated this year the cash position out of those two assets alone is in the order of minus $1.2 billion. So, well in excess of the $2 billion turnaround is what we're looking for there, which is an achievable proposition.

So just looking at Katanga, we implemented a review amongst other things when we started to see that we're struggling. But certainly part of my role and coming into this position was absolutely clear that we had some focus areas across the businesses a crystal-clear understanding that turning these two assets around, Katanga and Mopani and then on top of that making sure that Koniambo delivers, is probably the highest-value thing that we can do in Glencore right now.

But Katanga, obviously also started to show the stresses and strains of the lower cobalt prices, and wearing the increased taxation coming out of Mining Code 18. And then, with the increase in the input costs where there was lime or acid brought this business under particular pressure.

And it's -- certainly as an operator sometimes those things are good for having a good look at your -- at the operation to understand what we can do better. The thing that pleased me is that we decided to address it by utilizing in-house expertise to a large extent.

We brought in some of our mining specialists. And I think a lot of you know that certainly the business that I used to be involved in previously in Glencore, moving dirt is something that we do in very large quantities, so the coal business moves around three billion tonnes a year, and bringing the expertise to understand how we combine and sequence and plan the mining operation better.

We had people that were available. And we've done a very full and detailed diagnostic. I'll take you through some of the work that -- and some of the findings that we had and what we have to do to take the mining forward.

But it's not a particularly big mine. It's in difficult conditions in terms of the materials and the geotech and the higher rainfall levels and the groundwater that we have to deal with. But it's something that you can engineer your way through and manage your way through.

Processing relied very heavily on Glencore Technology to come, and have a look at what was happening. And we actually see ourselves improving recoveries, getting Electrowinning plants working to -- at an optimal position and getting back to the -- getting on to that 300,000 tonne per annum trend.

But for both of those activities, mining and processing asset management will be key. And again, we brought people in that we have in-house to work through that with us and establish the right asset management strategies and make sure that we're doing the maintenance so that the systems and equipment can operate reliably and deliver what we have to deliver. One of the bigger levers that we've seen there is making sure that as a business we've got the right team and organization in place and we've done a lot of work. We did get some external help with that to help us through the diagnostic and go through every single department and every single activity and every single function to see how we can address that and make it fit for purpose. And we do see material savings coming through that area.

But also we see some opportunities such as making sure that we're utilizing the national workforce to the best of capability. And we're at a stage now we're actually getting into the change management. Certainly on the organizational side, we're going through the detailed plans prior to implementation or as we start to implement.

But the target remains to consistently deliver life-of-mine annual production of that 300,000 tonnes together with 30,000 tonnes of cobalt hopefully well sub-$1 a pound. So just talking about the mining.

If we break the business down into its fundamental components, it's the mining together with some processing and some maintenance and you got to have the right team managing it. We have gone in. We have opened up the life of mine plan, looked at it in detail quite high ratios at Katanga and making sure that you get the sequences right and the pushbacks right and you move the waste material into the right areas is critical.

And we are well advanced with that work and that I think once we've got that in place that's fine. To achieve that longer-term plan we've got to get the pit working properly. And you will know that historically we've had geotechnical problems that drainage in the DRC in that type of geology is complex with a high rate of inflow.

But with proper design of the drainage system, pit bottom layout, getting the drill and blast right, setting up the truck and shovel operations properly making sure roads and ramps and these sound like pretty 101 stuff, they are making sure those things are done properly that the team understands what the expectations are is what we'll get at this.

So I'm making sure that you have a pit management team can deliver that. We are well advanced with this work. The designs are there. The understanding is there. We've changed the drill and blast totally. We've moved the diggers around from configurations where they shouldn't have been to where they should be. We've done a huge amount of work on the road. So the productivity goes up, the costs come down and the reliability is there.

On the processing side there are key areas of focus. The acid plant absolutely critical that we get that going as soon as possible. As a project, we have added additional resources to make sure that we understand all of the moving parts in that project and that we can deliver it as we're supposed to. And that now we have a good understanding of the risks and we're tracking that very, very accurately. Quarter two next year it will be in ramp-up mode, and certainly by Q3 full operation.

Restoring electrowinning the setback this year was that. As the mine was developed I think there was perhaps a lack of focus on some of the maintenance in electrowinning plant. We've taken basically parts of the electrowinning plant down, refurbishing them, getting to the right standard and operating now. And it's looking very, very good.

I was there just two weeks ago again and the work is on track. Cobalt as you know, we identified a problem late last year with uranium in the product. Our immediate response was to look at putting an IX plant, in which is ultimately the long-term solution in terms of cleaning that up. But by February we already identified that we could redo the plumbing in the process and essentially brought some additional thickeners in. We started adding phosphoric acid and we're able to drop out the uranium within that process. We are still adding some additional thickeners that we have to bring that to full capacity and that will actually see us producing proper full recovery of cobalt by the end of the year on spec.

And the IX plant will be brought into -- fully clean that out and make sure that we can do it on a 100% basis. At the moment, we tend to run on average in the low 90s being on spec. So we do have the odd parcels that still aren't quite there. So we will redesign that process at the IX plant and make sure that the product that we produce is exactly what the market wants.

In terms of the asset management, again pretty straightforward stuff. We do this exceptionally well in many parts of the business. And it's making sure that we've got the right capabilities on site and the right plans and strategies on site and that the work is followed in a manner that it needs to.

We do see in various parts of our assets where we are performing the way that we should. And that obviously adds more to the cost means that we aren't producing as reliably as we can. And we have a straightforward plan that will sort that out in the future.

We're also leaning on the OEM somewhat to make sure that they work closely with us and participate in that and ensure that we're not forgotten in the long chains that they have going into the DRC and that we have the right componentry, the right service levels from the OEMs. But there's nothing there that can't be solved on the maintenance side. So that's I believe one in the hand as well.

On the organizational side restructure and rightsizing within the business is something that we need to do. It's grown over the years. There are opportunities to address that. And we're at the next -- at the change management stage. We've done a diagnostics. We've identified what is in the universal the possible way. And we're now going through that change management process to make sure that we do the right things to the right parts of the organization to do what we have to.

There has been work done around the governance side with SAP implementation. Today we have a much better understanding of our numbers. Our procurement side has improved dramatically. We've got better control over the volumes and the cost of materials going into our business. And now that we sorted the SAP part of the reporting and the details that we can manage by assuming that means that we can be efficient managers going forward if you don't see the numbers it's very hard to navigate.

And then partnering with key stakeholders and this is fundamental. If we're going to be successful there we've got to get a few things right. Certainly at Katanga, we have a partner and working very closely with them is fundamental to making the business a success. But also we have some very significant community and other challenges. And working with the government both national and local is key to solving some of those issues.

I think everybody in the room and everybody watching this webcast is aware that we had some very tragic events on the 27th of June with illegal miners in the operation where there were two collapses and a number of people were killed. This is a problem that is across a lot of operations in the DRC. We're working very closely with the government to try and find long-term solutions towards this. But at the same time, we are making sure that we control our side that we've got perimeter controls in place that we improve the security and working with the community itself in terms of improving what the situation is there.

And long-term we will have a site where we don't get these sorts of invasions that we've been experiencing over the last 12 months. And that in itself brings a new stability to the business and allows people to concentrate on actually taking the business forward rather than dealing with some very, very difficult problems that we've had to deal with in terms of those invasions and the terrible things that can happen with them.

Just to look at some detail and we don't normally share this level of detail with everybody that's on the outside of the business. But we have put together a very comprehensive plan for Katanga at this stage. And as I said earlier on this is not a particularly large business in terms of mining at 45 million tonnes a year of waste. And we're feeding into the plant around 13 million -- 12 million tonnes putting them on stockpile.

We are mining a little bit from the underground and that will ramp-up over time. We're still thinking about how we right-size that. We want to get -- if we can make the open pit more efficient, we can get more economic push-backs and we probably won't have to chase the underground quite as hard. There are some benefits to operating the underground at the moment in terms of asset credits. But we've done the detailed planning.

We're running this option at the moment. We're very comfortable that we can get up to the 260,000 and 290,000 tonnes. The capacities are there throughout the system. We will see increasing copper grades. Interestingly enough some of the low copper grade this year is because of the artisanal mining. So we've lost copper and cobalt out of the mine because of those invasions that we've had, but there is a natural increase over the next couple of years anyway.

So those -- that gives you the detail of the plan. We talk about the long-term 30,000 tonne cobalt. As I indicated earlier on and foreshadowed was that we will actually go through that average mark in the next couple of years, but then settle long-term around 2500 – 30,000 tonnes a year or 2,500 tonnes a month, and on the copper side heading towards the 300,000 tonnes per annum.

Mopani. We talked about the six fatalities, three incidences. Very, very difficult situation. I've been to each of the sites and obviously spent a lot of time with the team looking at what we can do to turn that around. As with the other incidents across Glencore and I will be talking later on about safety in general absolutely unnecessary. None of those incidents should have happened and this is fundamental. As an operator for 40 years, it's a lost of -- I'll tell you it's a lost of control. And we can bring that back into control very quickly and sort that out.

We have implemented a program to -- or we did implement a program to identify the underlying causes and address those in an immediate fashion. We brought in the 23 persons that came from a wide range of places. And it's quite interesting when you go to Mopani. The Mopani team actually refers to their copper brothers, which, of course, came into help them. We're down to half a dozen or so people now. They continue to work there.

And it's -- the mood there is quite different. Everybody is very positive. It was quite a challenge shutting a business for six weeks in operation. But after my visits and after having had a look around the mine, we decided that was absolutely necessary that working conditions weren't something that we wanted to have or continue. And we have addressed that and we've addressed it by changing out the leadership of that business.

We've essentially taken out the top two levels and replaced them. And the level below that we have totally restructured. And we are still going through a restructuring process to make sure that on a shaft-by-shaft basis, we have the right people doing the right work. It's involved a lot of training and taking all 16,000 employees through the process to make sure that people understood what we expected and making sure that they understood that we would be working with them to get the right results.

So we're ramping up now. And although the smelter is down the mine is looking in a much better condition. We've got -- if you're going to the working places today, they're quite different to what they were what I found there four or five months ago. We've started to shut-down some of the old infrastructure.

We've in fact closed around seven shafts. There were announcement of two shafts because those are sort of the shaft complex working area central and north shaft. But we've actually closed down seven shafts including some sort of verticals, taking out a lot of underground conveying systems and simplifying the operations. The impact overall on employees is that we're reducing the number by about 2,000. But as we start to commission the new infrastructure, we expect productivities to continue to increase.

And speaking of which there's some great stuff there. I mean there's some three new shaft complexes. We've got the Synclinorium shaft, the Mufulira shaft and Mindola shaft. Synclinorium and Mufulira are hoisting and are in ramp-up mode and they're excellent installations and they are the future of that business.

There is the 2 million tonne per annum Mindola shaft that should be finished sometime next year and then we'll start ramping that up as well. So the basic infrastructure is there. We've got a concentrator that we're building that will be finished sometime first half next year. So we can then take out the old kind of concentrator. And it's the quite a different business to the one that was ore body a few years ago.

But to make it make money, we've got to mine the right stuff and we've got to do it in the right way. So there is a very detailed review of the mine plan that's on the go. It's an incredible ore body. It's very large very extensive, but what we're doing is making sure that we are mining the right ore, at the right time, in the right sequence, making sure our recovery of the ore body in those areas that we mine is maximized, eliminating the dilution that we're getting, reducing development ratios.

Again very much 101 stuff, but it takes perhaps a fresh set of eyes and the right tools to look at it to get us to where we need to go. It's quite a detailed piece of work that we're undertaking and the immediate short-term gain, we'll hopefully see in 6 to 12 months as we start to mine sort of bit smart in terms of how we tackle the ore body, but actually having embedded optimized life-of-mine plan probably take a bit longer run 24 months.

Within that we will see our head grades improve. We are hoisting off and putting into the plant well below 2% and the ore body can do a lot better than that with improved mining methods and selectivity and sequencing. So a lot of the kick we should be getting out of improved head grade at Mopani.

In terms of the plant, the acid plant and the smelter started giving us problems late in 2018. And certainly the beginning of this year, we were having a lot of outages, some driven through the acid plant, but we certainly saw it manifesting as accelerated brick wear. In the IsaSmelt we are also having problems in the Ausmelt settling furnace as well.

And so we've had to shut those down and had accelerated the re-bricking work. But what we have done is, we brought in capability out of our North American smelting business together with guys out of Glencore Technology to work with Mopani.

And we now have a very detailed project to take that forward get it rebuilt but beyond that to work with the team when we recommission to make sure that we're operating in a optimal manner that we get maximum campaign life out of each of the re-bricks and that the acid plant does what it's supposed to do.

There will be a small shutdown as I mentioned earlier on in the second half of next year and that's just focused on some of the work that we've been unable to bring forward with this unplanned shutdown that we're currently experiencing.

But in summary, for Mopani the right mine plan on the ground; the right management process and system; the right leadership and running the smelter property feeding it with concentrate from our new concentrator. There's no reason why we shouldn't get to that $300 million EBITDA over a year at all. No reason whatsoever.

Mutanda, you've really hurt by this phasing as I am that we're coming to the end of the oxide ores. There is some left with higher ratios, but it's not economic at the moment with cobalt prices and copper prices where they are and with asset and input prices where they are at the moment.

So this is the right thing to transition this into a care and maintenance phase, but we are working hard on the sulphide plant. The study shows that there's tremendous potential there. There's in the order of 100 million tonnes of open-pittable sulphide reserves with decent copper grades 1.7 high cobalt grades over 0.5% of cobalt.

So we do see that as a strong option for the future. That doesn't mean that we start looking around to see whether there are oxide ores within the area that we can develop and in some of leases that we have as a potential alternative path or second path to continuing to have value out of Mutanda business.

But right now with prices where they are and having a cobalt market that is clearly oversupplied this is the right thing to do. We've got to this stage after discussions with the government. There are obviously discussions with the site. We're going to continue to employ the national force, as the national employees in the operation as we go through the care and maintenance phase.

We will continue to run the asset plant because there is a market for that asset and we will use the opportunity to up-skill that workforce to make sure that when we do restart we can do it -- maximize the number of national employees.

On Koniambo, I said to everyone that we've had a very disappointing first half and certainly was challenging for the team. We lost a lot of tonnes a lot of metal through the same causes and the same issues that have been challenging us in the past. So one of our larger losses probably around 3,500 tonnes of metal was lost as a result because of issues we had in the power plants.

But we've made real progress there where we had previously cracking boilers where we didn't have proper ash handling capability within those boilers, where we've had expansion issues around expansion joints we've done a lot of work there and a lot of repairs and we've got those boilers to a condition where they are significantly more reliable than they have been in the past.

And we're now in a run in the second half where they are operating and they -- one of them has been operating very, very consistently enough for a couple of months. The other one we just ramped up as we've taken a furnace out of shutdown. And again all the indications are that we can have steady-state boiler -- power plant operations there.

We've continued to have some losses through shutdowns within the plant itself and they come in different areas. We've had the gamma radiation in the -- reduction zone of the plant. We've had feed problems. We've had some problems around the hammer mill flash dryers, but the team is very focused on engineering these out.

So as we come across them we identify solutions and we make sure that we as much as we can that we don't get a repeat of those. And we probably lost easily 3,000 tonnes of metal in the first half against those sort of issues, which we hopefully will see occurring on a less frequent basis. But in terms of how we manage it, we have put three initiatives in place.

The first one is a new level of technical oversight, over Koniambo. And we've put in what we call a ramp-up control group. This is based on successful projects we've had elsewhere across Glencore where we have a complex project islet, because it's a very large cobalt project or it has large technical complexity and we bring in set of experts, some internal, and if necessary some from the external world to work together with the team.

So they -- other than the fact that they really do live in an island they don't operate on an island. And they have a bridge to people that can assist them and help them prioritize the work that they are doing. And this is already showing I think benefits in identifying some of the things that we need to do to take that business forward.

But some of the issues, we've had are probably self-inflicted, so we've undertaken the study on the maintenance side. And we've identified opportunities for improving the maintenance, so that we plan the maintenance better. When we do it we execute it better. And that's -- it is -- that the outcomes we have from the maintenance is what we're looking for rather than that we have strike down shortly thereafter or repeat repairs and those sort of things.

And then we've also brought in some people, some resources to help us look through the costs because as much as we're going to ramp up, the denominator and get the tonnes up if we can take costs out of the numerator that will help us get to the sub $5 a pound that we need. So those initiatives are being progressed.

Steve did talk about a better second half. We don't have any major shutdowns planned in the second half, and it is now about reliable operations. And I think we're reasonably well positioned for it. This very complex piece of infrastructure will continues to give us some challenges, but I think we've got the right processes in place now to manage it better more on the planning more on the predictability of what can come up next, better quality repairs when we have to do them and I think the power plants are in a lot better place than they were 12 months ago or even 24 months ago, the coal-powered thermal generators, and we should be able to get that right.

Safety and I'm going to end on this before we go to Q&A. We had 11 fatalities. Copper, we had the Mopani six fatalities that I talked about. We had one in the DRC. We had three across zinc and one in alloy, which was a fall of ground. What we've done is -- and how we're addressing it is not overly complex, but it's essential in terms of the work and how we go forward.

The first thing we did is we looked at the corporate structure and the work that was done corporate in terms of how they provide leadership, how they provide direction, how they provide advice, how they provide assurance. And we have restructured and rejigged that team and we are still bringing in some additional resources, but it is a different style and different approach to what we've had with increasing rate of fatalities. Unless we do something different, we're not going to change the result.

We've developed a very detailed plan -- strategy and plan for the business that addresses key areas that and gaps that we've had and that we've identified and we are in the process now of cascading that plan through all of the departments and down to each and every one of the assets.

Within that plan, we've also identified the essentials of having site outcomes. And as Ivan indicated these are areas where we're getting these terrible, terrible results. We have many areas where we're getting great results. And leveraging of those areas and identifying what they do well and what works well and what really positions the business for long-term zero fatality outcomes is what we've made that element list off all that strategy and plan off.

But having a strategy and plan and understanding the key elements is just a first step. If you look there you can see that the two areas that stand out obviously are copper and zinc where we have a lot of work to do. And even within that it's not just one site. We obviously had issues at DRC. And if we look back just beyond the first six months of this year last year as well certainly it was copper and zinc.

So there's a full recognition that the structures and the staffing and the skills and the capabilities in those departments relating to the HSEC site has to change, and we are in the process of working through that with those departments putting the right people in putting the right systems in and making sure that the right work is done in the right places to deliver the safe outcomes that we need.

Within that, we have to address the accountability model as well. And for the right accountability model we do need some process that governs those operations and it's making sure that those strategies plans and elements that we talk about has been key for that safe outcome are in place and people are held accountable for keeping them in place and making sure they are there.

We are also doing some work around insurance process. We have very structured insurance process within HSEC area. The expectation is that mature assets can manage that themselves and there is a verification and other site process to make sure that it's okay. But the less mature assets, the focus assets we are injecting an additional level of assurance that is tuned to helping us understand what works what doesn't work and whether the controls we put in place and whether management is being as effective as they should be to deliver what we need to deliver. We will get there. Thank you.

Ivan Glasenberg

Okay. Thanks Peter. Just to give the outlook and a bit of summary where Peter took us and what we've done and see results, but looking at the short the fundamentals and the short-term fundamentals going forward in the commodity prices. The short-term fundamentals as I said earlier still remain positive, supportive if you look at the inventories of our major commodities, which we produce mainly the stocks are at extremely low levels. So if you take LME, you take SHFE, you take bonded warehouses, et cetera, of LME material, you've got copper at 13 days' supply, you've got nickel at 25 days' supply, and you've got zinc at six days' consumption. These are really low levels that we've seen over the years. So, demand growth remains positive in most of these commodities.

And as we've all seen mine supply even acids, Peter just gone through we've got our ramp-up acids, our competitors all have similar problems with ramp-up acids. You've seen what's happened in a lot of these new mines. So, they're all underperforming. So, even if you look at the size, the inventories are at extremely low levels, the other part is if you look at the deficit, if you look at -- take copper, for example, if you take new supply that's coming in the market this year and next year, you take the tonnes that are coming out of the market or they came out of the market this year, you've got deficits in most of these commodities in both copper, nickel, zinc in 2019.

Going forward in some of the commodity, zinc even next year, there's a deficit. Copper not a big deficit, but may see -- that's just actual production tonnages, but if you've got increase in demand 2%, 3%, it will be hard to meet those tonnages.

Demand for high-premium energy coal, the better-quality coals which we produce, remain strong even though in Europe and Atlantic Basin, it's not that strong which we had with the low gas prices which affected the price of coal in Europe. But in Asia, Southeast Asia, demand continues to increase. There's still new power stations being built in various countries in Asia and demand for the product increases.

Supply in some of those countries if you talk Coal India, you talk China; it's not meeting what they anticipated. And therefore they are starting to import a bit more, so it looks like the import of coal into that part of the world will continue growing.

The long-term outlook where we'll see the outlook and where it looks good for our commodities, we'll talk about electrification of mobility. And if you look at the demand for electric vehicles that people are talking to be on the road by 2040, if you took -- up to 620 million vehicles on the road, the demand of the commodities which we produce to produce the batteries which are required in those vehicles, the charging points is required for copper, it bodes well for both copper and nickel and cobalt which we have.

And as I said I spoke about thermal coal. We still believe it's important for baseload. And with the demand growth in Asia, we believe with the better-quality coals which we have the outlook still remains pretty good for coal.

Looking at urbanization where demand growth for most of the commodities both for early-cycle, late-cycle commodities, you have urbanization and the rising living standards 2.4 billion people increasing in the world and the population about 2050, the demand for commodities will continue and even for coal with the demand for electricity coal still being baseload, cheaper electricity production it's still going to be required in those countries.

So, it's clear and we can see with the commodities what is -- and therefore with demand growing and whatever percent we need to grow, whatever percent grows, we believe will continue in China, putting new supply in the market is getting more difficult.

Social license to operate you can see is extremely difficult. We're going to more difficult regions to produce these commodities. And it's clear with these commodities it's volume. Volume reflects the pricing. You've seen when we had the disruption in iron ore.

Look what happened to the price of iron ore with the disruption when we took some zinc out of the market. And if you're not putting new supply in the market with new mines, which as I said is difficult, within existing mines reducing tonnes, et cetera, it has a major effect on pricing.

But that's what I'm trying to point out here; it's getting more and more difficult to put new mines into production. You're getting into more difficult regions so it's getting more difficult to add tonnes into the market. And if demand keeps growing it should bode well for the price of the commodities going forward. So I don't want to talk much on this.

Just giving up summary really most of this stuff. We've got a compelling mix of assets. I believe commodity mix. We've got the right commodities in this mobility transition to battery vehicles, electric vehicles. We're leading supplier of high-energy coal. Our business is well-positioned as you heard from Steve and Peter talking you through the operations.

If you look at our operations our cost of production and our forecast for the full year is extremely low copper at $0.80 zinc at $0.10 nickel at 2.88. We swing into better production in the second half of the year. Marketing tracking well towards the -- between midrange of the 2.2 to 3.2 -- ramping up our developing assets.

I think Peter gave a pretty good outlook how he's going to get this right the work that's been done. And we feel very comfortable and he's made us all feel comfortable what we're going to do at Mopani, what we're going to do at Katanga and Koniambo ramping up nicely.

So I think we will get those last three ramp-up assets which we got in our get portfolio performing well. And we also shouldn't lose sight. If we look at it our existing assets the size of the three ramp-up assets which we focus on where we've missed production targets et cetera, our existing assets are all performing extremely well. If you look at our copper throughout the book performing well. If you look at our coal around the world performing well, zinc performing well, doing very well in Australia.

So non-ramp-up assets are performing well and we are doing well in that area. And I believe in a short space of time Peter has given you the outlook where the volumes will be when the ramp-up assets are performing well. We have a great range of assets. And I know we've got a lot of assets around the world 150 sites that we're performing well at most of them. And when these ramp-up assets get there we'll be in a great position.

Balance sheet is strong. Steve took you through the balance sheet. Where we're looking we want to take our net debt to EBITDA down to one times which is a strong position. We believe we'll get there in the next 6 to 12 months. So I believe the fundamentals are well for the company going forward. We've got the right commodity mix. Our assets will be performing well. Strong balance sheet, so things are looking hopefully well for the future. Thank you. Martin?

Question-and-Answer Session

A - Ivan Glasenberg

Questions. Yes Jason. Martin, come take...

Jason Fairclough

Jason Fairclough, Bank of America Merrill Lynch. Just - Peter, thanks a lot for the great walk-through on the path forward particularly in Africa, but could we just talk a little bit about how we got here with the -- particularly with the African business? I mean is this -- the word I've heard from you a couple of times Peter is control. Is it just we didn't have the right people, we didn't have the right plan? I mean these -- on the one hand they're ramp-up assets on the other hand they've been there for a long time.

Ivan Glasenberg

You can talk he has reviewed more, but all I can say -- we say, they've been there for a long time. The Mopani is an old asset. It's been there a long time.

Jason Fairclough

Which is -- Katanga is an old asset as well. And even at the time of the IPO, I visited Mutanda. I mean these are not new assets.

Ivan Glasenberg

Yes Mutanda. You visited Mutanda and Mutanda ramped up pretty quick to 200,000 tonnes and it got there pretty quickly producing 30,000 tonnes of cobalt. So Mutanda was a well-performing asset. Unfortunately, Mutanda didn't have enough oxides and it performed well. Mutanda is giving us $1.3 billion EBITDA per year. We've got 3, 4 very good years at Mutanda. So it did perform well than actual plan.

Where we did -- the idea was to go into the sulfides later on. The oxides depleted quicker than we thought they were going to deplete. And we rather took the view instead of moving into the sulfides immediately, we'd rather do a better study on the sulfides before we go there. The cobalt price isn't helping us today, so why rush it. Let's be sure of where -- when the mine can be economical and viable and that current cobalt price is not that viable. We also had the tax put on us the extra mining tax which affected the profitability of that mine.

So we've taken a more prudent decision and said okay Mutanda, let's wait. Let's get the sulfide in line, make sure that the sulfide plant is correct. When we got it correct and the cobalt price is viable and subject to where the mining code will end up being, then we must make the decision to go forward, so Mutanda not that bad.

Katanga, you know, we had to develop the Whole Ore Leach and we had to develop the Whole Ore Leach program which we did. Ramped up pretty well both on time, pretty much on budget, so not too bad. Where there were issues at Katanga and actually the mining code affects us also because we're paying higher taxes and royalties over there.

Peter alluded to the maintenance. Yes, dropped the ball a bit on maintenance. No doubt. And that was the issue. So instead of producing the 285 that we indicated this year we'll produce around about 235 Peter is talking about. A lot of that has to do with the maintenance of the SX/EW plant. So that's where we are. So that's the reason.

Mopani as I say is an old plant. They're syncing the three new shafts. They did the work on the three new shafts. And that's pretty much on time, little bit over-budget, not too bad. And then the other delay is basically the problem we had at the smelter.

Jason Fairclough

So how much of this is the ramp-up of the projects versus not having the right people and controls in place versus the more general operating environment?

Steven Kalmin

Jason, it's a combination of those. But right now, we are putting in the structures and processes to make sure that we can deliver long-term reliably, so that we don't have a situation you had with the EW where whilst focusing on delivering the Whole Ore Leach plant which they did a great job with somebody doesn't take their eye off the ball in different part. So, we've got the right systems across the business with the right people will give you the right outcomes.

And as I said, these are not complex assets. I have spent most of the first six months, trying to look forward with the business and getting the right people in place to get us where we need to. And people really enjoy working there because they're now heading in the right direction. So, we are comfortable that we will take you where it needs to go.

Ivan Glasenberg

And you also got an image, Jason. If you look at Katanga, you look at Mutanda, you look at Mopani et cetera, not the cost overruns and not fall-off time production. Of Katanga of course on the 30,000, 40,000 tonnes where they didn't get it as Peter said with the maintenance, but what is pretty impressive is the CapEx spend and the time to ramp up to get it where it is not too bad. We've got the full first line running at 150,000 tonnes very quickly at Katanga. The second line is ramping up very nicely. Unfortunately, we lost the 40,000 tonnes because of maintenance.

Jason Fairclough

Okay. Thank you.

Ivan Glasenberg

But CapEx not too bad.

Myles Allsop

Myles Allsop, UBS. Just a few quick questions. First with the cash returns and this focus on getting net debt down below one time, which I think is around $3 billion. Is that -- are you going to continue the $2 billion buyback complete that off in the second half? Or is that going to be paused? Or should we assume any disposal proceeds are now used to delever rather than to kind of extend the buyback by $1 billion?

Maybe secondly on Jason's question, I mean you guys don't really seem that patient just generally. And if this -- if Africa keeps burning $1 billion of cash, so if we -- this is one of those assets that just cannot be fixed. How long do you give it before you get more radical? I guess you're getting pretty radical anyway with Mutanda. And then maybe a bit more on coal and realized pricing will be helpful?

Ivan Glasenberg

Steve, the first part.

Steven Kalmin

Yes. I mean no, we would absolutely finish the existing $2 billion buyback. There's around $700 million or so ready to go. So, it'll be done during the course of 2019. The way I look at it -- I mean, if we're starting now say $16 billion or so net debt, lease accounting aside, let's assume that's all -- we're not going to sort of change bands and stuff to reflect a pro forma of these things. So, we'll take that on the chain around the leasing. So we're $16 billion.

Cash flow, its spot. We said $2.4 billion. I think there's some tailwinds in terms of CapEx and some tax shields and various things, but that's an illustrative thing, so take half of that $2.4 billion. So, we've got the second half of the distribution, the $0.10. So that's next year and that's next month at $1.3 billion. So that's the $0.20. And the rest of the buyback is the 0.8. So that's $2 billion coming out of that $2.4 billion. That's without any disposals or any other working capital in other areas. So that should allow us to finish the end of the year around sort of below $16 billion. It's not sort of trending down.

And then as we say the six to 12 months and then into first half next year, the capacity to do incremental buybacks will then play second fiddle to the heading south on that net leverage in the short term. But again, when you're starting the year $2.4 billion again you take the half, the base distribution $1.3 billion. There, I would put in sort of back end some of the disposal proceeds and I'm putting in $1 billion in there. And yes, it would get prioritized then towards net debt reduction. So you generate $3.4 billion first half next year and then you're covering the first half of next year's distribution assuming the same $0.10, just for modeling purposes, you've got so you're able to bring your debt down little bit.

So in about 12 months' time, you're then dropping just a little bit below the 14 and your ratio is sort of one and some change, so 1.07. So that's sort of a -- obviously there's a lot of variables that go into what the next 12 months can look like in terms of disposals and that goes in with capital and timing and some other payments on these things, but absolutely finish out the existing buyback. The base distribution is well covered. Those would take sort of priority. As I said, I'm not going to -- it's not the one is a do or die, have to meet that by a certain point. I just want to sort of trend towards the one and that's having hopefully peaked at one to 1.25 to start heading -- sort of heading south and responding to markets and how that all works out.

Ivan Glasenberg

Okay. The other part of your question. Yes, what is our patience in Africa et cetera? Well, as I said, we're getting 240 there 35 this year. We should get 285. You've heard Peter's presentation. He's pretty confident. We're going to get to 285. He doesn't foresee any issues there. It's just the maintenance of the SX/EW plant which he feels comfortable on. So, his graphs which he showed you we would get up to 265 next year and then hit the 300 pretty soon thereafter. I think in September, we start annualizing 300, so he feels comfortable on that. Peter, correct?

Peter Freyberg

I think, we've got -- it's a mine concentrator and a Whole Ore Leach plant together with an acid plant. And there's some parts that we have to commission. The acid plant has to get up and going. The cobalt side, we have got the fix for uranium and we're putting the thickness in to drop that out. We will do the IX overlay next year to make sure we can do that 100% of the time we get on-spec product. And we've got the right people involved in the business. So it's -- the plan is there and the team is there and there's -- I don't see any reason. We've risk-assessed it. We believe we should produce.

Ivan Glasenberg

And the third on coal. What was your question on coal?

Myles Allsop

In terms of realized pricing, are we going to see a step-down in the second half just to make sure if the contract structure out of…

Ivan Glasenberg

The figure -- we put the figure in the forecast. I think the margins are…

Peter Freyberg

Well, I mean based on some macros over the last week or so based on our books as it currently rolls off and quarterly lock-ins and fixed prices there would be 2.1 does step down. I mean with 2.1 in the first half, 3.9. So it's 2.1.

Ivan Glasenberg

So we get the margins have dropped I think from 37 down to 27 or something in that period. So we dropped the margins down there. And let's see what coal does in the second half actually does with the supply side. So it looks interesting the coal side right now.

Liam Fitzpatrick

Good morning. Liam Fitzpatrick from Deutsche Bank. Two questions. Firstly on the portfolio, probably one for all of you. You own a lot of assets. I think the figure quoted was 150 or over that. Do you think the business is just too complex at the moment? And is there scope to upscale the $1 billion divestment target that you have? And then secondly linked to that the ag business, it's deconsolidated the former head recently left, is it still a core business?

Ivan Glasenberg

Yeah. The first -- look we're always looking at the tail assets. Do they bring much to the business? Does it help the trading book? Naturally they're having the smelters the refiners do help the trading business in a way so you'd like to keep them. But naturally we always look at the tail end of the assets and see what is the potential to sell, does it move the needle much for the company so you could dispose off them. And yeah the $1 billion could increase.

So that's something we look at over time. And if there's demand for them and someone really wants them as Steve said, we're still doing some disposals on the oil side, some of the tank and the storage facilities we look at doing. So we're always reviewing that. So yeah having 150 as it is a lot to manage. And if things don't move the needle and not important for the group, we will dispose off them.

The second point, yeah, the ag business is important. We think as Steve says, it's performing well this year. It's picked up this year. We've got a partnership there. They have -- Chris left. We've got David Mattiske who we were grooming along the way to take over from Chris. He planned his departure well in advance.

So it was all well-planned. And I think it's a business that still works well for Glencore and performing quite well this year and it is a business they would like to grow the time. What I said is it is a business that needs a bit more growth, so they will keep looking for opportunities.

Peter Freyberg

Just on the Glencore Agri, we'll need to collectively spend a little bit more time in it, maybe not now but at other time just to bring more visibility about, obviously, how it's performing because it's coming through almost immaterial through the numbers but it still is in the time of the divestment it was obviously at a value of sort of 3.5 billion from 50% of the underlying infrastructure and the asset is very strong positions in obviously different regions and that business should be comfortably at 100%, sort of, an $800 million annualized EBITDA, not much CapEx, not much sustaining life of mine or whatever it is.

A lot of that should generate some pretty good cash flow, which should be quite infrastructure-led returns. So ultimately let's see how that market develops in terms of consolidation and multiples and these things, but there's a good value to unlock there down the track. And I mean, obviously, make sure it's covered somewhere in the Glencore sum of the parts, because I assume it's not at the moment.

Ivan Glasenberg

I mean it generates cash. It should be kicking out dividends. So they should be pushing cash into Glencore.

Sergey Donskoy

Yes. Thank you. Sergey Donskoy, SocGen. A couple of small questions on Katanga and a couple of smaller questions on Mutanda. On Mutanda, I understand that the mine has been put on care and maintenance partly because the oxide ores are getting depleted, but it's also because of the adverse market conditions. Is it possible to give some guidance or idea, what were the costs in the first half, so we could understand under what conditions the market -- the mine could return to production? And second question on also Mutanda. The decision to suspend production at the mine had that been discussed with the authorities in DRC? How was it received?

Ivan Glasenberg

Yes. The authorities -- our team went down had meetings with authorities, explained to them that we were taking this decision. We had -- it made sense. So they were informed fully about it.

Sergey Donskoy

So you don't expect any opposition on this front?

Ivan Glasenberg

I don't expect it. They've come out with a statement. They're aware of it. They were advised of it and they said they will not comment further. Regarding the costs, our costs this year will be about...

Peter Freyberg

It's probably sort of fairly breakeven-ish at sort of EBITDA, but you still got then the ongoing investments that need to go as you deliver on future projects. It would be -- post CapEx would have been -- would be negative from a cash flow. And that was influenced obviously cobalt -- more of a cobalt-exposed operation at the 125-type scenarios. The input costs as we mentioned on things like import line and asset was incredibly dramatic on that business as well. So it's a pause now to work on sulfides and it may come back under an entirely different sort of costs mindset structure as it goes forward.

Ivan Glasenberg

For the CapEx to bring in the sulfides, you've got to build the concentrate. You've got to build out different type, whether you build it out in all rows to look at the various things. Peter and his team is working on that. And once we've got a full understanding of what's the cost the capital involved and what numbers are required for both cobalt and copper to make it viable then we'll bring it back.

Sergey Donskoy

All right. And on Katanga, also two small questions, is it possible to give an idea what was the impact of this inflation in exit prices and then materials on first half cash costs? Kind of isolate this particular effect. And second thing, do I assume correctly that your activities are no longer an issue. So this iron exchange plant is simply now a backup option. So...

Steven Kalmin

I think the IX plant is -- obviously in the push. We also want to retreat some of the hydroxide that we've got there that's got uranium in it. So I think it gives us a very robust process that ensures that we have the right-quality product, but also allow us to reprocess some of the hydroxides that's got uranium in it.

Peter Freyberg

Scale being able to treat when you're at 30,000 I don't think you'd need that plant to be able to treat it. In terms of asset plants, as compared to -- I mean, when we're up and producing asset itself, we should be at about $185 a tonne. We were paying just over $200 last year. We paid close to $600 during the first six months of this year. I think it's something like running an incremental cost of $20 million a month, just on asset alone. So you can times by six or 12 or whatever you want to do on that that's just incremental. So it's a huge cost component of the business.

Sergey Donskoy

Thank you.

Ivan Glasenberg

Sam?

Sam Catalano

Hi. Good morning. Sam Catalano from Credit Suisse, I have two questions. Firstly, just on the Marketing -- Marketing Division, you've explained very well the issue with the cobalt inventory.

But if we go back, there was the coal hedging a few years ago, an issue with cotton last year or the year before. You've talked in the past about the risk management structures, in the Marketing business. But how can that change or I guess to minimize these series of one-offs effectively, if you want to look at it that way?

Ivan Glasenberg

The coal we know what the hedge was. We explained it at that time. Cotton was an issue. We explained it et cetera. This on the cobalt is a little bit different, because you've got to remember, this is moving it from our producing assets, into the trading business, per agreements.

And because the market was extremely weak, so it's just from the one end to other end really. It came from our assets into the Marketing. That's what it was. And it came at a higher price.

Because the market was extremely weak, we couldn't move it out. You couldn't sell it. So if we had it stayed at the asset, you would have just -- I'm sorry?

Unidentified Participant

And you can't hedge it.

Ivan Glasenberg

And you can't hedge it. Because cobalt ends of mine, took time to put on hedge. So you had to sit with it there, at the price you had taken it from the asset at the time. And then you had to mark-to-market. And there's where we got the $350 million loss.

Had it set at the asset, then we'll be at the lower cost of net realizable value. And cost was somewhat lower. So you wouldn't have had that down price movement. So that was just because of the market as it is.

Now if the market was better as soon as it comes into the trading book, it moved out and it would have moved out at the price of the day. And similar to the price at which you bought it from. So that is just the way the contracts are set up, in that part of -- and the way we've got it set up.

Peter Freyberg

It's not dealing with third parties, which is I guess …

Ivan Glasenberg

It's not a third party that we bought cobalt from. Someone was sitting on a long position. It's just moving from one of our own assets, into the trading book et cetera.

Sam Catalano

Okay. And the second question is just back on the...

Peter Freyberg

… cost of Mutanda, eventually is that accelerates and rebalancing of that market, it should allow us to bring down that, that position as well pushing that cost out.

Sam Catalano

Yeah. With regards to that, why wait until the end of the year to shut down midterm. Is that sort of regulator or authority thing? Or want to shut it down today?

Peter Freyberg

Yeah. I think it's a logical transition. We looked at what was economic there. We've got to actually transition to that. We've got a people added effects. And we're looking at that -- the asset supply, the input costs.

That as Steve indicated, we are running just slightly better than breakeven, at that business. And that's a logical stopping point.

Grant Sporre

Hi. It's Grant Sporre from Macquarie. Just – sorry, can I ask the, two questions. The first one is just asking the sort of the cost question slightly differently. Just for Mutanda once it's shut down. What's the sort of ongoing fixed costs going forward?

And perhaps if you can just give us a broader sense of fixed versus variable costs at African copper? And then lastly, just on the coal strategy Ivan, are you still sticking to your 150 million tonne cap?

Ivan Glasenberg

Yeah. Coal, I talk on this and then I’ll pass it to Peter? Yeah, coal is on the 150 million caps that's what we've said we will stick by. And we're sticking by that. Which is at the end of the day is good for the coal market. No one is building new coal mines. You see no new coal mines being built or being financed besides that Coal India growing their new mines in China, the rest of the world nothing there. Peter?

Peter Freyberg

There are some costs obviously to keeping on care and maintenance. We are going to try and offset some of those by running the asset plant. So it's not really a material level. Plus, there's going to be advantages for the future project through the upskilling and the training that we're going to do in that workforce.

So I think in terms of holding the asset and social responsibility. And having the right conversation with stakeholders, including the government, we are going to incur some costs. But they're not that high.

Grant Sporre

Sorry. Just a quick follow-up, just on the asset plants in the DRC. How -- just can you remind us how those fit? Are they locals sulfur deposits that you feed them? Or how...

Steven Kalmin

Sulfur.

Grant Sporre

Sulfur.

Peter Freyberg

But the ratio in terms of logistics, the number of truck movements is sort of half which within logistics is actually very challenging. I mean even the asset supply I mean trucks need to offload each day. It's a huge logistics exercise today.

Sylvain Brunet

Good morning. Sylvain Brunet with Exane BNP Paribas, first question on cobalt and maybe your sense of, how advanced your customers are on their, destock. I'm thinking of the GM of this world.

Second question to Steve, maybe on debt, if you see, Steve some room to bring some working capital down, whether that would be on the Industrial or Marketing side. And my last question maybe to Ivan.

As the management team is changing are you also taking this opportunity to have a fresh look at KPIs across the organization as priorities are changing in the organization and outside?

Ivan Glasenberg

Yeah. I mean -- yeah of course with the management team changing. We're always assessing. And how we value the performance of our people and how we're setting KPIs. So that's an ongoing process, which we've continued to do in the group to monitor in a better way, and in a more professional manner.

So that's an ongoing process. Yes we're doing that. The other part of your question on cobalt, I think where do we see cobalt based on having us remove these tonnes is that your question?

Sylvain Brunet

No -- well partly well. Partly yes but what is your assessment of the level of destock how advanced customers are in their destocking.

Ivan Glasenberg

I'm not sure exactly where they are on the destocking phase. But it looks -- if these tonnage are out of the market we believe that should start getting the market fairly well balanced and it should have a positive effect on the price of cobalt.

But the market where these tonnes are taken at 30,000 tonnes or whatever really should put the market back in balance. And maybe slight deficit.

Peter Freyberg

I mean encouragingly our actual sales volume during the six months was actually stronger than we were expecting as well. So that's why even our 10,300 tonnes in terms of exposure, that we've even was pleasingly that it didn't go up, in that environment we're producing.

We had some offtake commitments. And we were able to keep it at that same level. So sales, was much stronger this period even in the six months and the previous six months. So I think that's encouraging in terms of sort of demands and needs and general stock levels. This is...

Ivan Glasenberg

In the electric vehicle production in China during the second half, during the last quarter should start picking up. And that should make people to start restocking more cobalt. Because their requirement for batteries.

Also the European coal manufacturers during the second half start coming out with some of their electric vehicles, more towards the latter end of the year. And that should therefore make more inventory -- people starting to purchase more cobalt.

Peter Freyberg

I mean working capital, inventory I think there's probably scope to bring that down through the RMI, even the non-RMI part. Obviously, just having held more cobalt than we would have normally held in terms of levels. We seek capacity to bring that down, so that will inject some cash back in the business as well. I wouldn't – receivables, payables, call it asset, as you would, there's always scope to do it.

I don't think we're in a comfortable position more broadly there. Both RMI and non-RMI inventory, I think, there is scope to bring that down within the business and it would naturally come down anyway in a lower-price environment, as we've seen through the different cycles in 2008/2009, 2015/2016.

Ben Davis

Thanks. Just two quick ones. Ben Davis from Liberum. Firstly, just what's the current situation with the illegal artisanal miners at Katanga. What sort of long-term practical solutions are being cooked up? And then secondly, I might have missed it. But what's actually caused this massive rise in asset prices? Was it supply/demand and that sort of thing?

Ivan Glasenberg

Yes. It's supply/demand of course, new production in the DRC.

Peter Freyberg

And didn't help with the smelters going down in Zambia.

Ivan Glasenberg

Yes. It didn't help with Mopani going down. It didn't help with Vedanta going down with its producing asset. Both of them went down. So therefore you lost the asset there. You've also had more demand of asset in the DRC, new mines coming up, more Chinese production where they needed assets. So that's really just tied to the supply. Regarding second part. Peter?

Peter Freyberg

On the artisanals, it wasn't just Katanga that had the issue. It was across the province, with the migration, I'd say, of thousands of people that were starting to mine illegally on source of leases such as ours. The government took a view on this and they brought – there is a presence of military.

Obviously, that's not the best way to start addressing it. We believe that there are long-term social solutions that need to be worked on to try and address that. We talked on a very regular basis with government in all levels and obviously emphasized issues such as human rights and voluntary principles and make sure that there's a mutual understanding of what the risks are and how to manage those.

But their presence has resulted in a massive decrease in the activity. We are working very closely with the governor and the government there to look at longer-term solutions in terms of how we can invest socially what the government can do to try and address this. And at the same time, we are addressing perimeter control around our business to enable us to have better security and control this sort of influx that we've had in the past.

These are very complicated lease boundaries that we have, where, together with entities such as Gécamines there and we are working together with them and others to sort that out. But we are going to control the site. But at the same time, we work very actively in the communities to try and find some offsetting developments, some training, some enterprise development and the like, to depressurize that in the community. The unions and the government have actually all been very supportive.

Ben Davis

I also have a couple of follow-up questions. Could you -- how's your relationship with the new government in the DRC? Do you think Tshisekedi is going to be prepared to consider sort of changes to the mining code for existing operators? On the free cash flow of agri, what sort of, you say, normalized EBITDA, your shares are 800 million, what sort of dividend could we assume in a normal world for the agri JV going forward? Maybe on coal as well. What gives -- makes you bullish? Do we have to wait till gas prices recover, before we can get bullish on coal? Or do you think what could drive the recovery sooner?

Ivan Glasenberg

Okay. Let's start with the first part of the question. With the government how do we think we're doing on the mining code? The new government is in power. The new president is power he still hasn't appointed a cabinet. We're still awaiting for the new appointment of the Mining Minister and then we can have further discussions.

The mining code we have said clearly we don't accept the new code. We will challenge it. So, we're just waiting for the new government to be in place, and then to have further discussions on it. We've had initial discussions with the President about it and we set down our feelings about the new mining code.

And as you can see the effect it has on our operations and a big effect on Mutanda. It has an effect on Katanga with the new code, so it is still being disputed. This part about -- the second part dividends the cash we'll get from the...

Peter Freyberg

I mean from 800 EBITDA you would derive free cash flows sort of circa 400 for that sort of business. Now that will be 100%. So we'd obviously take -- we'd be 50% proportion in that. I mean if it was a full payout and things were delivering at that level, it's obviously during various years. It's been at over $1 billion in 2014, and it's probably troughed around sort of 6-ish or something during that more difficult period the last couple of years.

That business has invested in various sort of strategic ports and expansions in Brazil and there's other bits and pieces that also consume some capital within the Glencore over the last 12 to 18 months. So, if they were just steady and of payout ratios a very comfortable debt position is where they are at, because the business was set up initially with a reasonably conservative structure. We haven't taken any dividends out over the last three years. Anything that's been generated has either been invested or retained in the business.

Ivan Glasenberg

Yeah. Coal, I mean bullish. Europe imports around about 100 million tonnes of coal. So the way it got affected in Europe with the low gas price did have an effect on the overall coal market, but it's not a big part of the coal business today. Most of the coal goes into Asia. What have we seen in Asia? You've seen very strong demand in India, stronger than people expected. I think India is going to import around about 180 million tonnes.

China imports are still very strong. New countries, which are importing more Bangladesh, Pakistan, Vietnam is becoming a bigger importer. Even Japan is increasing slightly. So demand is increasing up in a lot of these countries today, and you don't have new supply coming to the market.

So, China of course is increasing coal. India where they do need more coal locally. Coal India is not increasing to their expectations. You've seen what Coal India's recent results came out. They're not reaching the levels they wish to. So that's creating the market a little bit better. The lower prices naturally will force the Americans out of the market.

The Americans I think are exporting around about 45 million tonnes. That will go down to 30 million tonnes and that's going to reduce the amount of coal coming out of there. Russia is struggling to increase big at these levels because the coal price is not that favorable for them at these levels. So the increase in Russia, I don't think is as big as people anticipated. So the supply is not there. Demand is growing, as I say in Asia not in Europe of course. So, it's looking a bit better.

Ben Davis

Do we get to turn around before the end of the year, or is this is a 2020...

Ivan Glasenberg

I wish I could predict that precisely. It looks like it's getting tighter on the supply. As I said when the Americans move the tonnes out and they reduce 15 million tonnes, Russia is not increasing its export as people expected, demand is there. It can turn. I don't know exactly where the worldwide inventories are sitting at these various power stations around the world. Of course -- it's going to be how much inventory sitting around and when people want to restock and that's why it's hard to call exactly when you're going to get the turnaround. But if you look at the demand/supply figures it looks like there's a deficit coming on the seaborne market.

Ivan Glasenberg

Good. Are you done, Martin? Thanks very much. Thank you.