Anglo American PLC

LSE:AAL

Earnings Call Analysis

Company Overcomes Macro Headwinds, Eyes Growth

Despite macroeconomic challenges weighing on performance, the company delivered a solid first half, with EBITDA reaching $5.1 billion and dividends per share at $0.55, maintaining a 40% payout and annualized yield of about 4%. Notably, the weaker macroenvironment affected financials, yet the company expects a significant upturn in the second half, particularly due to operational improvements and cost-saving measures, forecasting a 3% unit cost increase year-over-year. The company continues to exercise capital discipline while targeting strong balance sheet maintenance, even as net debt rose to $8.8 billion. Commitments to strong, sustainable performance are bolstered through key milestones, such as De Beers' diamond license extension to 2054 and positive progression at the Quellaveco copper project. Furthermore, a 25-year diamond mining license extension and a new sales agreement in Botswana have been secured. Long-term prospects remain favourable due to increasing global demands for commodities, imperative to both decarbonization and improving living standards.

Ramp-Up at Quellaveco and 25-Year License Extension at De Beers

Over the past year, the company has achieved a remarkable feat with the Quellaveco project producing 240,000 tonnes of copper and reaching commercial production levels in just a year's time since the first tonnes were processed through the mills. This has positioned the project well to meet the guidance while maintaining a very competitive unit cost. The exceptional progression at Quellaveco, combined with the extended 25-year mining license for De Beers secured with the government of Botswana, paints a promising picture for the company's copper and diamond ventures respectively.

Commitment to Dividend Payout, Capital Discipline, and Balance Sheet

Despite facing a weaker macroeconomic environment in the first half, the company maintains a commitment to a 40% dividend payout policy and a strong balance sheet. With EBITDA at $5.1 billion and an interim dividend of $0.55 per share, the company assures a 4% annualized yield. Unit costs experienced a slight increase of 1% net, however, with effective cost-saving measures, they anticipate annual cost savings of about $0.5 billion by the middle of the next year.

Optimism for the Second Half and Cost Guidance Adjustment

Although the first half of the year saw some challenges due to currency movements and a 3% unit cost increase year-on-year, cost guidance has been adjusted favorably thanks to beneficial currency shifts and ramp-up volumes, especially from Quellaveco. These adjustments and a forecasted stronger performance in the second half bode well for the company’s financials going forward.

Strengthening Operational Consistency and Emphasizing Sustainability

Efforts to restore operational consistency post-COVID have been coupled with reshuffling of the executive leadership and reorganization of production management. The company focuses on operations that deliver sustainably, aiming for additional cost savings and aligning with sustainability practices within their existing portfolio. This underscores the company's deep focus on sustainability, recognizing it as a key driver of commercial and stakeholder value, and embedding it into their FutureSmart mining program to integrate innovative technologies with sustainability goals.

Growth Prospects in Copper and Commitment to Food Security Through Woodsmith

Significant growth is on the horizon with the potential expansion of their copper portfolio, particularly through the Quellaveco, Collahuasi, and Sakatti projects, as well as through Los Bronces. In the realm of agriculture, the Woodsmith project is set to contribute to food security by producing POLY4 which will be instrumental in increasing crop yields sustainably. Progressing ahead of schedule, Woodsmith is poised to be a cornerstone for the company, offering a long lifespan and low-cost structure expected to provide a strong cash flow for decades.

Long-Term Strategy and Value Creation amidst Market Recoveries

While acknowledging the challenges posed by the current market conditions, the company is actively implementing measures to enhance margin resilience and business sustainability. They aim to achieve operational excellence through cost optimizations and investment in stay-in-business capital projects, aligning with strategic priorities that will capitalize on eventual market recoveries. In essence, they envisage a resilient, stable company with a keen eye on sustainable long-term value for all stakeholders and a diversified portfolio that will remain attractive through economic cycles.

Earnings Call Transcript 2023-Q2

[Duncan Wanblad, Chief Executive Officer]

Good morning, everybody. I don't have any acceptable cricket jokes to tell with my Chairman in the room, so I'm just going to go straight into the presentation. So, welcome everybody again, and thanks for joining us. And as usual, presentation format that we've always followed will be the one that we follow again today. So I'll start, give a bit of a brief overview of our first half performance, Stephen will then follow me with all the details of the numbers, and then I'll come back and talk a little bit about what the outlook for the rest of the year and the long term looks like for us.

Now, as always, you would expect me to start with talking about safety, and that's what I'll do. It is our first priority and is the most important priority that we have in the business. And I hate to be standing up here and telling you that we've had another fatality in the group, which we had in February of this year at Kolomela. And we're also investigating an aviation incident that occurred in Angola where the pilot who was doing some work for us on exploration on our De Beers leases lost his life in a plane accident.

We will never stop working on finding a way to eliminate fatalities. We've done quite a lot of work this year actually to continue on our journey by specifically doing 2 things in the first half, and we're going to do another thing in the second half, that is looking to drive and change and shape behaviors as well as work processes. And the first of these is we've made it obligatory for leaders in the business to spend more time at the workplace. The whole idea here is that they get to talk to the people actually doing the work, not running the work from an office, not running the work from a boardroom, but actually properly engaging. They get an opportunity to understand what's working, what's not working, and how we might be able to change things for the better more deliberately than perhaps being able to do in the last little while.

The second and very consistent with our operating model which, by the way, is fundamentally premised on a very simple cycle of plan, do, check, and act, the most important of which is planning. If you get the planning right, the rest then tends to come a hell of a lot better, and that's never more true than in safety operations. And our ability to do this and measure it, we chose planned maintenance as a first [indiscernible]. So clearly you can understand the production benefits, the productivity benefits of more highly-reliable equipment, et cetera, et cetera, in the business, but actually it is also a great example of what we mean by planning the work in our operating model plan, do, check, act cycle. So we're measuring this extremely hard. And I think we're starting to see a few of those benefits. So certainly not at this particular point in time ready to declare victory on this, but we are, despite those fatalities, at the now lowest level of total recordable injury frequency rate in the business in the whole history of the business. So we'll keep pushing on this, we'll keep driving it, and our ambition is, and we will get to 0 at some point.

Thirdly, the one thing that the analysis of our data and information has shown us is that almost half of our workforce is contractors, and most of our injuries and incidents are occurring within the contractor workforce. We've got a lot more to do to embed those contractors into our business and drive their performance in the same way we expect our performance to be driven. So we've just started a three-year program which is going to be looking at meaningfully helping and manage the planning processes, the resourcing processes of our contractor performance teams -- of our contractor teams for performance in the same way that we expect performance from our own operations. I'm equally pleased to report to you today that we've had no new cases of occupational disease or any environmental incidents.

Right. So we do remain committed, as always, to delivering our products to our customers in the most sustainable way that we possibly can. And I am quite encouraged by the progress that we have continued to make across all of our operations during the first half of this year. So Quellaveco is now 100% on renewable energy. And with the coal business in Australia converting its energy supply contracts to renewables by 2025, that will put 60% of the whole of our portfolio on clean forms of energy. And that's a great step forward given where we were just a few years ago.

South Africa, of course, is now, or southern Africa is now the only outstanding region in our business that is not on renewable energy, but there we can't go to a market and acquire that energy in the same way we were able to do in many of the other jurisdictions as a business, so it needs a different solution. You've heard me speaking about Envusa quite a lot, which is our joint venture with EDF Renewables. And the purpose of that joint venture is to stand up somewhere between 3 gigawatts to 5 gigawatts of energy in southern Africa. We have now got to the point where we are almost ready to financially close on the first of these projects, which is three sites, both solar and wind, attached to them in the Northern Cape, and we're about to also commence work on two large solar sites at Sishen and Mogalakwena. These projects don't only remove up to 2 million tonnes of carbon from our operations, but they also have a very meaningful and positive financial benefit to the business, particularly the South African business. But notwithstanding that, all the contracts that we swapped out across the world have all had a very positive NPV benefit to the business so far. So as you would expect, the team is continuing to work very hard on delivering these projects into Envusa and getting the work done to complete the stability of our energy supply situation, particularly in South Africa, and renew our focus on carbon reduction across the portfolio.

On water withdrawals, we are now already at 26% lower than now 2015 baseline, so that makes us slightly further than halfway to our 2030 goal. The Los Bronces Integrated water solution that I spoke about in February is the next major milestone on this journey, and in the meantime, we have to and will continue to focus on the recycling and the reuse of water in the assets and in the countries, particularly where water is scarce. And to that end, our program -- our FutureSmart technology program has two technologies embedded in that are now starting to show some real fruits: that is coarse particle recovery and dry stacking, both of which -- or hydraulic dry stacking of tailings that is -- and both of which are now in implementation at El Soldado and actually being able to prove measured benefits, so looking very much forward to being able to roll some more of that out at bigger scale across the business.

Our Livelihoods programs focus on delivering lasting and meaningfully positive impacts to our host communities. This is about delivering economic value through procurement, through recruitment, and through business setups. That is, support sustainable employment and economic diversification for our communities. And here we have a very ambitious goal of creating five jobs not related directly to mining or offsite for everyone job that we have on site in our employment. So this is our work and progressing reasonably well at this point.

Stephen is going to come back now and talk about the details in the numbers, but production was up 10% in the first half of 2022, primarily driven by the ramp up of Quellaveco. EBITDA of $5.1 billion is a satisfactory performance, I believe, given the 19% decrease in our basket price compared with this time of last year. We, of course, did have a little bit of a tailwind from foreign exchange, but the easing of the price response to the Russian-Ukraine invasion, the slower than expected reopening of the Chinese economy, and the ongoing inflationary pressures that we're seeing across the whole of the world in key markets has indeed weighed quite heavily on the demand for our products as well as on our cost base. Cost inflation for us was largely offset by the maiden first half contribution from Quellaveco. Overall, production is on track to meet our full year outlook and, as always, and especially in the current macro context, the one thing that we cannot and will not let go of is the fact that operational performance is going to be materially levered to cost control and operational production performance.

So looking at the first half business by business, in copper and nickel, Quellaveco has continued its successful ramp up given that we started at roundabout this time last year, and I've got a slide specific on that to follow. Very pleased with the fact that we were able to get that permit for the Los Bronces Integrated Project earlier this year. That's been a gamechanger for that asset and that business. And we're now working very hard to plumb the development options against this permit now for the open pit and the underground projects and trying quite hard to mitigate the impact of that licensing today to get the higher grade and the softer ores into the plan as early as we possibly can. As you know and I mentioned to you in December last year, we're in a phase in most of our copper and nickel businesses where the ore grade is slightly lower than the long-term grade of the rest of the resource.

So in PGMs, the team has managed I think extremely well through the Eskom volatility, and that has had a relatively limited impact on our first half performance. We clearly are not out of the woods there yet. We still have a few months of winter to go. But without a doubt, Eskom has performed a little bit better than we expected that it might do, and our ability and interface with the operations management of Eskom has helped us to plan the business and manage around the load curtailments that we have seen. And at De Beers, we are absolutely delighted to have reached an agreement with the Government of Botswana in principle on both the sales agreement and the extension of the mining licenses.

Operational performance at De Beers has been really good, very strong during the first half of this year, and particularly at Orapa. We also just reached a major milestone at our Venetia underground project where we took our first production blast a couple of weeks ago. The macroeconomic conditions have indeed impacted on rough diamond demands, as it always does, and we are likely, I believe, given what's happening in China, to remain challenged during the second half of this year. And the consequent result of that is there will be a little bit of buildup in the midstream inventory levels.

In iron ore, Minas-Rio had a great first half with a particularly strong second quarter, achieving a number of first-time performance records. I think and that reflects the benefit of the operational improvement program that we set about implementing in the middle of last year. And I think this also sets us up extremely well for a good second half there. Kumba, too, operationally has had a very solid performance, including a great recovery from Kolomela, but is constrained now by Transnet quite materially. We continue to collaborate, as you would expect us to do, at all levels of the organization, from top to bottom of government and with Transnet. But until the Transnet performance improves, and there's quite a lot of work to still do here, those constraints will continue to exist for Kumba.

And finally, at steelmaking coal, we saw a much improved contribution from the open pits following the very wet weather events that we had at the first half of last year. The underground operations in the first half of this year were impacted by the fact that we had two longwall moves, one at Grosvenor and one at Aquilla, which won't happen in the second half of the year, and we also have some very difficult strata conditions that exist at Moranbah. But performance is now improving. And given the fact that we don't have these two longwall moves planned for the second half of the year, we expect production volumes to step up quite strongly, half on half.

So at this time last year, as I said, we had only just put the first tonnes through the mills at Quellaveco. A year later, we've produced 240,000 tonnes of copper, and I think that that's an incredible performance for a new project and the speed at which it's been able to ramp up. It's reached commercial production levels, and we define that as being in June. And the molybdenum plant, which we spoke about as being in construction, almost ready to commission in February, is now commissioned and pretty much full, producing at its designed levels of output.

So we are on track at Quellaveco to meet our guidance at a very, very competitive unit cost position. The strong performance here I think is absolutely a testament to the caliber of the operations team that we have there, but also the interface that that operations team had with the project team in not only the building but the ramp up -- or the commissioning and the ramp up of the project. I think it's a great example of how projects should be built, executed, and transitioned into operational management.

At De Beers, as I say, very, very pleased to have been able to reach this agreement in principle with our longstanding partner, the Government of Botswana. As you know, the mining licenses there were due to expire in 2029, and so securing a 25-year extension to these licenses, which take us all the way through to 2054, has completely opened up the dynamic and is critical to the investment pathway for what are the best diamond mining assets in the whole of the industry. Under this new 10-year agreement, which is a sales agreement, Botswana does have the option to directly market a larger share of the production, and the licenses also recognize I believe the strength of the relationship and the partnership between De Beers and Botswana in so doing by the creation of the diamonds for development fund that is designed to help accelerate the Botswana's economic diversification. All parties are still working quite hard to ink these final agreements, so there are a couple of months of work for Al and the team to get all the I's dotted and the T's crossed and then we're going to have to bring this agreement to the vote for the shareholders because it is indeed a related parties transaction.

Now as you know, one of my key priorities has been restoring the operational consistency and performance across the whole of the portfolio. And we had slightly slipped on that coming out of the couple of years of COVID. And in support of all of this, we've made some changes to the executive leadership over the last 12 months, and we now have reorganized how we manage our production businesses and the functional expertise that supports these businesses. So these, plus other changes in work prioritization, are going to ensure that our operations are optimally supported to deliver responsibly, sustainably, and repeatably to the targets that we set for them, and thereby, I think unlock considerable additional value from within the existing portfolio. As a result of this reorganization and our focus on cost management, we expect an additional annual cost savings from across the full range of business support activities to manifest in the form of approximately $0.5 billion per annum from about the middle of next year. Stephen will give you a little bit more color on our full financial performance lever shortly. But to be clear, this focus on operational performance and cost management is a priority for us in the business at the moment. Stephen?

[Stephen Pearce, Chief Financial Officer]

Thank you, sir.

[Duncan Wanblad, Chief Executive Officer]

[indiscernible].

[Stephen Pearce, Chief Financial Officer]

Should hear what I normally call you. Thanks, Duncan. And as usual, I'm going to open with my three key themes for you to take away. The first one, the weaker macroenvironment has weighed on our financial performance this half. But we are poised to deliver a significant step up in the second half; two, we remain committed to our capital discipline, the 40% dividend payout, and maintaining a strong balance sheet; and three, despite any near-term uncertainty, the longer term outlook for our products is highly attractive, and we continue to invest in our value-adding growth options that have the potential to add to our volumes over the next decade or so.

So looking at the first half performance, EBITDA of $5.1 billion, and I'll break that down for you in a little bit, but weaker prices were the main driver, translated to an EPS of $1.38 and an interim dividend of $0.55 per share as our 40% dividend payout policy. And that gives you an annualized yield of around 4%. Net debt increased to $8.8 billion; again, I'll unpack that for you shortly. And return on capital employed still at a healthy 18%. So breaking down the EBITDA by each of the different production businesses. Copper and nickel, $1.6 billion EBITDA.

In Chile, the operational performance was impacted by expected lower grades, as Duncan mentioned, as well as significant cost pressures from stronger currencies and inflation. Quellaveco delivered a 65% margin while still in ramp-up, and we're looking forward to an even stronger contribution in H2. PGM's $0.7 billion EBITDA, hard hit from lower palladium and rhodium prices with the price basket there down 29%, and that reverses some of that Ukraine lift that we saw in H1 of 2022.

Diamonds $0.3 billion EBITDA, strong operational performance, delivered a robust mining margin of 50%. Demand for rough diamonds, though, has slowed, and it was off a particularly strong base through 2022. Iron ore, $1.8 billion EBITDA, a strong operational performance at Minas-Rio. We're looking for that to really continue through the second half as well. At Kumba, a decent performance in light of the challenges in the rail and port logistics. And for steelmaking coal, $0.6 billion EBITDA, a strong pickup in volumes at the open cut after the exceptional level of rainfall that we had in the corresponding period. And the price was robust, but significantly down on the record prices, again, we saw last year.

So in terms of the drivers of EBITDA, price is down 19% year-on-year across the basket. You may recall that some prices were at very elevated levels through the first half of last year, and that price move is the single biggest contributor. Two-third of that price move was driven by lower PGM and steelmaking coal prices. Volumes and costs have benefited from the ramp-up at Quellaveco as well as higher production from steelmaking coal operations. As I said, we should see further significant step up in performance of those businesses during the second half. But we also had some operational headwinds. Lower grades and cost pressures at both PGMs and in Copper Chile. Excluding the impact from prices, a pretty good performance.

So unit costs were up a net 1%. So breaking that down, the combination of higher input costs and inflation totaled 7%. Broadly, as expected, Chile and South Africa seeing the greatest pressure. Compared to the first half of 2022, we have seen some benefit from currencies, particularly the rand, helping to offset some of that inflation impact. Volumes, a further benefit of 3%, and Quellaveco a key contributor there. So looking to the full year, you will have seen that we adjusted some of our cost guidance last week, but that was just largely reflecting the currency movements since the beginning of the year. The latest guidance translates to a 3% unit cost increase on the full year of 2022.

So taxes and royalties paid for the half were $2.5 billion. It's lower than last year, but it reflects that weaker price environment, and that's how the system is supposed to work. Our effective tax rate was 37%. That is up on last year, and that reflects the mix of profits that we have and our increasing geographic diversification, particularly in South America. South America does include some higher tax jurisdictions and 47% of our profit mix this half was up from 24% in the prior half. The full year tax rate is expected to be about 1% higher than previous guidance. We expect the new Chile royalty regime to be enacted during the second half, triggering a remeasurement of our deferred tax positions and the new regime is then expected to impact our current tax expense from 1 January 2024. But I have to say, I'm reasonably happy with the outcome here. The government listened to industry feedback and has landed in a reasonably sensible place, something Queensland could learn from.

Turning to CapEx. $2.7 billion in the half. Guidance for 2023 is lower at around $6 billion, partly reflecting some rescheduled spend at Woodsmith. We've also tightened our sustaining capital guidance to around $4.5 billion, the middle of the previous range. Sustaining spend will step up in the second half of the year as activities ramp up at some of the key projects, such as the Collahuasi desal plant and on the processing side at Minas-Rio and in PGMs. Despite the weaker price environment, it's critical that our assets still receive the stay-in-business CapEx they need to deliver that consistent operating performance through the cycle.

As I say, we are committed, as ever, to a strong and flexible balance sheet. Net debt increased to $8.8 billion, working capital increased by $0.7 billion. And that was on the back of lower PGM prices, which led to a reduction in the value of the POC and payables as well as the customer prepayment, and the softer market conditions led to a buildup in diamonds inventory. We paid out $0.9 billion to shareholders, reflecting the 40% payout from half two 2022, and we continue to invest in the capital growth options. Our net debt to annualized EBITDA of 0.9 times remains well within bottom-of-the-cycle target of 1.5 times.

So recapping the first half performance then against our capital allocation model. $0.2 billion of cash generation after funding sustaining capital, impacted by prices, but we have plans underway to enhance our margin resilience over the longer term, and $0.7 billion declared at the base of our 40% payout. We then allocated $0.6 billion to growth CapEx. So as Duncan touched on earlier, we are focused on driving effectiveness across the organization through optimization of both our organizational structure and work prioritization. To reiterate, we are expecting to deliver a stronger second half off the back of improved volumes, which will also help our unit costs. And this is our biggest margin lever.

We'll continue to invest in our full breadth of stay-in-business capital projects. However, we are tightening our overall capital guidance to $6 billion, the lower end of our previous range, and we're also expecting significant annual cost savings of about $0.5 billion per annum across the breadth of our business support activities, with the full savings and run rate expected from the second quarter of next year. These organizational changes will enhance the resilience of our business over the longer term. We're committed to capital discipline and working capital remains a really critical focus. Duncan, back to you.

[Duncan Wanblad, Chief Executive Officer]

Okay. So this next slide, you've seen before, or a version of it, and I'm probably at the risk of repeating myself. But it is the slide that I think makes me so excited about this industry and this business. The demand for our products continues to be underpinned by three key macro themes. The first of these is decarbonization. And that is, obviously, for us, going to manifest through cleaner energy, industrial, and transport systems. The second is improving living standards of an expected growing and urbanizing population across the whole of the globe, and I'm going to come back and unpack this point in the next few slides. And of course, food security as a third of these themes, where there is now, I think, a clear and increasing recognition that the huge strain on global agriculture to feed this growing population is going to have to be done in such a way that not only does this effectively from a nutrition point of view but also does not continue to wreak havoc on the environment. And I think our current product mix and our future growth options play very strongly into these themes. So not a lot not to be excited about there.

Now of these themes, decarbonization has dominated the agenda, and I think it's pretty well understood, pretty well discussed. But in addition to this green transition, I don't think we can or should ignore the fact that fundamental demand for improved living standards from a global population that is going to grow by 2 billion people between now and 2050; and by the way, the consuming middle classes are going to grow by 1.3 billion between now and 2030, that people have everyday needs, such as homes, such as energy, such as transport, infrastructure, appliances, et cetera, et cetera. And it is the product of mining or farming, so if it's not grown, it's probably mined and it's all around you, that are going to be able to enable these changes for development that help lift people out of poverty. It just simply cannot happen without sustainably produced mined metals and minerals.

I don't think anybody needs much more convincing on the demand for our products, which are expected to grow. But just briefly, a couple of examples. So copper, firstly, a massive beneficiary of the decarbonization theme, but to an even larger extent, should be a much bigger beneficiary from the economic development theme. Today, the global installed stock of copper is around 61 kilograms per person. We're going to need a fourfold increase in that to reach the levels in the developing world to those that we see in the developed world today. And there's just no rational reason to believe that the underdeveloped world is not going to want to develop in the same way that the developed world has.

So convergence towards Western-like living standards; and achieving the first of the UN Sustainable Development Goals, which is the eradication of global poverty; and doing that in a manner that is sustainable will be massively metals and minerals intensive. And yet, it's becoming increasingly more difficult to find resources and bring resources online to supply into that demand.

Secondly, steel. The simple fact is that still remains the fundamental building block of economic growth and development. And when we look at steel, we see almost exactly the same situation as we do for copper. But everybody talks about copper a lot because it's a transition metal. But on the development side, it needs the same sort of growth as copper does, so almost a fourfold increase in stock required to meet the convergence between developing and developed countries' aspirations. So this, of course, implies continued demand for iron ore, but also for steelmaking coal, and in particular, the higher-quality varietals of those two inputs to steel.

And while the steel industry itself is on its own pathway towards decarbonization, the simple fact is that for the majority of the world steel demand over the next couple of decades, it will be met or has to be met by integrated blast furnaces. It's simply not easy just to add new units of supply in almost any commodity that is mined. And so I think, so what of all of that must mean that the outlook for prices is very, very positive.

We are well positioned, I think, to deliver full value from our industry-leading portfolio and strong operational and commercial capabilities. Operational excellence is our most important lever to create sustainable value while at the same time meeting our customers' needs. We have to continue and will continue to focus on safe, efficient, and effective running of our operations day to day to realize the full potential from the installed capital base. Secondly, we are building on that stable platform to debottleneck the constraints within our value chain in the most capital-efficient manner. So there's a lot of growth that we can still bring out of the existing portfolio by running the existing portfolio better just with the applications of operations discipline and some technology as we move forward.

Thirdly, FutureSmart mining is our technology-led and integrated approach to sustainable mining, and that helps us to unlock further these opportunities that I speak about to maximize the potential of our ore bodies and create optionality both outside and inside of the existing portfolio. And lastly, our attractive organic growth options offer a significant potential for us over the next decade or so.

Quellaveco was the first of these projects that we brought in from our growth pipeline, and that represents roughly 10% of that growth. It is successful delivery and ramp-up of these projects -- of that project that acts as a blueprint for our high-margin development options that we will have to continue to sequence at the right time and in the right way. Of course, we will retain flexibility to review our portfolio and compare our organic options against any inorganic opportunities that may arise, and we would always do that for value, but we know what the benchmark is.

Within the portfolio, the vast majority of these growth options for us exist within our copper portfolio. Quellaveco will deliver 300,000 tonnes a year, but there is long-term potential for more expansion on the existing asset of Quellaveco as well as regional potential, which we see emanating from our exploration program there. At Collahuasi, we have a brownfield expansion option that could deliver another 150,000 tonnes of copper, and that would be our share of Collahuasi's copper.

And in Finland, we have the Sakatti greenfield project, which we are well advanced in the permitting process for which could deliver another 100,000 tonnes of copper. And there is future potential growth from the underground at Los Bronces as we know, and all of these, I think, represent a scarce and very attractive set of options in relatively stable and familiar jurisdictions across the world.

Now I talked about food security a little while ago, and so that takes us into Woodsmith. Food security for 10 billion people and delivering that sustainably is really a major challenge for the agricultural industry. The product that Woodsmith will produce, POLY4, will be able to increase crop yields, that's really important to farmers, by 3% to 4%. It will have a carbon footprint that is significantly lower than any comparative product, MOP or SOP, that's in the market today. And its natural and physical chemical properties serve to improve soil quality, health and structure, and it is an organic product, and that barely needs any processing. So basically, it's about as close as you can get in certain applications to simply applying ore to the field. It will be a cornerstone of Anglo American in the future. It is incredibly long life, is incredibly low cost, and it will produce strong cash flow for multiple decades after it comes into production.

In terms of the project itself, we made good progress. We continue to be ahead of schedule on our core activities of shaft sinking and tunnel boring. So the tunnel is now almost two-third complete and ahead of plan. The sinking activities for the two deep shafts, the production shaft and the service shaft, are also progressing slightly ahead of our current plans. Very pleased with the progress that we continue to make on the core infrastructure around the project. And in terms of the other major construction work, so this time last year, we had put in one of the three shallower shafts on top of the minerals transport tunnel. The purpose of these shafts, of course, is for access and ventilation. We have now completed the other two, so three of three now done ahead of schedule.

As I set out earlier this year, the confidence that we've built in this asset and the product means that we are now planning to deliver a larger operation in a phased ramp-up approach. So at the end, will be 13 million tonnes per annum of polyhalite produced, and that's a 30% increase on what we had previously envisioned. We are undertaking now the further studies that maximize this long-term value. And while we do that work, we have rescheduled a few of the noncritical items around the project development pathway. And that means that CapEx for this year has been reduced, or guidance for CapEx this year has been reduced by $100 million to $0.7 billion.

Our market development activities also continue and continue to focus now on on-farm trials and demonstrations. So we've moved from the trial stage to major demonstration stage, and they continue to go well and underpin the benefits that we've been talking about for the last year. Now as we've talked about quite consistently, we must deliver our production from both our existing assets and our growth options as sustainably as we possibly can. This is actually where I believe Anglo American has a different approach. With our sustainability considerations embedded deeply, not only into our strategy and value creation model, but also into the way we operate the assets.

Our FutureSmart mining program integrates innovative technologies and our approach to sustainability and drives us to consider holistically all the issues and opportunities where others might just see problems and challenges. We do really see real value creation opportunities within our portfolio across the industry and across the value chain. So just on energy, for example, the Envusa energy project that I spoke about a little bit earlier, our joint venture I spoke about a little earlier, is going to stand up the 3 gigawatts to 5 gigawatts of energy in South Africa. Not only should that increase grid stability and security of our electricity usage in that country, but also it will reduce our operating costs associated with electricity in that country.

Swapping to renewable contracts across our South American and our Australia operations have both proved to be exceedingly positive from an NPV perspective. On water, the proposed water swap, that I mentioned or spoke to you about in February of this year at Los Bronces, is going to provide water that we need to run these operations more sustainably and more effectively, but it's also going to provide a lot of clean water to our communities in and around that business. This water will be supplied at a unit cost that is lower than the cost of water that we are able to get through alternative means at Las Bronces today.

So our coarse particle recovery and hydraulic dry stack pilot projects, which are now at full commercial scale at El Soldado are yielding some very promising results as we'd hoped. And now we're working with Matt and his team to try and replicate those at scale through some of the businesses where they work best. These examples, I think, do demonstrate that sustainability is a key driver of commercial and stakeholder value today and tomorrow. I believe that this approach is key to demonstrating to our host communities, to governments, to our customers and partners, as well as to our current and potential shareholders and society, more broadly, what responsible and sustainable mining looks like, and it is always guided by a very clear purpose to reimagine mining to improve people's lives. We aim to be the partner of choice to those who, like us, focus on long-term sustainable value creation.

In summary now, I think a very good first half that sets us up for a strong second half. While the longer-term key fundamentals for our products do remain strong, we are implementing decisive measures in the current environment to ensure that we are positioned to deliver on our operational and our strategic priorities and to capture what will inevitably be upside to a market recovery. We are focused on driving safe, consistent, and competitive operational performance, and we are optimizing our organizational culture and structure and work prioritization in support of all of that. We are focused on our costs throughout this business, and that includes our business support activities where, as both Stephen and I said earlier, we expect to deliver an annual savings of $0.5 billion.

In addition to that, we will continue to focus our optimization on working capital and capital expenditure. These near-term priorities will improve the resilience of our business and enhance our margins through the cycle. We are committed to maintaining a strong and a flexible balance sheet as always, and an attractive base dividend payout, while at the same time, delivering sustainable long-term value for all of our stakeholders. We do have a uniquely diversified portfolio with a range of attractive organic growth options and continue to build our exposure to those three major global themes and trends that I spoke about earlier. We'll do that, develop all of these options sustainably and profitably, all at the right time.

And with that, I'm happy to take questions in the room.

[Izak Rossouw, Barclays]

Good morning. It's Jan Rossouw from Barclays. Two questions. Just one on Kumba. And obviously, you mentioned around the rail performance and the constraints there. Apart from helping Transnet with maintenance and planning, is there any high-level talks with the government to try to look at other ways of changing this operating model? And then just as a follow-up, do you expect the production guidance has production going up by 2 million tonnes in 2024 and then another 2 million tonnes in 2025, and do you see risks to this and potentially the book value of those mines like you've written down earlier this year as well?

And then secondly, just on the innovation, clearly, there hasn't been much focus at the moment on that, given you've been stabilizing the operational part of the business. But could you perhaps give us an update of how is the coarse particle flotation work going and also the coarse ore sorting or the ore sorting as well?

[Duncan Wanblad, Chief Executive Officer]

Very good, Jan. So on Kumba, absolutely, as you say, working top to bottom with Transnet and the Board, so the Board and the management of Transnet to do what we can to help manage through some of the operational issues that they're facing today. These operational issues generally broadly fall into the fact that they don't have locomotives and they don't have spares for their locomotives, and the infrastructure is really poorly and needs a lot of maintenance and capitalization on top of which there are some real operating constraints associated with theft of copper cable, et cetera, et cetera, along these lines. So these are the things that the Transnet is dealing with, and we are doing, with other users of the line, our bit to try and minimize the impacts of all of that with them.

Part of these conversations, you're right, at the top of government has been around: there might be other operating models, public-private partnerships that could deliver similar sorts of outcomes without at all eradicating the national interest associated with the ownership of those assets. So that is a conversation that is ongoing. It is too slow, in my opinion, to be able to arrest the rate of decline that we're seeing here.

And so what are the implications of that from a Kumba perspective? In the long run, I am absolutely clear that we will find technical and commercial solutions for this. This is an engineering problem. It is solvable, right? So if you remove the politics, et cetera, from it, it is a solvable problem. And the consequence of that means that Kumba should be fine, but it also means that we can't rely on fine happening anytime soon. And therefore, we have to take actions right now to deal with the consequence of the underperformance of Transnet, and that does mean that we will have to restructure some of those operations. We're going to have to think very hard about how we plan the mine, how we allocate capital to the development opportunities that exist within those operations until Transnet comes out. I don't think there's a headroom issue here at all from an impairment point of view at the moment. Stephen?

[Stephen Pearce, Chief Financial Officer]

[indiscernible]

[Duncan Wanblad, Chief Executive Officer]

Yes. So, as we go through this now, during the second half of the year, we'll update you on guidance at the end of the year as a result of that. But guidance for this year from a production point of view, Transnet notwithstanding, is good. Kumba is doing really well at the moment.

As far as innovation is concerned, you say it's gone on the back burner and perhaps it might feel like that because of our clear focus on bringing stability back to the operating model. But bearing in mind that we have real experts dedicated to thinking and working through that are not fundamentally directly impacting the operating model where the focus is, so the innovation drive hasn't stopped at all, in fact. What we need to do is be more deliberate about the set of choices, the number of choices that we have, and how we deploy those choices at scale through the operation.

So not all of the things that we think about on an innovation front are going to work, and perhaps not all of them are going to work everywhere, but specifically -- and the real examples of that are, of course, particle flotation, which became coarse particle recovery and dry stack tailings, both of which we dedicated a whole mine to do. So, the whole of El Soldado was converted into operational flowsheet that had coarse particle flotation on it and now dry stack tailings, too. So we learned a lot of lessons on that.

Fundamentally, the physical science of what we were trying to achieve from recovery improvement and water reduction are there and commercially viable. So, El Soldado is significantly better off today than it would have been without these two operations. So, we are also now focused on not only the pipeline of all of these opportunities that we then have to develop, but how we then transfer them from a development idea into a full-scale project. So, innovation hasn't slowed down in any way at all, but it is becoming more focused and more deliberate around what and when?

[Richard Hatch, Berenberg]

Good morning. Richard Hatch from Berenberg. Perhaps off the back of that. If I look at Bronces in the first half, costs were up 42%. So clearly, there's a bit of volume there as well, they were down, but where are you thinking you can get cost to at Bronces over the long term, perhaps with some of the innovation activities taking place, but it would be good to get a handle on that.

And then second question is just on De Beers. 5% return on capital employed is a challenge.

[Duncan Wanblad, Chief Executive Officer]

Sorry, Richard, on De Beers?

[Richard Hatch, Berenberg]

Yes, 5% return on capital employed for the half, I get it's a hard half for diamonds. But just with the economics of De Beers probably getting worse with your new agreement with the Government of Botswana, does it really deserve to remain in the group?

[Duncan Wanblad, Chief Executive Officer]

Okay. On Los Bronces, costs are indeed up. Los Bronces has got a couple of issues that I think you understand relatively well. So we are monophasic in Los Bronces at the moment. So that is the point in the mining cycle, which means that we're only getting ore from one phase. We can't blend anything into the mills, and we're at the point in the ore body where the ore processes in a different way from historically how it's processed through the mill. So it's harder. It processes as if it's harder and it processes as if it's more refractory, the consequence of which is recovery is lower than it historically has been.

We will move through this phase of the ore at Los Bronces. So the grades outside of the current period are higher than the grades that are in the period and the processing characteristics of the ore that we will mine in the future are different from the ore that we're mining now. So, we're going to have to move through this. This is a short-term issue rather than a long-term issue. But when I say short term, it's a few years to get through this. The other issue historically has been Bronces has been really, really water strapped, and that's created some of the embedded cost. Cost of water is extremely high at Los Bronces, too. So that filters out a little bit in terms of this integrated water project that we're doing from 2025 onwards.

We are going to, have to, and are in the process of opening up additional phases, so Donoso 2 is the next phase. It's slower than we had planned for it to be because of the interference with the bench underneath it, which is the only production bench that we've got, but more importantly, with the development of the underground at Andina, which is exactly on the wall that separates Andina and Los Bronces. So the consequence of those two is that they play through into costs. I think the long-run future of Los Bronces is that it's a mine of roundabout 250,000 to 300,000 tonnes per annum. And we are in the process of structuring our costs to meet that.

[Stephen Pearce, Chief Financial Officer]

Duncan, if I could just add that, Copper Chile was hard hit from inflation point of view, so cost increases and the currency went against us as well. So unusual where the costs were high in PGM, but the currency helped; we had the double hit in Copper Chile this half.

[Duncan Wanblad, Chief Executive Officer]

Okay. So on diamonds, are the economics of the business getting materially worse? Don't forget that as we sit here today at the bottom of a macroeconomic cycle, that's the thing that fundamentally drives demand for diamonds. And so every time GDP growth shrinks, for whatever reason, diamonds is disproportionately affected. So what you're seeing in the numbers is the impact of that. That's why sales are a little bit slower than we had planned for them to be or would like them to be, and that's going to have an impact. When the markets turn, demand for diamonds generally turns with it, too. So the economics recover as far as that is concerned.

What is really important is that if you're looking for diamonds, there is no better place to go than in Botswana, but those assets are second to none in terms of the quality and the optionality that they have. So I think that that's really good, and we'll continue to look at it through that lens.

[Richard Hatch, Berenberg]

Okay.

[Duncan Wanblad, Chief Executive Officer]

Sylvain, then Liam.

[Sylvain Brunet, BNP Paribas]

Thank you. Sylvain Brunet with BNP Paribas Exane. Following up with diamonds perhaps, given the sensitivity to the macro cycle you described, Duncan, are you at liberty to put through some production curbs when necessary, in particular, under the new agreement with Botswana?

My second question is on Woodsmith, if you are able to give us a bit more of a sense of the significance of the offtake agreement you had secured better prices than the 1 you used at the time of impairment with ADM, so we can get a sense. And lastly, maybe a bit of color around the impairment at Barro Alto, is that purely a function of the ferronickel discount, or is there more of an operational issue there? Thank you.

[Duncan Wanblad, Chief Executive Officer]

Okay. Stephen, can you deal with the impairments question, please?

[Stephen Pearce, Chief Financial Officer]

Yes, sure.

[Duncan Wanblad, Chief Executive Officer]

And just as far as diamond production, we as a business always look to try and plan production to what we see coming forward in the market. So that won't change in terms of the philosophy or the agreements that we've got now with Botswana. As far as the offtake agreements are concerned, so we are continuing to drive agreements like that we achieved with ADM, with other partners. We are making very good progress on that. And so more and more of them are going to convert to that sort of value creation -- value and use creation type of arrangement. So I don't really have much more to say on that in the context of -- what we are trying to do is get into a position where both parties, the offtaker and ourselves, are similarly incentivized to create the downstream value in the pricing of this. And that's early upside to the price that we modeled in the impairment model in December of last year. And on Barro Alto.

[Stephen Pearce, Chief Financial Officer]

On Barro Alto, so two main movers in our thoughts on Barro Alto. So coking coal is input -- significant input into the processing and, obviously, prices are higher, so that fed through, and grade, as we look forward, is a little lower. We're also being a little bit slower in getting the briquetting plant in the bulk ore sorting, so both of those two things are important in terms of efficiency of production process, etc., as we go. So a combination of those factors fed into it.

[Sylvain Brunet, BNP Paribas]

Thank you.

[Duncan Wanblad, Chief Executive Officer]

Liam.

[Liam Fitzpatrick, Deutsche Bank]

God morning. Liam Fitzpatrick from Deutsche Bank. First couple of questions on your copper growth. Of the three or four projects that you've put in the slide pack, which are you most hopeful on approving first? And then on Los Bronces, just to understand the licensing and permitting from here, what else is required before you push ahead with development? And then the next question and the last one probably for Stephen, just on the unit costs, the spreadsheet logic is telling me that there's a very big reduction coming on Quellaveco and coking coal in H2. So how confident are you on that and is that going to be sustainable into next year?

[Duncan Wanblad, Chief Executive Officer]

Okay. On copper growth of those three, I'm most optimistic about Collahuasi. It's a relatively simple brownfield expansion utilizing technologies that we know and understand and have some meaningful value and there is great alignment amongst the partners in that, and we're already making progress on that, so the fifth ball mill is the first phase of that expansion going forward. On the licensing arrangements associated with Los Bronces, there are no major licenses that are required outside of the EIA that we've just achieved. That was the most important framework agreement and license that needed to be achieved.

As with all of these projects all over the world, irrespective of the country that they're in, there is a myriad of smaller licenses, water licenses, energy licenses, construction licenses, et cetera, et cetera, that will be required to be got. But none of those are achievable until such time as you've got a definitive plan for implementation. So we have the master plan for implementation, which is covered by the EIA, or the RCA as they call it there. And now what the team is doing is optimizing the design of that operation, which will then go for the subcategory permitting that I've just mentioned, none of that is something that really worries us at this particular point in time. It's the same on Quellaveco we had 300-and-something-odd licenses that we needed to get and, by the way, we still need to get licenses over time and so on. None of them are stacked up to be fundamentally prohibitive to the rates at which we intend to develop the mine anyway. Yes, the cost.

[Stephen Pearce, Chief Financial Officer]

So, Quellaveco, obviously, volumes will really help. It's a great example of a very successful ramp up moving to its normalized cost structure as we move through the balance of the year, so forecasting that dollar market Quellaveco. What a great position to be in. We're pretty confident with where that settles down. The other 1 I think you asked about was still making coal. We do have quite a step up in volume, so we'll have all three longwalls -- underground longwalls running with no long wall moves for the six months. So volumes will play a key part in that, but I have to say the team are also very focused on cost-out and effectiveness as part of the broader thrust across the group. So listen, there's challenges there, as always, but the team are onto it. It's well planned out, well thought through, and we've got a few tailwinds in terms of the volume step-up.

[Duncan Wanblad, Chief Executive Officer]

Patrick?

[Patrick Mann, Bank of America]

Hi. It's Patrick Mann from Bank of America. Could you just talk a little bit more about the $0.5 billion a year cost savings? That's a significant number. Are you flattening the structure? What exactly are you taking out? And is there a risk that we lose some capacity across the group here? And then maybe just related to that, are there any restructuring costs to think about that might come through? Thanks.

[Duncan Wanblad, Chief Executive Officer]

Yes, Patrick, for sure. Stephen, you can talk to the restructuring cost cause there will be some and how they'll be treated. The $500 million is across the support structures in the whole of the business, right. And there is an optimization that we're looking at driving through that. I think that it's beneficially positive to output as opposed to the other way around. Simply, I think the best way for you to think about this is if you took, at a group level, revenue minus EBITDA, that's the number that you should subtract $500 million from and that's what we're going to watch through in the business going forward. Okay.

[Stephen Pearce, Chief Financial Officer]

In terms of restructuring costs here, you'll see, if you get a chance to look at the detailed note, there's some in this half, $28 million. I think from memory in the special items. There will be some in the second half to be quantified as we work through the execution, et cetera. But yes, you should expect some.

[Patrick Mann, Bank of America]

Thank you.

[Alain Gabriel, Morgan Stanley]

God morning. Alain Gabriel at Morgan Stanley. Two questions. Duncan, first question is a bit high level. So since you've taken your current role, the external environment has changed quite a bit with respect to ESG, the rise of more active funds from the gulf, but also ongoing country challenges. Do you see any opportunities from this changed environment to unlock value by reexamining your portfolio? Fully or partially exiting some businesses or rethinking the group structure overall.

[Duncan Wanblad, Chief Executive Officer]

Look, it's a great question. First of all, absolutely true. So the environment over the last 18 months has been significantly different from the environment in the 18 months prior to me taking over. I'd like to believe that I had nothing to do with. That at all. And by the way, of course, all of these things do represent opportunity. And we do look at them all of the time. So at the top of cycles, bottom of cycles, we always have a view of where we can add value or contribute value as a result of our portfolio. So I don't have anything better to tell you other than at all times we have a look at the constitution and makeup of our portfolio, and we continue to iterate our portfolio in the areas that we see to be valuable. That in mind I take you back to those three key themes that I spoke and the fundamentals that underpin the drivers of demand in each of those three themes. And I look at that in terms of the portfolio we have, and I think it's an incredible portfolio that will serve us that in the long run.

[Alain Gabriel, Morgan Stanley]

And the second question is for Stephen. So the business has been consuming more and more net working capital over the last 18 months for a variety of reasons. Do you expect any meaningful release in the second half and how much of that cumulative build is cyclical and therefore would gradually come out of the business over time?

[Stephen Pearce, Chief Financial Officer]

Yes, good. Good question. Yes, I'd love to see it lower, and it will be an absolute key focus for us as we go through the second half. If you think about where that increase sits at the moment, obviously, with the slowdown in De Beers, we're carrying a little bit of extra finished goods at the moment. In PGM's, it's probably been more of an own goal, so we've got work-in-progress build there that hasn't quite flushed its way through, probably hasn't been helped around the edges with Eskom, but mainly our doing, so I would like to see that flow out progressively through the balance of 2023 and into 2024. We always said it would be an 18-month journey for that to flow out.

Kumba, we're carrying finished goods, work-in-progress, ready to go down the train line, so we've probably got $200 million there as well, a little less in our control. But as Duncan said, working hard on that one as well. So a key focus area for us, something we are conscious of may be challenging in the second half, depending on where markets move, but certainly a key focus for us.

[Duncan Wanblad, Chief Executive Officer]

Myles?

[Myles Allsop, UBS]

Myles Allsop, UBS. Maybe, capital allocation, 4% annualized dividend. They can get more in the bank today. Are you thinking about revisiting the 40% minimum payout? And then also linked to that, net debt it's the highest it's been in a few years. When do we start panicking about the strong balance sheet and thinking the other way around in terms of dividend cuts? That was the first question.

[Duncan Wanblad, Chief Executive Officer]

Okay, Stephen, you can talk to the net debt. On the 40% payout, we don't have any intention of changing our view on that at all in the short run. We look at it -- the Board looks at it every half. We go through very clearly what we can and can't afford to do. We're very focused on ensuring that the shareholders get their return in accordance with the current policy, so no intention to change that at this particular time.

On net debt, Stephen can give you all the detail on this, of course, but we've said that we would structure our balance sheet in such a way that we wouldn't go in any material time beyond 1.5 times net debt. And on that basis, at 0.8 times or 0.9 times, which is where we are now, I think the balance sheet remains very robust and very strong given what we see coming forward.

[Stephen Pearce, Chief Financial Officer]

The other things, I suppose I look at in terms of debt is maturity profile, and we've worked really hard over the last few years to really extend that out. So we've got no near-term maturities of any material amount. And overall, leverage, I think from memory, is just a tick over 20%. So again, we're in a pretty good shape from those other metrics. But we will focus on the things that we control, production, costs, and capital allocation. And you have to respect the uncertainty that you see at the moment in the macroenvironment, and we will cut our cloth accordingly across all those things.

[Myles Allsop, UBS]

Maybe a quick second question for Steve. Obviously, this is I think probably your last outing.

[Stephen Pearce, Chief Financial Officer]

May well be.

[Myles Allsop, UBS]

So what are you going to miss most and what do you think the biggest challenges are for your successor?

[Stephen Pearce, Chief Financial Officer]

I think, clearly, the people. It's the fun of working together with someone like Duncan, Paul, the rest of the team, the whole finance team. I've really enjoyed it. It's a great company with strong values that have I think really been shown through some challenging times over the last few years. And that sits well with me. So I'll miss some of that. Sorry, what was -- the challenges for the next guy? John, I've had the pleasure of meeting through this process and actually had met him some years back as well just by coincidence. He's a really strong experienced CFO, so I think he'll slot into the organization and work with the team really well. So he'll pick up the same challenges that I have on my desk. I think he'll bring the same focus and discipline and structure. He's got a good track record in that space, so I don't think you should expect major change. Obviously, a strong Scottish accent, so you'll have to get used to moving on from an Australian to a Scottish accent as well.

[Danielle Chigumira, Credit Suisse]

Thanks. Daniellele Chigumira from Credit Suisse. So look, three questions about the short. So one just on safety. So over the past couple of years, we've seen the divergence between the injury rates falling and fatality stubbornly above zero. You've spoken about what you're doing in terms of the fatalities, but what do you think is causing that divergence? That's the first one.

The second one is coming at De Beers from a different angle, so obviously, H1 has been affected by macro headwinds. If the agreement had been in place for 2022, what kind of EBITDA and what returns on capital would De Beers have generated? And then finally, on Barro Alto, given the impairment and the challenges, does that asset still belong in the portfolio?

[Duncan Wanblad, Chief Executive Officer]

Okay. Stephen, can you talk to the De Beers question?

[Stephen Pearce, Chief Financial Officer]

Yes. Thanks, again.

[Duncan Wanblad, Chief Executive Officer]

Pleasure. Danielle, what a great question on safety. It is exactly the right one and the one that we, as the leadership of the business, spend a lot of time thinking about. Some of this goes to the agencies of what caused the fatalities versus the agencies of what caused the injuries. And then you naturally get wrapped up in those agencies in the likelihood versus the consequence. So many of these injuries that lead to fatality or fatalities are very low-probability events now. So that has changed overtime. We have relatively high-probability events that had big consequences. They now tend to be much lower-probability events, but, of course, they have very big consequences in the same way that they did.

And in many respects, there are two elements to the solutioning for that: one is short term and the other is long term. And I think we're doing really well on the short-term issues, which is behavior modification, right? It's the ability of seeing the risk, analyzing the risk, and then dealing with the risk for 100,000 people in the organization the same way. And that's been a journey. There was a time where the business had 40 fatalities a year. So it's been a massive progress to where we are now. But absolutely, no ways can we stop until it's zero and stays at zero. But let's recognize that there has been that progression, and part of that has been because people treat and tolerate risk in a different way today from how they did perhaps 15 years ago.

The second is you engineer this problem out, okay? So also contributory to the behavior change that's happened overtime has been the application of not only processes and PPE and stuff like that, which was very basic frontline defense mechanisms, but the change of design of the processes and the equipment that we use, so one of the greatest examples of this is that in the platinum business, particularly in underground part of the mining, part of the biggest risk is fall of ground in unsupported areas next to the face just after a blast. We see very little incidents like that because what we do now is we support differently, the type of supports that we use differently, the installation of netting, as well as the procedures of who can access an unsupported face, when they can access an unsupported face, and included in that are the consequences of not doing that right. So those are the things. In the long run, it is absolutely the separation of people and machinery that will change the outcome. And that's why this innovation and technology drive is so important and so fundamental to this business. All of them are small steps, but absolutely vital steps in getting to zero.

[Stephen Pearce, Chief Financial Officer]

On the De Beers question, it's complicated, I think is the simple answer. There's a number of moving parts in that agreement across cash flow, capital, profit, et cetera. 2022 was a particularly strong year and the fund contribution that we've spoken about is a cash flow metric contribution. And so, given it was a very strong year, there would have been a contribution under the fund, and so our result would have been a little bit less. That's probably the easiest way I can summarize at the moment without going through all the detail. But that one in particular is cash related. So in a strong year, we would contribute to the fund.

[Duncan Wanblad, Chief Executive Officer]

On Barro Alto, I think my answer to that is going to be more generic than specific. So with every asset that we have in the group, we continue to review its fit to the group. It's fit to the group is a function of the inherent underlying quality of the resource and our ability to bring our capabilities to turn that resource into a profitable outcome over a long period of time. So while we've had all the pressures in Brazil, that Stephen referred to earlier, that led to the impairment, we still continue to believe that in the short run, for sure, Barro Alto is a very good business. And we'll continue to stay in the portfolio. But with respect to all the assets in the portfolio, they always go under a fit review from time to time. Tyler?

[Tyler Broda, RBC]

Thank you. Two mics.

[Duncan Wanblad, Chief Executive Officer]

You get to ask two questions.

[Tyler Broda, RBC]

Thank you. Yes, two questions. First mic, Tyler Broda from RBC. My question is speaking about changes over the last 18 months, obviously, we've seen a pretty rapid acceleration of EV adoption, and that's had obviously a commensurate impact on palladium and rhodium. I noticed there's no mention of Mogalakwena in the presentation on PGM and platinum, I guess, but we do need to get the platinum from somewhere in terms of the longer-term outlook. I guess how are you looking right now with the changes we've seen in PGMs, that capital allocation, and the outlook for that business?

[Duncan Wanblad, Chief Executive Officer]

I just chose to highlight the copper optionality within the portfolio. Mogalakwena and the development of Mogalakwena, of course, remains one of the growth options that sit within that 25% that we speak about, Tyler. So it hasn't gone away at all. The reality is that we've got quite a bit of work to do at Mogalakwena in the current environment before we allocate capital to the expansion, and we are working through and understanding of what an expansion at Mogalakwena might look like. It's been a long-dated project, as you know. There are multiple options in terms of where and how and when you could expand and what mechanisms that you use to expand.

And in our capital allocation model, whilst these are absolutely viable options, we will have to manage the timing of the allocation of that capital, and we don't destroy anything in terms of the quality of the resource or the ultimate size of that resource by not allocating capital immediately to something like Mogalakwena. So still a very viable option for us. Still very excited about it. That is the preeminent orebody in the PGM industry. PGMs are going to have to come from somewhere, and we're going to be one of the last people standing in the context of PGM productions from an asset like Mogalakwena. So, it's nothing more complicated than that.

[Tyler Broda, RBC]

Great. Thank you.

[Unidentified Company Representative]

Can I just check on the telephones? Deb, can you just check for me whether there's any questions come in? I don't think there are, but can we just check, please?

[Operator]

[Operator Instructions] Your first question comes from Chris LaFemina from Jefferies. Please go ahead.

[Christopher LaFemina, Jefferies]

Hey, guys. Good morning. Thank for taking my question. I just wanted to ask a follow-up on the balance sheet. I know you have a lot of liquidity, so it's not really going to be an issue, but you went from 0.2 times EBITDA to 0.9 times in 18 months, so getting to 1.5 times in a challenging macroenvironment could happen pretty quickly. And obviously, to get there, you'd have to probably change capital allocation. But do you start thinking about that now? And what can you do assuming that we have a more challenging macroenvironment, maybe free cash flow continues to be negative, what do you do to protect the balance sheet as you're approaching that 1.5 times? Again, this could happen in six to 12 months rather than two to three years away. So how do we start thinking about that now? Thanks.

[Stephen Pearce, Chief Financial Officer]

Yes, it's all those things that we can control, Chris. It's around costs cost out, the programs that we're running there. It's around working capital focus. It's around production, margins, consistency, and capital allocation, so all of those levers. There's no magic to this, right? They're all the levers that we have in front of us. They're all the things that we'll be working, monitoring, managing. As I say, we've got no debt maturing, we've got lots of liquidity, but we will manage to the circumstances and the macroenvironment that we see ourselves in. We've always been able to do that. We will continue to pull those levers as required.

[Christopher LaFemina, Jefferies]

Could it be that you go up to 2 times -- historically you've been well above that 1.5 times comfortably for extended periods of time, especially when you have the liquidity. That you have. So is there really a strict definition as to when that net debt to EBITDA becomes problematic for you? Is 1.5 times really the right number?

[Stephen Pearce, Chief Financial Officer]

Yes. I wouldn't like people to think that's an absolute number, and we hit it on a day and things change. So the way we've expressed that target is that we wouldn't want to be beyond that for a long period of time without plans to bring it back in. And those plans could be executed over a period of time if required. So it's I suppose a self-expressed target through the cycle as an indicator of where we think the balance sheet meets all the criteria that we want in terms of strength, flexibility, capital allocation, those sorts of things.

[Christopher LaFemina, Jefferies]

Great. Thank you for that.

[Operator]

There are no further questions at this moment.

[Unidentified Company Representative]

Thanks, Deb. Ladies and gentlemen, with that, we will close. Thank you very much indeed. We have another opportunity on the round table, but thank you for now.