Anglo American PLC

LSE:AAL

Earnings Call Transcript 2022-Q4

[Stuart Chambers, Chairman]

So warm welcome to everybody, and good morning. Welcome to Anglo American's 2022 full year results.

You'll have seen the numbers go out a couple of hours ago. And before I hand over to Duncan and Stephen to take you through all of that, just a few short remarks from me.

First of all, a couple of Board changes since we last met in this way in July. We've had Elisabeth Brinton, one of our Non-Executive Directors step down in September and Tony O'Neil also stepped down at the end of the year in advance of his retirement in June. We're also actually in the advanced stages of a recruitment of our new Non-Executive Director, and we'll be making an announcement about that quite soon.

Now whilst this is our second best EBITDA performance ever, we're all very mindful of the fact that we can always do more on the important area of operational stability, and that's something we're very, very focused on. The macro environment, of course, is quite unstable, including things like weather. But in spite of these operational -- these, I'm sorry, rather somewhat uncontrollable headwinds that we have, we still believe we can drive operating performance further. And of course, if we achieve that, with operational stability comes improvements in safety as well as operational performance. And as we know, those two things go very much hand in hand. Duncan will no doubt talk a little bit more about this.

Finally, let me assure you from the American -- Anglo American Board as well as management that we're very, very focused in particular in two areas, safety and sustainability in its broadest sense among the larger suite of performance delivery that we do. And we're very mindful of the responsibilities we have across the full spectrum of our stakeholders in these two areas.

So, without any further ado, let me hand over to our Chief Executive, Duncan.

[Duncan Wanblad, Chief Executive Officer]

Thanks. Thanks, again, Stuart, and good morning to everybody. Thanks for being with us again. And I know that many are online, so welcome to you all. Always appreciate your time now.

Our lawyers tell me I have to pause on the statement, but I'm not going to do that for very long because you know what it's all about, and I know that you'll get through that all in your in time.

So, by now, I guess, we have a fairly well-trodden formula in terms of how to run these days. I'm going to start and take you through sort of the headlines. Stephen will then take over from me, drill into some of the numbers for you. And then, I'm going to come back and talk about how we position the business for the long run. And this time, I'm going to be spending quite a bit of time taking us through Woodsmith, how we think about it, why we think it's such an incredibly good project and why we're so confident in the product. And so, we promised you last year that we would do it, so it's now. So, buckle up for that because it's coming soon.

All right. So, I have to start, as always, with safety and safety performance. And as Stuart mentioned, it is clearly still my number one priority, and it will always be my number one priority, as it is the priority for the whole of the GMC and the senior leadership of this organization.

I am very much deeply saddened to remind us all that we did have two fatalities due to incidents at our managed operations during the year and extremely disappointed to report yet another fatality at Kolomela last week. So Kolomela now is seven years without a fatality. But last week, we had one in a drilling-related environment, so four people around the drill rig. And I think that, that just goes to show how very fragile this environment is and how much you can never take your eye off the ball in terms of what we have to do to ensure that people go home safely every day.

And as you know, we were very dissatisfied at the beginning of the year last year with our total recordable incident frequency rate, and that's the measure that we look at because it's a much more sophisticated measure than some of the other blunt instruments that are out there to demonstrate our performance on how we're getting to grips with the culture of safety more than anything else in the business. And we responded to that quite urgently at the beginning of last year.

And as Stuart pointed out, actually, the total recordable injury frequency rate for us is a clear leading indicator as to the stability of the whole of the business. So, you can't really talk about safety in a different silo from production. They have to go together. They live together, 100% of the time. And when your leading indicator starts to shake, it's telling you that there's a stability issue in the business, and we clearly saw that.

So, we stood the whole of the business down. We refreshed our psyche around what it is that we were trying to do. We went back to some of the basis on this and very pleased to say that we did see a material turnaround in the performance of the business, both from a safety point of view and from an operations point of view during the second half of last year. In fact, on this particular indicator, in December, we ended up with our best performance in the history of the company at 0.96. So, we know that we can do it, and we're going to keep doing it.

Now we have a pretty consistent approach with the way we think about all our safety, health and environment. Similar mindset in so far as the idea of achieving zero harm is the core driver here. So, zero harm to our people and zero harm to the environment.

On health, I have to report that we had five new cases of occupational disease, all of these were related to noise-induced hearing loss. In the near term, our focus remains on -- very clearly on the execution of planned and rigorously risk-assessed work in the idea of removing people from the exposure of noise. So, we try in all of these things to come up with engineering solutions and engineer people out of the environment in which these exposures exist.

On the environmental front, we had one Level 3 water discharge incident, and that happened towards the end of the year. And this was a confluence of two things. Polokwane smelter was down, so it happened at Polokwane smelter. The ponds that store the water for circulation of operating water, obviously, were relatively full as the furnace was down. We then had a several day, multi-day storm, and we just slightly over top the dam. So, lots to learn out of that. Very pleased to say that the team got on top of that very quickly, cleaned up everything that they could, and our assessment is that there's no material or meaningful environmental impact as a result of that. But it was a reportable incident, and I just wanted to clarify that.

So, looking now at the key components of our environmental and social performance. So, our energy consumption in absolute terms did decrease year-on-year, and that was despite the fact that we'd ramped up Quellaveco. And I think it does reflect the fact because of the ramp-up of Quellaveco that actually we were under the energy utilization in the balance of the business, probably because we weren't producing at the plan that we expected to produce. So quite a lot of that is also a function of the Polokwane smelter being down towards the end of the year.

We did, however, see a very, very pleasing improvement in our Scope 1 and Scope 2 emissions, and that reflects the transition of Grasstree to Aquila in Australia as well as the renewable electricity contracts that we have now installed in all of our South America businesses. They all kicked in, in 2022 with Quellaveco being the last to come on stream, and that will be on stream during the course of this year.

We continue to make really good progress on our longer-term sustainability targets, too, and I'm going to unpack that in a slide or two's time.

On our social performance, very pleased to report some great progress made here on the implementation of our Social Way 3.0. I did point out to you in December that we're now on Version 3 of this process. This current version is a significant uplift, a much higher bar for us than the previous version. And for the management team to have been able to go to the point where, during the course of the year of its implementation, they were independently assessed as having delivered 66% of the foundational requirements of this new policy, I think, is great news.

We know that attaining this level of performance does represent a much higher bar than anything that we've seen of a similar ilk in the industry to date. And some of the stuff is deeply entwined in our long-term sustainability goals, our sustainable mining plan goals, for example, the delivery of five jobs off-site for every one job that we have on site. So it's because we have systems and processes like this that we're confident that we're going to deliver into our sustainable mining plan targets.

Now on the numbers, just briefly from me. So as a summary, EBITDA of $14.5 billion and an EBITDA margin of 47%, and all of that in the face of very significant cost pressures. I think this is a testament to the quality and the diversification of our portfolio. As we spoke about in December, the production was a little bit lower compared to 2021, and we saw a significant step up, as I referred to earlier, in the second half as we stopped the business, got on top of the basics of it and started to turn around again. And I'm very confident now that the focus on this operational excellence is -- and getting the basics right has put us in good shape for 2023. So, a good start to the year so far.

Unit costs were impacted by a combination of very high inflation as well as lower volumes. And Stephen, myself and the rest of the GMC are incredibly focused on mitigating the impacts of those cost drivers. To reiterate, safe, stable and capable operations remain our number one, and number two priorities, and we are absolutely determined to keep getting that right. So, overall, I think a really strong set of financial results. It could have been a little bit better had we hit all of our marks, but we are a work in progress, and we're definitely going to get there.

So just breaking the business performance out through the business units. De Beers, an excellent year for this team. Operationally, performance was very strong. This was coupled with the benefit of some high-grade ore that came out of a good buy cut at the Venetia open pit. And now that is closed, and we are fully in transition mode to the underground operations at Venetia. We also saw very strong markets in the U.S., particularly in the first half of the year, and we're now slightly seeing a bit of a shareholder or site holder caution as a result of the current weaker global economic outlook.

The long-term fundamentals, however, for the business remain incredibly promising, and I am very pleased -- very, very pleased with the provenance work that the De Beers team had done in the run-up to the beginning of last year, which really set us in great stead as the invasion of the Ukraine played out and people's real focus on buying the right type of diamonds really come out to the fore. What's more is I think that this is a real indicator of how people are going to be thinking about acquiring all metals in the future, so metals that are produced in the right way and have the right impact at the source of their production, not just at the endpoint of their use. So great pathfinding way there, led by the De Beers team.

Of course, the GRB remains an extremely important partner to us and we to them, and we are looking forward to refreshing that agreement with them during the course of this year. And as you know, Bruce has now transitioned out of the role of Chief Executive. Al Cook took over from Monday. So, it's all his now, and Bruce is going to join me for the rest of this year, at least as the co-chair of De Beers. So, we will preserve the value and the knowledge that he has in this business for a while yet.

So, in Base Metals, very pleased with the delivery of Quellaveco, of course, on time and on budget, contributing to just over 100,000 tonnes of copper production since it started. I do think this is testimony again to Tom and the wider team who delivered that project through some really difficult circumstances. In Chile, we saw some great work there by the team in terms of mitigating the water constraints that Los Bronces has been experiencing as well as the expected lower grades from the two big operations at Los Bronces and Collahuasi.

The team now has taken a number of steps to manage the harder ore impact, so the mine became monophasic. And as a result of that, they've decided to split a bench so they can get different types of ore through the plant and mitigate the impact of some of that hardness and that's starting to work very well for them at the moment, too. So, we remain very confident that we're going to reach a pragmatic solution too with the authorities in Chile in terms of the integrated permit for Los Bronces.

In our PGM business, we saw a much more normalized set of operating performances following the benefit of having the ACP back up and running at the end of 2021 despite the impact of the lower grades that we saw coming through at Mogalakwena. At Amandelbult, Natascha has shut down some of the higher cost areas of the mine and the concentrate is to focus on more productive, more value-adding and lower cost ounces and that work is going very well. The Polokwane smelter was finally completed to a very high level of specification in December. It's back up and running and in full production at the moment.

In our Bulks business, a much more challenging year. So both the iron ore businesses were hit by wet weather events, particularly in the first half. And at Kumba, we have to, of course, continue to monitor the impacts of the logistics performance quite closely, definitely towards the end of last year and right now, as we're into the beginning of 2023. At Minas-Rio, the initiatives there to address the challenges that we've been seeing in terms of the ore characteristics are now actually starting to pay dividends. And finally, at Steelmaking Coal, we finished the year flat on '21, but that was really a good performance. And I am quite encouraged by the way the team have taken on the challenges defined by the new operating regime specified by the strata and the gas control requirements as a result of our learnings from the incident a few years ago and the change of shape of the regulations in the country, so very good and pleasing start from them at the beginning of 2023, too.

So, all in all, I think a really decent performance. And importantly, I'm very encouraged that we are focused on the right things as we progress into the beginning of this year.

Now, I said I'd come back to some of the sustainability highlights. As I said, I covered the headlines of the environmental and social performance a moment ago. But I'm sure that, that doesn't really capture a lot of the really great progress that we have made towards meeting our sustainable mining plan targets.

On carbon, I'm sure that not many of you in this room missed this, but we did actually launch the hydrogen truck as a prototype in the first half of 2022. The really good news is that truck actually is in operation at the moment. It's going through its paces, getting a whole lot of data for their engineers to improve the design for the second version of the prototype, but it is quite something to see it in a circuit with all the other mining vehicles, presenting itself to shovels, taking the material to either the waste dump or the product stockpile. And so, I think great progress made there and on plan to get that -- on plan to get that rolled out at scale.

We also announced the first 600 megawatts of our renewable energy projects in Southern Africa. That's first 600 megawatts out of a vision of 3 to 5 gigawatts of energy as part of the Envusa Energy program. And this is now very happily been given the status in South Africa of a strategic integrated project, and that's very helpful in terms of consolidating government support for this program and more good news on that front overnight from the Minister of Finance too. And so we are on track to commence the construction of the first two of those projects in that 600-megawatt bucket during the course of this year.

In Chile, we were able to secure a desalinated water project for more than 45% of Los Bronces' needs from 2025 onwards. And of course, you'll all remember that this is now such a water strapped area and has really struggled over the last few years with extreme weather events. In this particular instance, generally droughts rather than excessive rain and to be able to now not have to rely virtually 100% on the abstraction of continental water, but have an alternative source of water that is more in our control is very liberating for an operation like Los Bronces.

There's a second part to this is as yet an unapproved phase, but I think this also goes to the mindset of how we holistically think about creating value from these sorts of things, and that is that we are in the process of trying to swap every kiloliter of water in this project for double the volume of grey water that is currently just being put to waste. So, legislation in Chile is that no grey water can be used for human consumption, but we can absolutely use it in the plant. And we have a way that we might be able to swap this out and that would bring us to almost complete independence from the normal ways of abstracting water in Chile. So, a great way to think about that. And of course, community develop -- the community benefits very significantly out of water security as a result of this program, too.

The social contribution that we make is probably one of the hardest elements of our ESG program or performance to measure. But I do think that it's also probably one of the most powerful things that we do and in terms of the direct impact that it has on improving people's lives.

I'm very proud of the work that the team has done in building an inclusive workplace, and our focus, particularly on gender-based violence, not only in the operations, but in the communities in and around the operations. So, gender-based violence, bullying, harassment and victimization, all the fundamental tenets of an inclusive workplace that we are busy creating in Anglo American.

We have now established as a result of all of these policies Living with Dignity Hub in South Africa, and this is a place where independent support mechanisms are available for not only our employees, but our contractors and their families to the extent that any of them are victims. A similar facility is also in place in Australia now and continuing to grow.

So, with that, Stephen, I think I'll hand over to you, and you can take us through the numbers.

[Stephen Pearce, Chief Financial Officer]

Thanks, Duncan, and morning to all.

So, as you know, I always like to start with the two sort of key themes that I'd like you to take away from my section.

So, as Duncan mentioned, so in spite of some operating challenges, we did deliver the second highest EBITDA performance for the year through the second half. We really focused on those efforts in terms of delivering safe, consistent, stable operational momentum, and that is poised to continue into 2023.

The second theme, one of my constant themes in these things, strong balance sheet, 40% dividend payout is maintained that gives us a yield around 5% or at least it was at the start of the week. It's probably a bit more at the end of the week.

Finally, we continue to invest in value-adding growth and that positions the portfolio for the two major demand drivers that we see, and while our technology and innovation programs enable us to supply those metals and minerals in the most sustainable way.

So, turning to the '22 performance. EBITDA of $14.5 billion, and I'll unpack that for you a little bit in the next couple of slides, but healthy pricing helped to mitigate the impact of those higher unit costs. That gave us an EPS of $4.97 and reflecting that 40% payout policy, dividends were $1.98 per share and that results in $2.4 billion of shareholder returns from this year's result.

Net debt landed at $6.9 billion, and that was a little bit better than we expected when we spoke to you in December as prices started to rise towards the end of the year. And all of that results in a healthy return on capital employed for the year of 30%.

So, if we break that EBITDA performance down across the different business units. Diamonds, strong operational performance and healthy markets, a full year EBITDA of $1.4 billion and a 52% mining margin. In 2023, we're watching those macro themes closely and the opening up of China. The 2022 holiday season was robust, though we had a slightly lower sight 1, we remain hopeful that things should pick up as this year progresses.

In Base Metals, $2.6 billion EBITDA, focusing on copper, expected lower grades, water and ore hardness at Los Bronces. We did have high inflation in that part of the world in terms of our input costs and C1 unit costs were up 31% as a result of that inflation and the reduced volumes. In 2023, obviously, Quellaveco, much more sizable contribution is expected.

In PGMs, a healthy $4.4 billion EBITDA, a 54% mining margin and a 24% processing and trading margin, a robust basket price of $2,550 an ounce, and remembering that '22 was impacted by the Polokwane smelter rebuild.

In Bulks, $6.6 billion EBITDA. Wet weather impacts across the various operations. Start of '23, we have seen continued heavy rain, particularly at Minas-Rio and in Queensland, but a 49% margin reflecting the premium nature of our steelmaking ingredients.

So overall, a good set of numbers in the circumstances, and I am encouraged by that operational momentum that we're carrying into 2023 as we focus on getting that consistency and rhythm back.

So, let's look at the drivers of EBITDA. So, a reminder that our 2021 EBITDA was our highest ever supported by those high prices. '22 EBITDA, our second highest ever. Prices have remained robust, although lower than 2021, but they do remain above long-term averages.

There were a number of known factors that came into '22, particularly when comparing to the 2021 period. So, in 2021, we had the rundown of the ACP stocks that we've built up, and that wasn't repeated in 2022. We had planned lower grades in Chile just with the mine sequencing, but we also had water challenges at Los Bronces and higher input costs. Other factors in '22, also mentioned the Polokwane smelter, the re-ramp-up of the Steelmaking Coal longwalls and obviously, the weather impacts that we've spoken about.

So, inflationary headwinds and lower volumes and how that played out in terms of unit costs, so up 15% across the full year, but that was an improvement on where we sat at the end of H1. At that point, we were up 18%. So, breaking that down, volumes contributed 5% of that impact, and that really is that valuable prize that we know we can chase through the year as we get that stability back.

Inflation overall totaled 14%. And I think as others have reported, diesel was the biggest part of that above CPI inflation at around 75% of that above CPI inflation impact. And the work that we're doing on the sustainability front in terms of our lower emissions, renewable energy, et cetera, is going to really position us well to take that sort of variability out of our results as we go forward. And of course, in our case, weaker producer currencies help offset some of those effects that you see above.

So, looking ahead to '23, as we said in December, we're expecting around a 3% increase in unit costs, step-up in our volumes, particularly with the addition of Quellaveco should help, and it is that major prize that we're chasing to help offset ongoing impacts of inflation.

So, economic contribution, I have to say this is something I'm really proud of, of that significant economic contribution that we make and it totaled $30.6 billion across the year. Importantly, a large part of that impact is directly on people's lives in the countries that we operate in.

So, a key part of that contribution is the tax and royalty payments that we make, which totaled $5.9 billion for 2022. So, it's down on 2021, but very much in line with earnings. The dramatic increase in royalty rates in Queensland, coupled with higher earnings there, resulted in a significant increase in our royalty payments in Australia. The change in royalty rates meant that we paid an additional USD200 million in royalties during the second half compared to the previous regime, with total royalty payments for the year being over USD700 million. The increase in coal royalty rates was forecast to deliver an additional AUD1.2 billion to the Queensland government over a four-year period. However, the budget measure is now expected to deliver AUD3 billion just in this year alone, and it only came in halfway through the year. So, with the industry, we continue to seek meaningful dialogue with the Queensland government to review those royalty rates, particularly in light of the miscalculation of the impact of that change.

While in South Africa, the headline corporate tax rate is set to decrease in 2023 from 28% to 27%, but we do see increases elsewhere. Tax rates and tax bases in all of our operating countries is something we watch carefully as governments manage fiscal deficits impacted by the pandemic. And Chile is one such example where the government is looking to raise additional tax revenues from sectors that have seen increased profits in recent years, such as mining. So, while the royalty outlook there remains uncertain, the most recent proposal that's now passing through the various approval stages, while still high, has moderated significantly from where it started. We're continuing to actively engage with a full range of stakeholders to ensure that they recognize the full economic value that we generate. And our taxes and royalty contributions in Chile increased this year to over USD1 billion.

So, turning to the balance sheet. I know this is a topic you will all be interested in today. So, while Tom and the Woodsmith team continuing to work across the various streams of the project, we're clear at this stage to maximize the long-term value of this multigenerational ore body, and we need to invest more upfront to expand the capacity of some of that core infrastructure, very similar to the approach that we adopted with Quellaveco, and that helps lock in the options of future expansions as the market for POLY4 polyhalite develops.

But we are being prudent. We're taking a phased approach to the build where we can to ensure that we invest capital in the right way when we need to, and importantly, as the market develops. So, as a result, we expect to take longer and cost more to bring the configuration we want for Woodsmith into operation.

So, we mentioned in December that we'd feed this latest thinking into our models for year-end accounting purposes, and this results in us impairing the carrying value of $2.6 billion by $1.7 billion. As we progress through the remaining studies and as we derisk the remaining schedule, I expect the value and the discount rate should both move in our favor over time.

But for accounting purposes, we continue to take a positive still conservative view of the POLY4 market price in our models. We do incorporate varying pricing methodologies, including blend substitution and we weight them based on probabilities of outcome. But this is a market that we need to develop over time in order to realize full value for the products qualities. And that's why we're comfortable with a longer timeframe and why we're putting so much effort into the marketing capabilities of the business. We're building up a bank of agronomic, scientific and commercial evidence for both the yield and the environmental performance of the product, so that we can market that effectively and attract a significant premium for it in the future. And Duncan will talk you more about the product attributes in particular in a moment. But until we've done that work, it's still a little early to incorporate that value into these sort of accounting models.

As you know, these models can be highly sensitive to changes in near-term expenditures. And while this expanded scope will increase the overall cost and push out initial ramp-up in cash flow, it also gives us more confidence in our ability to maximize the value from Woodsmith over the longer term.

So, turning to CapEx, $5.7 billion for the year. It was up on 2021, driven by higher sustaining spend, partly as we caught up on some of those projects that were deferred or delayed during the pandemic as well as specific projects such as the Collahuasi diesel plant, the start-up of Quellaveco, smelter rebuilding PGMs, some higher spend at Los Bronces and also some impact from inflation. Growth CapEx of $1.6 billion largely reflects spending of Quellaveco and Woodsmith.

Guidance for 2023 remains at $6 billion to $6.5 billion, higher due to the SA renewables and the nuGen truck program, the Collahuasi diesel, work at the PGM smelters, the Minas-Rio plant as well as some cost inflation and the ramp-up of operations at Quellaveco and in Steelmaking Coal.

Net debt increased to $6.9 billion, lower than we were expecting when we spoke to you back in December, again, impact of higher metal prices running into the year-end, and we also had some higher dividend receipts from some of our associate operations.

We paid $3.7 billion to shareholders during the year and that includes the additional dividend declared that -- we declared at 2021 full year results on that year's record earnings as well as the remainder of the buyback that we announced in the half prior.

Working capital increased by $2.1 billion. That reflects inventory builds at PGMs owing to the Polokwane smelter rebuild as well as builds at Copper, Kumba and De Beers that we discussed in December.

But we are making great strides in 2023 in terms of our Sustainable Mining Plan goals. And in 2022, we put our money where our mouth is with two sustainability-linked debt issuances, so a $745 million bond as well as the USD100 million loan with the IFC, both are linked to deliverables from our sustainable mining plan. And importantly, this holds us to account in reporting against our progress against those metrics. And you'll see that in our reporting suite over the next couple of weeks.

And with our strong and flexible balance sheet, we're well positioned to continue that disciplined investment in the pipeline of our growth opportunities.

So, to recap, I always like to report against our capital allocation scorecard. So, cash generation of $3.3 billion after funding sustaining capital, $2.4 billion for the base dividend, with further $0.6 billion being the additional returns we announced this time last year and the $0.2 billion the tail end of the buyback that we announced at the 2021 half. We then allocated $1.6 billion to growth capital.

So, finally, we are committed to our capital allocation framework. It delivers us a strong balance sheet, an attractive 40% payout ratio and that translates into a healthy dividend yield and offers us flexibility in terms of how we invest in discretionary capital options, both organic and inorganic as well as how we consider additional returns to shareholders. So more than 90% of our growth CapEx is allocated to value-adding, high-margin projects that deliver products into the long-term demand themes that we see.

And with that, I'll hand back to Duncan. Thanks.

[Duncan Wanblad, Chief Executive Officer]

Thanks, Stephen.

So, just before I get to the Woodsmith section, I want to start with what I think the big picture again. I am sure that today across our demand portfolio, the Metals & Minerals more broadly, not only the ones that we produce, but I think that world looks and feels really, really good from a fundamental perspective. So many prices have now been elevated above their long-term average for quite a while now, and the demand outlook is just set to get stronger from here in our view.

And yet, despite all of that, no massive flood of new projects into this market. I said it before, I will say it again, supply is quite constrained here in terms of these dynamics. Recycling, substitution, thrifting is all going to be really, really important contributors, and boy, do we need them. But even with all of that, there's still going to be, I believe, the structural shortage of metals and minerals.

The industry supply will also, I think, continue to disappoint a little bit, rather underwhelm expectations than exceeds expectations. And a reason I think that, that will continue to be the case for all the reasons that I laid out in December, which is that there are permitting issues across the world. There are disruptions that we're seeing more and more, more frequent extreme weather events, grade declines, fiscal uncertainty and so on and so on.

On things that are outside of our world too, so having a look at independent sources and commentators in the space, well renowned and well respected such as Climate Action Tracker, their view of life is that currently, the world is on a trajectory to reach 2.7 degrees of warming above pre-industrial levels. And that is quite a long way mathematically from the 1.5 degree C that is required by the Paris agreement.

And so, all of that, I think, is going to continue to serve to put an extraordinary amount of pressure on metals intensity and the use of the metals and minerals. And so, what of all of that for me is that it still feels that we are structurally headed towards higher pricing in the future.

From our perspective, our geographically diverse portfolio is supplying into two major demand trends that are becoming ever more clear to us. And the first is the one that we really just touched on now, and that is of decarbonization of our energy and our transport systems to get us to this cleaner, greener, and more sustainable world that we all want to see. But the second continues to be this broader drive to the improvement of living standards for a growing and urbanizing population, and that means demand for everything from homes to electronics and for food to consumer luxuries. So that's really what we mean by a future enabling project -- portfolio rather than just a future-facing portfolio.

And so, turning to projects very briefly. Quellaveco, the new mine in Peru, continues to ramp up both lines running very well, and actually, they produced 80,000 tonnes in the last quarter of last year, so 100,000 tonnes for the year, 80,000 in the last quarter. Reason for me saying that is that I want you to understand that it's going to be about 30,000 tonnes lower than that in the first quarter of this year for some very good reasons.

Two of those are because we have to take the plant down now as part of the normal ramp-up and commissioning process. We're doing some big maintenance. We're doing some resets from the learnings and some of the systems that happens naturally during those first phases of commissioning, then we'll get it back up and running again.

The second reason is that the Quellaveco tailings dam is at a very delicate stage of its initial construction. It has to be -- it is rate limited in terms of how much material we can deposit at this particular point in time until we get the basal cone of this dam properly stabilized. And of course, this is a dam that's going to be here for many, many years. It behooves us to get this right, and we're following the engineers' instructions to the letter in terms of doing that.

The third element here, of course, is whilst we haven't seen any material impact of this, we continue to need to be very mindful of the fact that there's a lot of unrest and socio-politically driven issues that may well affect the supply of materials into the mine and the removal of concentrate from the mine, so we have to be mindful of that. At this point in time, as I say, no major impact. And actually, the team on the ground tell me that things seem to be quietening down and improving a little bit from their perspective at the moment, too.

Okay. Let's talk about Woodsmith. So, Stephen did give you a flavor of it just a moment ago. And I'd like to set out for you our view of the significance of this project and particularly the product, POLY4 and how uniquely we think this is now positioned to address the agricultural industries, very important and emerging challenges. I'd like to cover through this section why we believe Woodsmith is a Tier 1 asset and how we expect to deliver high-margin returns and cash flows from this multi-generational asset. I mean this will be a cornerstone of the Anglo American portfolio for decades to come.

So, I've said before that we rarely do need to get the design and the engineering on a project like this right. And when we took it over, we did say that we were going to bring it in-house and we were going to study it and bring it up to a standard that we as Anglo American, we're going to be happy with in terms of how it was going to be delivered. And I said to you in December, I'll give you a sense of what the shape and the size of this project looks like now. So quite a lot has happened since we acquired Woodsmith. It just was, by the way, immediately just before the pandemic set in. And of course, last year was a massive reset year for us on many fronts. But as we further integrated it, but also, we're able to interpolate some of the outcomes of those studies and the technical review that we did after bringing it on board.

So, firstly, on the core development areas of the project, we've made some big changes to the scope of the design. They may look really small when you look at it from a picture at a high level, but actually, they are quite significant, and I'll unpack some of those for you now. Ensuring that we get this project to a standard that we're happy with and we get it set up so that it can effectively continue to optimize its output over the multiple decades that it's going to be in existence for.

So, we've changed also, under Tom's leadership, the execution strategy on this. So, when he took over the project in -- was it April or so last year, Tom, the one of the first things that he did was shut it all down. It was very distressing for me, I have to tell you. And then three or four months later, he started up again. And when he started up again, it was a completely different picture in terms of the way it was operating and the actual production performance in terms of the shaftings and the tunnel progression. So, in terms of doing that, we now have an EPCM model, which follows quite closely the approach that we had at Quellaveco and Tom has also engaged some specialist contractors to execute the sync of the two deep shafts.

Secondly, on the timeline and the scope of the work for this project, so we are still making some changes for an extension to the scope. And I'm going to explain that shortly. And this is specifically to align with the market potential for our product. And what we want to do is be sure that we set this up right. So, a key point to remember here, it's a deep underground mine. You have more options to course correct for strategy in an open pit mine in flight than you do in an underground mine. So, setting it up with that in mind is very, very key, and that's what the work of our technical and marketing team has been doing in the last couple of years. So, none of us want to turn around in 10 years' time and say, "Darn. I wish we'd done it just a little bit differently and can't now avail ourselves of the options and the opportunities that we really do believe that this product is going to bring to the market."

So, there still are a considerable number of studies that need to do as we progress this core infrastructure. One, in terms of the configuration of the perfect outcome or the best outcome that we can come up with. And two, to minimize the risk of the actual cost of the development of this project. So, I said before, quite a lot of this is a function of the level of engineering, what you know and understand, and therefore, that defines your execution strategies, particularly during the shaft sinking time.

As it stands today, we have a project that circa 25% to 35%, Tom, I think I'm right in those numbers, that are in concept and prefeasibility stage, and that's why we haven't taken it to the Board for approval yet. And we have the balance of the project, more or less equally weighted between construction level assurance and feasibility level assurance. So just really great progress being made on those fronts. As I said before, we do now have a very highly experienced project management team led by Tom and working very close to specialists both internally and externally and building on all the learnings that we came -- that we had coming out of not only Minas-Rio, but even the successes coming out of Quellaveco.

So, significant progress on the core infrastructure. So, a great picture on this slide, absolutely love what that looks like, while the scoping work is ongoing. So, on the two deep shafts, both being excavated by these machines called Shaft Boring Roadheaders. They're not a first for us. They're the third generation of these types of machines, well-trodden in Canada and Belorussia. And we are now having had Tom do the reconfiguration of the sort of some of the technical issues on these units during the first half of last year, over 20% down on the service shaft. And we hit a really big milestone in January of this year, where we started the sink on the production shaft.

On the tunnel, we're now over halfway in terms of the tunnel boring activities, currently around 21.7 kilometers of a total of 37 kilometers. And you remember, the original configuration of this was assumed that we might use three tunnel boring machines. We're now going to use one tunnel boring machine to drive the whole 37 kilometers.

There are three shallower intermediate shafts that are going to sink down to tunnel for various reasons, second egress, ventilation purposes, maintenance, et cetera, et cetera, so those will all hit a final depth of somewhere between 320 meters and 360 meters, all progressing exceptionally well. So, very close to the intersection point on the MTS shaft at Woodsmith. We are complete on Lockwood Beck and the Ladycross shaft has just started, but progressing exactly as we had expected it to do.

So, I'd like to just lay out now the dimensions of the project as we see it today from an optimized configuration or very close to optimized configuration since we took ownership of the asset. So, we are now going to set it up to be able to deliver 13 million tonnes, and that's a 30% larger project than it was originally intended to be. This doesn't mean that we go to 13 million tonnes on day one. I think that I want to be very clear about that. But you have the options to be able to grow it into that, and that is going to be very optimized from a capital execution point of view or capital efficiency point of view over time. We are going bigger because we believe in this asset, and we absolutely believe in the product and what that product is going to be able to do in the market.

The annual spend is going to vary year-to-year on this thing. We've approved $0.8 billion for this year, and it will be in the order of $1 billion between now and 2027 when we would expect it to be in first production. So, at that point, we'll start getting our own product out and into the market. And then we will build it up to 5 million tonnes per annum in 2030. During that period of time, we still have a lot of these studies to do to optimize not only the mining, but also the distribution of the product and getting the product to market as well as building the value case -- the value-accretive case for the product rather than just relying on product price substitution.

So, it's going to, therefore, take a little bit longer and cost a little bit more than might have been envisaged under the previous owner. And certainly, as Stephen has described to you, from an accounting perspective, you can appreciate how just that from an NPV perspective, by pushing some of the early cash flows out a little bit for these very good reasons, has had the impact that it has done.

I would like to assure you that under our hands, we are taking a very long-term view and a very focused view on how to maximize the value from this asset, an asset that's going to, as I say, be a cornerstone of the Anglo American portfolio for at least five decades from the time that it comes into production.

So gone are the days now, I think I pointed this out sometime last year, too, where we would come up with a concept design, get enough of the engineering into sort of 30% of detail and say, "That's the equivalent of a feasibility study, and therefore, we're going to put that into the market." We are going to do the homework on this thing. We're going to get it right. We're going to understand what the real risk and where the real risk areas are, and we're going to develop detailed engineering strategies to eliminate those risks and create more and more surety of cost of time and executability of the project as we take it forward. I think that's absolutely critical for a project at any scale in mining, but particularly for deep shaft mining projects.

So just to visualize what this project looks like. So very good cartoon here in terms of the schematic. Paul drew it. He did a great job. Two deep-level shafts on the left-hand side, 1.6 kilometers to the point where they intersect. What he's drawn as a wonderfully tabular white seam, polyhalite seam, so miners are really looking forward to getting into that fold, thank you. And as I said, those -- that sink done by these two SBRs.

Secondly, given the proximity to the port, the connection -- I mean, this is an amazing advantage for this project, too, by the way. I mean there are very few bulk product market projects that are only 37 kilometers away from their port. So that's the materials transport system that's being developed at the moment with a tunnel boring machine.

And then, finally, I think you can see the three smaller shafts that I referred to, the MTS shaft almost at the intersection point. That's where the mid-shaft loading, as we would call it in mining terms, occurs to transfer the product from the underground onto the conveyance to take it to the processing plant and the port.

So, all going relatively well. There's still more work to do here on the non-critical part items, but these are still going to obviously be part of the core infrastructure. So, there's a port area where we will have a granulation plant, and there's a priority, and we will hopefully have the access on a priority basis to the export facilities. Limited processing here, so not a lot of chemical processing that occurs here. None at all. In fact, it is granulation, our ability to make a product that looks and feels like those that farmers are currently using today is a very important part of our go-to-market strategy.

So, continue to make good process, and we'll get a lot more work done during 2023. In 2024, we're going to hit that seam above the polyhalite seam, which is the sand seam. That's an area that we don't understand a lot about. It's a water-bearing layer. What we need to do is be sure that our water sealing strategies and our sink rate mechanism through that zone is well understood, and we are well prepared for that. We get into there in 2024. So, at that particular point in time, we're in a completely different level of understanding of the time it's going to take them to complete the project.

So, what do you have to think about from going from 5 million tonnes to 13 million tonnes? Well, if you set it up right, not a hell of a lot, really. So, in underground mines, you obviously have to get the core infrastructure sizing and shape right if you're looking to potentially expand. The one thing that is real value destructive in any deep-level underground mines is when you put part of the infrastructure in and then a few years later, you really can't put another set of the same type of infrastructure. And so, you nail your productivity year-on-year with declines and sub-declines and sub-verticals to the point where the mine becomes completely uneconomic. So, you have a chance to get it right in a world where there's such a huge amount of potential upside to the product valuation, and that's what we would have to do here.

One of the things that we did do actually, a small thing, so you can't even see it on the schematic that we've done here. But we will have to bring some ventilation. There was always ventilation in the planning of this mine. It was out in 20 years. Now we want to bring it forward slightly. But actually, one of the big pieces of work that the technical team did was just simply expand the diameter of each of those two deep shafts by 75 centimeters. So, there was some configuration that Tom and the team had to do to those shaft boring roadheaders to be able to get that done. But just that a little bit, it doesn't seem like a hell of a lot in the total diameter, has a material impact on timing, size, shape and cost of the future infrastructure. So those are the kind of things that the team has been thinking about and executing over the last few years.

So, some of the other key infrastructure things that, again, as I say, not on the critical part at the moment that are going to be required to deliver 13 million tonnes. Important to say that this overview is of the potential plan, and there are still quite a few studies. I say, 25% to 35% of the project still in concept and prefeas stage. The blue bits on this graph show us those types of scope changes are going to be required.

So first, something that you -- that we have previously raised is the addressing of the ventilation issue, and then getting on to work out how we optimize the mining method. So right now, the base mining method here is just simply conventional board and pillar mining. Given the rate at which technology is developing for mining, given the time that it's going to take to get us here, we have a very solid plan A, but Matt is all over plan B and plan C, and there may be other ways that we can get into this that has a lower ventilation load that is even more productive than we're currently seeing it, and we have the opportunity bearing in mind the length of life of an ore body such as this. And then, of course, it's how you configure the materials extraction shaft or the transport shaft, how you set the conveyor to go from 5 million tonnes to 13 million tonnes, and that's really simply what's going on at that point.

How to develop the market is another fundamental part of the strategy of the development of the mine in and of itself. So, it's not necessarily true that we have to put all of the granulating capabilities at one place, which might have been an original concept. In the work that Alex and his team are being able to do with many of our partners and our off-takers of this thing, there are other ways that we might think about distributing, blending and bringing this product to market at various nodes and points across the globe. So that means it's really important to take our time, get those things right, understand those markets and then deploy the capital, as Stephen said, at the right time and in the right place on the right things.

I have talked a lot about the project itself now, but really what makes this thing so exciting is the product and the very unique nature of this product and the things that made us so attracted to it in the first instance. It does play into those global megatrends that we see. Farmers have to produce more food, and they have to do this because the population is growing. And at the same time, consumers, so the farmers' customers, and all the supply chain and government expectations that are around today also have to improve their own sustainability and reduce the impact of their production on the world or on the globe itself. And that growing global population demand, requiring improved living standards, including nutrition, is all a very important fundamental part to how food is going to be provided in the first instance and then secured.

And the one thing that we know is land is not becoming more available. And we know that fertilizers have had a massive role in increasing the productivity of farming. So, since the 1960s, we know that there's been a 150% improvement in food productivity with only a 12% increase in the use of arable land, but we just don't see there's another 12% of arable land easily available for similar sorts of food rate growth that are going to be required to feed a population of 10 billion people.

And of course, that has not come without a cost. So, there are environmental impacts of the way fertilizers are used today. They have greenhouse gas emission impacts. There is pollution of waterways. There is biodiversity loss as a result of the application of some of these fertilizers. And farmers and consumers have to, just as mining companies and steelmaking companies, et cetera, have to look for more sustainable practices in the future.

There's a third element here, which is the impact directly on nature and the deterioration of soil health being a key issue is now sort of right on the top of the agri industry's agenda. And the long-term use of chemical fertilizers versus our product, which is an organic fertilizer, does have a -- I mean there's really good evidence that this does have a detrimental effect on soil strength, on soil structure, and therefore, on the productivity that is then being able to be attributed to whatever parcel of arable land is available.

So, we need fertilizers. I think the case for that is really clear. But it would be great if we didn't have to incur the same sort of impact that current types of fertilizers have on a sustainable basis going forward. So, POLY4 is that product. It's not the savior for everything, but it does make a huge difference to some of these key drivers that this industry is now very rapidly trying to start to get its head around. There are no other natural organic mineral fertilizers that look and feel like this, and Anglo American has the only scalable source of polyhalite globally. I mean that is a very unique and attractive proposition for shareholders. This mineral is so distinct in its composition, its behavior and its benefits. And therefore, in its value. So, let's just talk about this value equation a little bit more.

So, we have to develop our commercial strategies in terms of how to bring this to market, right? And there's, one, left-hand side of the equation is you just substitute it. The other side is you create a premier for it, and you'd be very careful about how you put it into the marketplace. We now have an interesting collection, in addition to engineers and social scientists in the Anglo American stable, teams of agronomists and crop scientists working across the globe on numerous crop trials and development projects for this product.

We now have conducted over 1,500 commercial on-farm demonstration projects, and we can show the benefit in a very, very positive way. So, at the time that we acquired this project, only 400 crop trials had been done. They all looked great. Now 1,500 summit demonstration scale, and excellent results. So, we are seeing now on average a 3% to 5% yield improvement that can increase revenue not just for us, but for our customers too, those being the farmers, very important in a low-margin business like theirs. And more than that, we're beginning to see results that really do now start to set POLY4 apart from conventional and chemical fertilizers.

First one is that we do now have this evidence that it will improve the uptake of nutrients in the soil, and it can reduce the need for much of the chemical fertilizers. Not all, right, this is not a complete substitution for current chemical fertilizers, but it can materially impact the volume of those that will be used in the future. So, it's a 6% uptake. This is what we've seen from our trials of nitrogen and phosphorus just relative to that, that you see when MOP is applied directly. And this is down to the prolonged nutrient release profile and the multi-nutrient nature of POLY4 versus some of the others. So just like you and me, a plant needs a balanced diet if it's going to be healthy, and this is a good core component of that diet going forward.

Lastly, it does have the potential to materially reduce some of those environmental impacts that I was speaking about earlier. It's a low waste product, i.e., product -- ore to product ratio is 1:1, given the size and the nature of the seam and ore body, the material comes out of the mine, there's no waste dump. It goes straight to the granulator, onto the ship or onto the ship directly. So that's really important from a land use point of view, from a chemical inputs processing point of view, and obviously, also from a cost point of view. Because of the fact that there is no chemical processing that sits on the back end of this thing, the product already has a carbon footprint that's 85% lower than any of the conventional fertilizers that are available in the market today.

So, it is the only known mineral fertilizer product that can do all of these things. And we do continue to work, Alex and his team continues to work with all the partners that we have in this value chain, from the farmer, to the customer, through the supermarkets and the distributors. And in fact, POLY4 is now being used in commercial trial of low-carbon fertilizers, led by a major U.K. supermarket, to cut the carbon footprint of their own food supply chains.

So, these are a few of the reasons that we think that the fundamentals are so strong and supportive of a product of this nature going forward.

So how do we price it then, okay? First of all, it's not a commodity, okay? This is a marketed product. I think that's the important thing to remember. You can treat it as a commodity but it actually is a marketed product, because its worth will reflect, ultimately, all of these things that I've been describing in the last couple of slides. And the conversion of those benefits has to be into the value and therefore, will reflect in the price at some point in time.

And by the way, we're not just dreaming this up because we have some experience of how this is done. And I think De Beers is obviously the best example of how to take something and create value, tangible value around that offering. But more increasingly, we're applying that system and that logic and that thinking and that approach to just some of the conventional mining project -- products, and what Pete and his team have been able to do with the premium associated with some of our iron ore and steelmaking coal products is exactly a good indicator of what I'm talking about here.

So, this slide overly -- outlines how we might be looking at value. So, on the left-hand side of the slide, there's just a pure substitution bucket, right? So, you're going to buy a bag of fertilizer from your local hardware store or garden center. And in that, there's a ratio of N, P and K. And what we can do is just extract the components in that bag that are in polyhalite, resubstitute them with polyhalite, and that bag is going to cost less, okay? But just the value of that bag, exactly the same thing. That's $170 per tonne in the market today. And that's a blunt substitution approach.

You start applying some of these other benefits that we've started to talk about. And the direct yields -- now the farmer hasn't paid for any of the yield benefits that come out of this and certainly hasn't started to think about the value associated with the sustainability benefits of this project. When you look at this on a crop-by-crop basis, district-by-district basis, there are more enhanced value things in terms of time to get this stuff to the market, how it deploys in the market, how quickly it liberates in the soil, what it does for soil and soil structure, and the fact that you now get the yield benefit. So, it costs less. It's got yield benefits associated with it. And then ultimately, you can start pricing in some of the things associated with the provenance of the product, as I mentioned earlier, and the sustainability elements of the product going forward.

So, you can see where it goes to at the end, and it's not going to go there on day one. So, let's be clear. We know that from day one. So that was very much what Tom and the team brought to the Board at the end of last year was this more thoughtful way of setting ourselves up to get into this, but at the same time being very thoughtful and very pragmatic about creating the market, developing it and building off the success of it as it goes forward. And we haven't taken all of these benefits into account at all in the way that we thought about the valuation of this today in terms of the model that Stephen was talking about earlier. If we did just get 30% of the upside that I've just described, the price of this would be about $100 a tonne more than we're thinking about. So very prudently, we've only captured $20 a tonne of that in our current $190 a tonne mark. And it's not unhelpful that today, as you look on the screen, for a very similar type of product, it's currently trading at just over $300 a tonne.

So, to recap then. First, making really good progress on delivering the critical path aspects of the infrastructure on this project, particularly in the shafts and the tunnels. Secondly, we will continue to study and optimize the scope of this work, particularly from a phasing into the market perspective as well as understanding and minimization of the risk to capital and the timing and the spend of the capital. And thirdly, in case it wasn't very clear, I am very excited about this product and what it will do and the role it will have in the world in the next 50 years.

So, Woodsmith is a Tier 1 asset in a very low-risk jurisdiction, offering long-term value to our shareholders. It has structural advantages in the quality of the ore body and the proximity of the mine to logistics channels. It is scale, and it has low operating costs and will have a very low capital intensity too, by the way, from an SIB perspective, and I think there's lots of upside in terms of the creation of price and value for a product like this where we will be able to crystallize some of these premiums that I spoke about. And it clearly does still have quite long-term potential and optionality for even more expansions.

So, the product and the assets are outstanding, and we really are now at the start of this journey. It is a very scarce and multigenerational asset, and we'll use the time that we have to get this absolutely right, but really great progress in terms of where it is today.

So, finally, whilst I hope I've given you a slightly deeper understanding of how we think about this project and how it's dimensioned and where it's going to from here, I think the best way for you to really get your head around is come and see it. So, we are planning a site visit for this later this year, probably October 4, October-ish, and we'd love to take around and show you. There, you'll have not just me, but you can meet the team led by Tom, who are thinking about every day how to execute this safely, more productively and at lower cost, and the team under Alex working for Tom who are thinking very hard about how to develop this market and how strategically to take the product from where it is today to a point where it gets a large chunk of the value premium that it should -- that it deserves to get.

Right. So that was Woodsmith. Quickly looking forward and how this all comes together from a broader growth optionality perspective. With our focus on operational excellence and coupled with our organic and very attractive internal options focused on products that are aligned to those future demand themes that we've been speaking about, we still have internal options to offer 25% growth from inside the portfolio over the next decade or so. And we believe that there's even more upside from fully embedding the operating model in this business and realizing the full potential of our current assets under management, which will be delivered by our P101 program.

We believe that the FutureSmart Mining program, which is our technology offering, and our integrated approach to all matters sustainable in the round, is both differentiated and industry-leading and will enable us to unlock, I think, the full capacity or capability of our assets. Ally Atkinson's appointment last month to lead our project and development opportunities will continue to progress our leading-edge technology and digital program as well.

Quellaveco and Woodsmith are key clear major contributors to Anglo American's growth profile. But so too, are Collahuasi, Mogalakwena and Sakatti. And we're going to sequence these options through Stephen's capital allocation model absolutely appropriately. And as always, we will compare the value upsides in all of the organic opportunities with any organic opportunities that arise during that period of time.

Our customer-centric marketing capabilities help to optimize value and identify opportunities as a broader material solutions provider. We need to ensure that we produce as sustainably as possible and that we supply to these customers who value both the work that we do in terms of limiting our impact on the environment and the positive difference we make to and around our mines.

This is my last slide. In summary, we have shown, I think, real resilience through 2022, and we have to navigate some really tough operating challenges amid quite a volatile macro backdrop. We adjusted our plans rapidly, and we focused our efforts on safer and more consistent operational execution. I am very pleased with the progress that we did make during the second half of '22 and so far into the early months of 2023. And I do believe that we are well positioned to execute on our strategy.

As Stephen said, we do offer balance across a number of dimensions, a geographically diverse portfolio, delivering many of the metals and minerals that the world now so desperately needs, underpinned by a strong balance sheet from which we do pay attractive returns and then also develop our pipeline of enabling organic growth projects.

Okay. Questions. Jason?

[Jason Fairclough, Bank of America Merrill Lynch]

Jason Fairclough, Bank of America Merrill Lynch or Bank of America. So, thanks for that Duncan. You're obviously really excited about Woodsmith, which is great. But it's a little bit of a mixed message, right, because you're super excited about it, there's all this upside, and then you're taking quite a big write-down, right, very early in the project. So, I guess the question is, what has surprised you about the project? Why the write-down? Did the accountants win over the dreamers?

[Duncan Wanblad, Chief Executive Officer]

Yes, Stephen's quite a dreamer, too, I have to tell you, but he is constrained by a set of rules that he has to apply very diligently, and I think that we have done that in this case. The write-down now is very much a function of the application of accounting rules and the prudence that we would have to apply to these things, given what we know of the project today. It does not build in all of these upsides that I've been speaking about that we are very confident is going to be there, but we have to deliver it right, Jason, and that's the work that we're planning to do.

Stephen, do you want to talk a little bit more about the mechanics of the write-down?

[Stephen Pearce, Chief Financial Officer]

It is a tough one. Obviously, I don't want to talk down the accounting profession in any sense. But there is a fundamental difference between what you have to do, both from a management and an audit perspective, in terms of a long-dated discounted cash flow model and the assumptions that you have to be able to verify and tick off to put in that over time versus a model and the belief that you have in terms of the true value that you can deliver over time, and we're just in that circumstance.

You'll note if you get to -- I can't remember the note number, but the detailed note on the carrying value and the write-down, we've put sensitivities in there for you because we are using a very high discount rate, which is appropriate for accounting models at the moment, its greenfield nature, but we've put sensitivities. So, you can see if that comes back to the corporate WACC, in theory, the NPV and accounting view of the value rises significantly. Similarly for the price, we've put the sensitivity in there for you as well, so that if you do believe, as we believe, in the value the product brings, you can also see the sensitivity that, that will drive into the value. And that probably reflects our true belief in the value of this product rather than the accounting model.

So hopefully, you can work through that, and we can help you -- Paul, and the team can help you through that in the next few days.

[Jason Fairclough, Bank of America Merrill Lynch]

Okay. So just a follow-up then. So, what surprised you as you've taken over the project?

[Duncan Wanblad, Chief Executive Officer]

So, not a lot, Jason, if I'm perfectly honest with you. I mean, when we acquired the project, it was one of the most attractive options that we saw. We knew we were going to have to do a lot of work to really get under the skin of this and do it in a way that was consistent with the project that would exist in Anglo American for multiple decades. A lot of the things that we picked up during the diligence that we had access to at that particular point in time are all playing out as expected in the design and the delivery of the project. So, I would say no major surprises at all.

[Jason Fairclough, Bank of America Merrill Lynch]

Okay. Thanks.

[Danielle Chigumira, Credit Suisse]

Thank you. I'm Danielle Chigumira from Credit Suisse. A couple more on Woodsmith, if I may. So, when Woodsmith goes to Board for approval, at what form will it be in? Will it be the 5 million tonne version, the 13 million tonne version, something in between?

[Duncan Wanblad, Chief Executive Officer]

Yes. No, it's -- we will take the project in phases to the Board for approval. So, the Board approved the $800 million for this year. We will have to go back to the Board at the end of this year to give them an update on where we are with the project, how the development has turned out. And we will get partial approvals to get to the point where we have dimensioned all of the risk and got the capital into a point where we are really happy with it. So, the right level of engineering, the right level of risk in the project.

So, I would suggest that there's another couple of years, we'd certainly want to get more detail in the sandstones before we had completed the design on the project and then really understood the sink rate and time to get to the bottom before we took it to the Board for final approval. So, it's at least two years out, I would think, from a final approval from -- for full notice to proceed in the way that you would have thought about at Quellaveco.

[Danielle Chigumira, Credit Suisse]

Okay. So, in 2024, when you're in the sandstone, you'll be in a position to take the 13 million tonne version to the Board for approval, is that how we should think about it?

[Duncan Wanblad, Chief Executive Officer]

I'm not sure that it would be 13 million tonnes, but it would certainly at least be the 5 million tonnes at that point.

[Danielle Chigumira, Credit Suisse]

Okay. Great. And just thinking about from the marketing perspective, you're speaking about up to 5 million tonnes in 2030. What would you need to see in terms of feedback from crop studies and so on to get -- to have confidence in that 5 million tonnes and then ultimately to the 13 million tonnes? Because the commentary that you make around the value of the product and the fairly slow ramp-up, there seems to be a bit of inconsistency in that. So, how do I think about that?

[Duncan Wanblad, Chief Executive Officer]

No, no, that's very much a market development strategy that's coming to play here. I mean we could put quite a lot of this product into the market relatively early on just simply on a substitution basis. I think it will be really hard at that point to start building the premier that should be associated with this product. So, we'll have to let it earn its stripes in the market, right?

I mean the one thing that the farmer really wants to know and understand is that this thing isn't going to have any detrimental effect to the way that he runs the farm today, for instance, right? So, very important that they get real-life opportunity, not just from crop trials and external bodies with who we work with who are providing a lot of this information today, but on their own farms as to when this stuff is in their store, that it exists in their store in a way that it does with other products. That when they put it into the distributor and they run it on the tractor through the farm that it distributes in the same way. Of course, when it's in the soil, it does what it needs to do.

So, all of these things need to be known. Then they learn and they experience the yield benefits and so on and so on, and so we can build into it on that basis. So, this is a very, very deliberate strategy, and the pace of uptake of that might be different in different parts of the world for all sorts of reasons, and that's why we say up to, but we'll get there.

[Danielle Chigumira, Credit Suisse]

Okay. Thank you.

[Duncan Wanblad, Chief Executive Officer]

Yes. And so, we'll just keep going along the lines.

[Sylvain Brunet, BNP Paribas Exane]

Thank you. Sylvain Brunet, BNP Paribas Exane. Just another one on Woodsmith, but should be a quick one. I understand why the discount rate has changed compared to the beginning, even if you run sensitivities around that. Why was it changed compared to when the acquisition took place in 2020?

[Stephen Pearce, Chief Financial Officer]

Why is the discount rate changed?

[Sylvain Brunet, BNP Paribas Exane]

Yes.

[Stephen Pearce, Chief Financial Officer]

The discount rate hasn't changed. Actually, we use the same discount rate in the acquisition model as we have in this model. But remember, there are two very fundamentally different projects here in terms of what we're building in terms of time, scale, progress, pre-investment.

The thing I'd also encourage you to think about, this is very different to a normal -- Quellaveco is probably a good example where you've got -- and Matt, forgive me here, but relatively a simple mine with more complex processing and logistics and everything that goes with that, whereas this is all about the pre-investment in the infrastructure with very simple processing and logistics. So, it's actually totally a flip around to how you would normally think it.

And just to back up Duncan's point here on the pre-investment that you need to make, I'd also liken it a little bit to almost a greenfield iron ore mine, where the building of the mine is actually relatively simple, particularly if you're thinking of Pilbara-type operations. So, the investment in the rail and the port infrastructure that you nail to the ground, and you sort of get one chance -- yes, you can expand them later, but you get one chance to invest in that and scale it and get the efficiencies right. This is almost an identical scenario here. So, it's just about -- I'd just encourage you to think about it a little bit differently to a normal large-scale open cut, other deep shaft mines, thinking exactly the same way is what we're thinking here.

[Sylvain Brunet, BNP Paribas Exane]

Second question on iron ore. And back to Kolomela, if you could perhaps help us understand a little bit the difference there is between the challenges that Kolomela is experiencing now versus Sishen? The last few years, Kumba is actually a good example of a good recovery, and it looks like things have become more difficult, a little bit difficult to understand from the outside.

And my last question is on Botswana, just to understand, what is being discussed at the moment? Is it purely fiscal terms? Have you agreed on some of the items already? And why are you sure that 2023 should be the time line for the final agreement?

[Duncan Wanblad, Chief Executive Officer]

Okay. Thanks, Sylvain. So, on Kolomela, so Kolomela was hampered in a slightly different way last year from Sishen. So, some of the fundamental underlying issues associated with the weather and the mine development were very similar to Sishen, so all turnaround-able in a short space of time. But of course, it had a three- to four-month period where it, in addition to that, had a misfire on one of the main benches in the mine. And Mpumi and the team absolutely quite rightly needed to navigate that misfire in a very, very careful way. So that slowed the mining rate down significantly during that period of time. By the end of the year, Kolomela was doing very well.

Now there is a differentiator too between Kolomela and Sishen in the context of access to rail. And at the end of the year, when we started to really struggle with rail access during the strike at Transnet and then the extended maintenance period that happened at Transnet, we elected to prioritize the Kumba material onto the rail, and we stocked the Kolomela.

So those two shouldn't be confused. So, Kolomela did get through the misfire situation. The issues that they had similar to Sishen related to the mine issues, that is in progress and doing really well at this point in time. But we will probably still prioritize Sishen to Kolomela onto the rail. Okay?

On -- at Botswana, so actually, the vast majority of all of the elements of the negotiation have been completed. I can't remember how many workstreams there are, but there's only one outstanding workstream, and that's where the team is working at the moment. Okay?

[Ian Rossouw, Barclays]

Good morning. Ian Rossouw from Barclays. Just a couple of questions on -- firstly, on Woodsmith. Could you -- from memory, the Sirius plan was to get to 13 million tonnes eventually. So, with bigger shaft, et cetera, is that ultimately the capacity the shafts can do? Or is there upside longer term?

And then, Stephen, maybe just remind us, I think from memory, the long-term price you mentioned at the time of the deal was more like $120 to $140. So just to maybe explain the bridge to the new long-term price.

And then, just lastly on working capital, what should we expect for this year and sort of roll off of the platinum inventories as well, please?

[Duncan Wanblad, Chief Executive Officer]

So, Stephen, last two for you. On the Sirius plan to 13 million tonnes, the real constraints in that mine are probably not the ore body, it is really a shaft capacity and the tunnel capacity to get to the port. And it's not just simply the size of the conveyances that you need to put in there, which are really important, but actually fundamentally constrained by the ventilation.

And our approach to ventilation, and ventilation, very important in the context of the mining method that you select, the equipment that you put down there and so on and so on. Our approach always was likely to be different from Sirius'. I don't really want to comment on the comparison between our plan and the Sirius plan, because from day one, we said we were really attracted to this opportunity because of the nature of the product, because of the size, scale of this ore body, but what we wanted to do was do our own review on it, work out how we were going to optimize the execution of it, and these are our plans.

[Stephen Pearce, Chief Financial Officer]

On the price, yes, your recollection is correct. I think we were talking around $125 to $140 at the time that we acquired the project. So, you are spot on there, Ian. What have we done since to inform our view? So, the economists have gone to town in terms of fundamental supply-demand balances across the four main nutrients that make up the four main aspects of the product. And it's that view of the fundamental supply demand-balance over time expressed as a real price for the relative percentages that informs the $170. We have then gone through and looked at, well, how do we feel about on a balance of probabilities where some of that value is, and in a fairly conservative approach, we've added $20 to it. As Duncan mentioned, if you took a different approach, you'd add $100 pretty quickly. And the current market view of that is over $300. So, we've tried to stick relatively conservative, but it's that fundamental economic buildup view of the four main nutrients into the $170 as a starting point. So, I hope that answers the question.

On working capital, we've had to build the working capital and it hasn't always been -- some for good reasons, as I think I said in December and some that we'd love not to see through interruptions of production. So, De Beers is probably one where we've had a bit of a tick up in finished goods. And some of that's obviously a view of the team leading into the New Year and potential China reopening. So, trying to position for that. Hopefully, we'd see that flow through. The other is because we've got the transition of Venetia this year from underground, which the last cut is now being completed -- sorry, the open cut, the last cut is being completed and the underground transition as that starts to ramp up through the year.

And so again, the team are keen to make sure we've got the appropriate mix of diamonds to take to the market through the year as we go through that transition. And so, we're carrying a little bit of extra stock through there. We have seen, I would have to say, the last couple of years, we're probably coming into the year. We've had positive views, and that's played out well. So, it's fed into some of the results as we've carried some stock. And it just happens to be across 31 December as we go into sight 1. So, it varies then a little bit through the year.

On copper, Quellaveco ramp up, that's good. Obviously, in terms of that operation coming up, so we're seeing a little bit of buildup there. And you'd be aware that there was a fire at the third-party port that we use near Los Bronces that we used to take the product out. So that saw a little bit of buildup in December. And while it's back up and running at lower volumes at the moment, it will take another few months, I suspect, through the half year. Don't expect an impact on full year sales and certainly no impact on production from that.

And PGM is probably the biggest WIP buildup that we've had across the portfolio. Some of that POC material, the purchase concentrate that we bring in off of current pricing, and so that feeds into our carrying value. Some of it is the Polokwane smelter. You would have seen in the Platts result that indicated -- that will take a little bit of time actually to run out. So even though it's up and running and processing well, you get another pinch point just this side of the ACP as you balance the right mix and feed through the ACP. So that will take through '23 and '24 to run out.

So, they are the main things that we're watching on the working capital front. A couple of billion dollars. I'd love to get at least half of that back in the near term to keep that. So, I hope, Ian, that side help you down as well in terms of working capital management.

[Ian Rossouw, Barclays]

All right. Thank you.

[Alain Gabriel, Morgan Stanley]

Alain Gabriel at Morgan Stanley. Duncan, first question is on Woodsmith. Do you have a sense of the operating costs if you were to achieve 5 million tonnes and then subsequently 13 million tonnes? That's the first question.

And my second question is, outside of Woodsmith, your growth options for the next five years appears to have stalled or are paused, especially around Mogalakwena and Collahuasi, the expansion. Can you give us an update where we stand on these growth options outside of Woodsmith, at least for the next five years? Thanks.

[Stephen Pearce, Chief Financial Officer]

Thanks, Alain. Operating costs at Woodsmith stalls sort of around the 10 million tonne mark. We're circa $50 a tonne. That's slightly higher than that at $5 million a tonne, but -- 5 million tonnes, but possibly lower than that at 13 million tonnes. The growth options outside of Woodsmith, stalled, I'm not sure that I would characterize it as that, just that it takes longer to get these things done. As I say, they're really big projects in there other than Woodsmith and Collahuasi -- other than Woodsmith and Quellaveco are Collahuasi, Sakatti in Finland and Mogalakwena. So those are the big options and prices to go for.

Quite a lot still to have been done on extracting the optionality that existed certainly at Collahuasi. The team has done an excellent job there. Now is the time to start getting our heads around how to bring that forward. That is also in a world where permitting is a very different type of world today than it was just five years ago. And Jorge and the team had to start working out how to repermit the water that they were using in their current operations before they had to get through thinking about how they were going to expand the operation. So, I think that, that's what underpins some of the timing associated with that.

Mogalakwena, itself, absolutely made great progress. Natascha had the six pillars of work that she was going through to get her head around how we were going to expand this, what the best deployment of capital was between the mine and the plant, what the plant configuration could and should look like and the time for this. And so, I think that in terms of her own program, we're bang on track in terms of where we should be with that at this particular point in time.

And Sakatti also going great guns from an engineering point of view, but in a really interesting world of permitting, given where that resource is located. So, I spent some time in Finland a month or so ago. I spoke to people. I mean very much all incentivized to want to try and make this happen, but still quite a lot of work to do from an EIA perspective.

[Alain Gabriel, Morgan Stanley]

Thank you.

[Richard Hatch, Berenberg]

Good morning. Richard Hatch from Berenberg. A question on capital allocation. You just bought 9.9% of Canada Nickel for $25 million. It's really interesting project. It looks like it could be quite big, long life. And I wouldn't want to say it, but if you did acquire it and we sit here five, 10 years down the line, we're talking about the same things. [Junior] (ph) takes the project forward, you then have to recapitalize it, put it right. The CapEx is significantly more than what was initially envisioned. Why not right now? You can buy it for $150 million, put a small premium on it. The amount of cash that you generate, you could easily put your foot on an interesting province in a commodity you like, which you're underweight on based on your pie chart. Why not buy the whole thing now and get it done? That's the first one.

[Stephen Pearce, Chief Financial Officer]

[Multiple Speakers] It's an interesting project, but very early stage. And I suppose we're looking at it from almost a technology sort of perspective on it. It's really quite low grade, but potentially large scale, but very early day in its life. And so, we're happy to come in as a -- I can't remember the number, 9-point-something percent shareholder with others. It's early days and happy to be part of that work program in the next few years. But let's see how it develops. It is quite early days, large-scale, low-grade. Maybe technology can work for us here as well and a few other little twists that we'll work on.

[Duncan Wanblad, Chief Executive Officer]

Yes. So, in the first instance there, the offtake component of that was very attractive and important to us. But as Stephen said, the idea that we could actually deploy some of our thinking in terms of the technologies around dry stack management, et cetera, et cetera, was also attractive. So, we're in. We have a seat at the table there, which is very helpful for us in terms of thinking about what the options are in the future.

[Richard Hatch, Berenberg]

Thanks.

[Unidentified Analyst]

Sorry, going back to Woodsmith, I mean using $50 per tonne cost, it's hard to see how this project can generate more than single-digit ROICs five to 10 years down the line, right, given the $5 billion upfront CapEx. I'm just thinking how it stacks up against all the other options that you have like Mogalakwena. I mean in terms of going back to the capital allocation framework, was this still the best project you could do at this point in time? Or is it kind of the sunk cost fallacy holding you back into -- you've already sunk 300 meters of shaft, so let's go ahead with it.

[Duncan Wanblad, Chief Executive Officer]

So, Stephen is going to answer that question. But before he does, I want to tell you that this project and the allocation of capital to this project is not holding up either Mogalakwena or Collahuasi in any way, shape or form.

[Stephen Pearce, Chief Financial Officer]

Great answer. Well done. So, I totally agree with that. Listen, we have a very strong view of the value that we think we can deliver from this. And you can do some simple sums in terms of a $50 cost and potential revenue number per tonne and the cash flow that this thing can generate for a very, very long period of time is very attractive to have as part of that portfolio. If you put that through your calcs, as we have done, obviously, you're missing a few bits and pieces in terms of your own simple models, and we will hopefully help you with that over time. And if you then derisk the project as it comes through its natural life cycle of time and certainty and with our view of the market, we think it will stack up really quite attractively.

Also just at the moment, you're not allowed to put in certain other benefits from an accounting perspective that we would see, and having a strong cash flow revenue generating, a business in our home head office country is something that we haven't had ever since we moved to London. And so, to have that as part of the portfolio is also quite an attractive theme in terms of overall economics.

[Unidentified Analyst]

Is it possible to get further tax benefits given lots of projects like Britishvolt mega plant there, et cetera, in that region has fallen off?

[Stephen Pearce, Chief Financial Officer]

Listen, one of the things that this project does bring is very attractive growth and activity to a region of the U.K. that needs attractive growth and activity. And it's one of the biggest capital projects north of London. So, in terms of both the government priorities, our priorities and the value and community activity and social aspects we think it can bring it plays very well into that whole story.

[Myles Allsop, UBS]

Myles Allsop, UBS. Maybe just on Woodsmith as well. So, we've had a few questions, but not all the answers yet. Would you bring in a partner, I mean, to derisk like you did with Quellaveco? So, on the tax, are we right to say at the moment, there is no tax benefit other than sort of the offset to head office costs, but there's no kind of sort of lower tax rate for a certain period of time or anything like that?

[Stephen Pearce, Chief Financial Officer]

No lower tax rate, and there is no head office tax benefit in the models as we present them today, because under the accounting standards, you're not permitted to do that. So those would be upside if they were to play out eventually.

[Myles Allsop, UBS]

Have you -- I mean, I'm sure you have, but you probably didn't share it, but the IRR on the project is, the base case, is that sort of over 10% or over 15% or...

[Stephen Pearce, Chief Financial Officer]

I expect it will meet our hurdles around when we get to that final decision point as we factor in our view of value and the optionality of these things -- this project brings through time and how we see the product in the market. Now we've got to prove up some of those things as we get towards final decision, but where I sit today, and I think we are as a management team and a Board is that we're confident that will play out into that sort of territory to cross the hurdles.

[Stephen Pearce, Chief Financial Officer]

And just to your point on potential syndication of the project. Always open to that, Myles. There are some -- there are two really good reasons to think about these things from time to time. One is, is there a partner that's additive to you and can enhance an outcome that you on your own couldn't do? Or is this a good way to manage risk given the nature and type of the project and location of the project going forward? All of that said, it has to be the right partner, and, it should really be at the right time if it's going to be value accretive to shareholders. So, there are no plans to do it right now, but that doesn't mean that there won't ever be.

[Myles Allsop, UBS]

Maybe just on platinum as well. Could -- I mean Mogalakwena is starting to look like more of a mediocre asset rather than a super special asset that we like to believe. When you look at the lower grades and the sort of performance over the last 12 months. Could you give us a sense as to how the grade profile will evolve and how we'll get Mogalakwena back at the left-hand side of the cost curve?

[Duncan Wanblad, Chief Executive Officer]

Yes. Okay. Well, Matt's in the room. So, as he's in the room, I'm going to ask him to talk to that grade profile. But I think the most important thing to remember is that every asset, so we see it at Los Bronces, we see it at Collahuasi has a grade profile through the whole of that asset. And there are times in the phasing of the development of that asset where you go through higher grade, lower grade, harder ore kind of characteristics and so on and so on. So that is a phase that Mogalakwena has been in at the moment, and it has had some difficulties that have been really made starkly prevalent by the elimination of the inter-processing stockpile associated with the geometallurgical model from a predictability point of view. But we are getting on top of that and that we will solve during the course of this year, I'm sure. But it is still an incredibly good asset. I mean, the underground elements of this asset, so the ore body at depth, is still probably a differentiator ore body from any in its class.

But Matt, do you want to talk to a little bit more detail about the grade profile?

[Matt Daley, Technical Director]

Yes, certainly, Duncan. Yes, thanks for the question. So, I guess starting from an endowment standpoint, this is an incredibly remarkable resource. The extent is 18 kilometers along strike, it's not closed at depth. Ore body width varies from 40 to a couple of hundred meters. Depending on where you are in the pit, there's a lot of variability from north to south. So, where we're moving, the next few years into the southern part of the pit where you see much higher grades in the next two or three pushbacks, which will definitely help that grade profile. When you start to look at the transition to underground, we'd be a lot more selective in how we mine, and we're looking at having grades closer to the 4-, 5-, 6-gram per tonne instead of the run of mine from the open cut are in that 2 to 3-gram per tonne. So, looking over the next 10, 15 years as some of those potential options become real, I think you'll see some really exciting things around that grade profile actually improving.

[Liam Fitzpatrick, Deutsche Bank]

Liam Fitzpatrick from Deutsche Bank. I'll give you a break from Woodsmith. So, two questions. One on De Beers, I just wanted to come back to your comments about everything almost being done. Should we take that as meaning that there's not going to be any material change in kind of the ownership and the economics as they've stood over the last 10 years?

And then secondly, I guess more of a broader question on the group. Anglo still is a fairly complicated business when you look at how many assets you have, the different regions and so on. Do you think about streamlining or divestment steps from here just to really kind of perhaps take the simplification another step forward? Thank you.

[Duncan Wanblad, Chief Executive Officer]

So, on De Beers, Liam, I mean, it is clearly in negotiation rights, one that happens every five years for us, and it is in both parties' interest to come up with a value accretive deal on both sides of the fence here. I don't want to forerun any of the detail of this thing. I mean we are in the middle of a negotiation at this point in time, but the negotiation is being done in good spirit on both sides of the fence here.

From an Anglo structure point of view, of course, if I had a blank sheet of paper, it wouldn't look like this from a structure point of view. What I am really very comforted by is the quality of the underlying asset base that exists in that structure. There's not a lot I can do about this in the short run at all. But I know that we are quite effective at being able to manage through that complexity, and we'll continue to do that for as long as we can.

[Tyler Broda, RBC]

Tyler Broda from RBC. So, the Woodsmith project, so it's $5 billion or $5 billion, $1 billion a year for five years to get to the 5 million tons. What is the sort of capital intensity we should be looking at for the 5 million to 13 million tonne on next steps? And then should we think that you go straight from 5 million tonnes to 13 million tonnes depending on how the market develops? Because -- when will we expect this to become free cash flow positive, I guess, as well?

[Duncan Wanblad, Chief Executive Officer]

Yes. Okay. So, Tyler, on the rate at which we progress from 5 million tonnes to 13 million tonnes, I think very much a function on how we -- how the market strategies in terms of development are playing out. I don't have the capital intensity numbers at my fingertips here. But certainly, it was a significant drop between 13 million tonnes and 5 million tonnes.

Paul, you don't have them to hand, do you?

[Paul Galloway, Head of Investor Relations]

Yes, about a third.

[Duncan Wanblad, Chief Executive Officer]

It's about a third of the capital intensity to go from 5 million tonnes to 13 million tonnes as it was from zero to 5 million tonnes.

[Stephen Pearce, Chief Financial Officer]

And that's all because of that pre-investment in the main elements of infrastructure to get you there.

[Tyler Broda, RBC]

And then just a quick follow up, if I could. The opposite of Liam's question. You're seeing a lot of talk now about M&A in the space. How do you think Anglo American is viewing M&A at this point from an acquisition standpoint?

[Duncan Wanblad, Chief Executive Officer]

Same way we've always viewed M&A. I mean, to the extent that there is an M&A opportunity for us, where we can actually lean into with a real difference at the end of the day, so make a differentiated outcome from a value perspective, it is in play. It will always have to complete with any of the internal options that we have. And so, we look at it all of the time. None of that's changed.

[Paul Galloway, Head of Investor Relations]

We got two last questions on the telephone. So, Dom, can we go to you first, please. But we are unfortunately not [strapped] (ph) at the time so just go ahead.

[Operator]

You've got Dominic O'Kane from J.P. Morgan.

[Dominic O'Kane, J.P. Morgan]

I've got two questions. First one on, again, going back to capital allocation. Duncan, you made the comment Woodsmith isn't constraining your ability to move forward to do growth options, but I would argue that it is having an impact on your shareholder distributions by virtue of your net debt number. So, can you just help us or remind us what your guardrails are on excess capital distributions from this point forward? So, i.e., how can shareholders access returns greater than the 40% payout?

And then, my second question is just on South Africa generally. I think this is the first full year where you've not been subject to capital controls. Could you just maybe remind us what the impact of that is on your day-to-day business and treasury management?

[Stephen Pearce, Chief Financial Officer]

Why don't I deal with that one first, if you're happy to. So yes, it's actually almost been probably two full years, I'd suggest, that we've had restrictions on the capital controls lifted in practice. So, I suppose the country used to have a -- pretty much, you can't move it out unless you get permission policy. Now that's moved to everything can go out unless you need to get specific approval type policy. And the main institutions through Finance Ministry, Reserve Bank, et cetera, have been really committed to that journey. And so, we now benefit from that. It's more like an Australian FX management regime than perhaps what they had previously just to use an example. And so, we have full freedom.

We notify them after the event for large things that exceed certain limits as opposed to having to seek permission in any way for dividend payments or for balance sheet management. So, it is just a routine movement of cash flow across borders like it would be for any other country now. So, it's been really pleasing to see that they've really committed to that policy change and delivered very clearly on that policy change. So, it's been a great assistance to us.

Do you want me to have a go at the other one? Or you want a crack at this?

[Duncan Wanblad, Chief Executive Officer]

Let me just say Dom, and Stephen you can add to this, we are absolutely looking to profitably grow this company, and we're doing this because it is definitely in the shareholders' interest for us to do that. From a net debt point of view and how we think about that in terms of distributions, our position on this hasn't changed a hell of a lot just to sort of roughly dimension that. If net debt ever ended up well below $3 billion, of course, we're almost certain that there'd be a redistribution of some of that excess capital. If we were between $3 billion and $5 billion, there's always a conversation that we have. In fact, we debate this every half with the Board as to where the money is going. And then above $5 billion, unlikely that there'd be major distributions in addition to the 40% payout ratio.

Stephen, you want to add to it?

[Stephen Pearce, Chief Financial Officer]

There's not a lot to add. I think you've answered it pretty well. I think, really, it's about the balance that I often speak about, and we weigh those things up over time. And so, I think we've had a pretty good track record of considering those extra returns when prices, markets and balance sheet position allow for that. And so, we do actively consider it, and I think we've demonstrated we do act on it as well.

[Paul Galloway, Head of Investor Relations]

The last question has gone. So, because of the time, 5 to 11:00, thank you very much, indeed. We'll call it to an end. Thanks for joining us this morning.

[Duncan Wanblad, Chief Executive Officer]

Thanks, all.

[Stephen Pearce, Chief Financial Officer]

Thank you.