Glencore PLC

LSE:GLEN

Earnings Call Transcript 2022-Q4

[Martin Fewings, Investor Relations]

Good morning and welcome. Thank you for joining us for the presentation of our 2022 Financial Results. I am joined here today by Gary Nagle, CEO; Steven Kalmin, CFO; and Peter Freyberg, our Head of Assets. So I will hand it over to Gary.

[Gary Nagle, Chief Executive Officer]

Thanks, Martin. Good morning. Welcome to those here in person and all those online. Welcome. Thanks for joining us for our 2022 results presentation.

So, taking a look at our scorecard for the year, our financial scorecard as a start, it’s been a record year for Glencore. Our adjusted EBITDA for the year is a little over $34 billion, broken down between our industrial assets and our marketing business. On the Industrial side, an adjusted EBITDA of $27.3 billion and on the EBIT side, a record again for our Marketing business, a $6.4 billion EBIT result for the year, really phenomenal year on the marketing side, double the top end of our range. Equity free cash flow of $24 billion and we finished the year with virtually zero net debt. All of this resulting in us being able to pay generous turns back to our shareholders. We followed our well-publicized and well-established capital returns policy. Steve will take you through it in more detail. There is a slide on it in the pack as well as in the appendix. But we are returning $7.1 billion to our shareholders this year, $1.5 billion in the form of a buyback and the remainder as a cash dividend to shareholders.

On the Industrial side, as I said, we generated $27.3 billion of adjusted EBITDA. A large portion of that and again, the breakdown is later in the pack is a result of higher coal prices and the fact that we were able to bring in now the full Cerrejón operation for the full 2022 where previously we were only one-third shareholders of that operation. On the slightly negative side, we have seen some headwinds in terms of cost inflation, but that is across the industry, that is seen across the board, whether it be in energy costs, whether it be processing costs, whether it be labor costs. We have seen those across the board and all of those are reflected in our outlook period as well. Margins for metals, slightly down off 2021 numbers, but coal, obviously, a higher EBITDA margin and reflected in our terrific results of the coal business in 2022.

On the Marketing side, as we said, a record year, $6.4 billion EBIT. We’ve seen huge dislocations, huge arbitrage opportunities, huge volatility in the – particularly in the energy markets. And as a result, we have been able to service our customers, provide our customers with the energy security they need, the minerals they require to be able to navigate a very volatile world and has resulted in a very good marketing result for our business.

On the ESG side, we have made a lot of progress on the climate side. Peter and his team are working extensively on our marginal batman cost curve. We have expanded the inventory significantly, a number of projects – significant number of projects, in fact, which are NPV positive at very low assumed carbon prices. He continues to engineer these projects and we will be implementing them sequentially across our business as we continue to move in that direction.

On our climate change strategy, as you know, we have a sector-leading strategy. We will reduce our Scope 1, 2 and 3 emissions and important is to say Scope 3 emissions, because many others in the industry are unable to make commitments around Scope 3. But of our 2019 base year, as you know, we will be down 15% by 2026 and importantly, at least 50% down by 2035. Our business includes a portfolio of critical minerals and these will be critical in the transition to a green economy. And as we run down the coal business, we will continue to invest in our critical minerals and provide the minerals and metals needed for the decarbonization of the world’s energy grid.

We also had a CCS plant in Australia, as you know, CTS Co. That project is advancing. And as the IEA has said in many of its reports, the world needs all technology to be able to meet our ambition of net zero by 2050, of which CCS is one of them. So we are very happy to advise that, that project continues to move. It’s a pilot project. CCS plant at the Millmerran Power Station and the EIS is now open for comments and we will continue to invest in that project.

The other area that we focus on a lot in our business is recycling and the circularity of our minerals. We have invested capital in it during 2022 and we will continue to invest in 2023. It’s profitable for our business. But not only is it profitable, it’s the responsible thing to do. The world requires circularity. It requires recycling not only because the world needs those metals and there isn’t enough metals in the world from primary sources, but it is the responsible thing to do as we decarbonize and as the world requires these materials.

On the social side, we have unfortunately lost four of our colleagues this year. And this is something that we take incredibly serious. It is the single most important driver of our company. Peter and his team work relentlessly to ensure that we keep our people safe and then we target zero harm in this company. We haven’t achieved that objective, but it is the number one objective that we have in this company and we will not rest until our people are all safe.

We have our safe work program that Peter has revitalized. It is something that is dynamic. It’s not something that you implement and you say, you tick a few boxes and say this program is in place. It’s dynamic. It’s worked on. It’s amended. It’s changed because we learn everyday and we see everyday and things come up everyday that are different. And it’s a dynamic program, which we are seeing huge amounts of improvements across the business and we will continue to work on that to keep our people safe.

On the governance side, we are committed to be a responsible and ethical operator, wherever it is that we operate. During 2022, we settled investigations with the U.S., UK and Brazilian authorities and we continue to work on the investigations with the Swiss and the Dutch authorities. During the year also, we have extensive shareholder engagement around our climate strategy. We had a vote or AGM vote on our progress report and we had overwhelming support in favor of our climate strategy that we have published.

So with that, I will turn it over to Steve to take you through the financials.

[Steven Kalmin, Chief Financial Officer]

Thanks, Gary and thanks for all those that have graced us with your presence here physically and those that are online here and around the world as well. Just to introduce the financial performance. By now, we have got some slides that are very familiar, the look, the feel, the flow, the updates that we do from time to time by department, by industrial, by marketing. Also relative to the investor update that we did in December only a few weeks ago, there has been no change to any guidance around some of the key production and CapEx numbers over the next 3 years. And we have rolled forward the spot illustrative free cash flow, which we do three, four times a year.

So with that, and hopefully, with the delivery of numbers that are broadly as expected, production results came out at sort of a week or so ago. We should be able to move through relatively quickly. Some of the high-level numbers that Gary spoke to earlier on, that will be covered more in later on, but clearly, a fantastic financial performance for the group in 2022 aided primarily in the energy sector and being exposed both industrial and in marketing.

Metals was more challenging, both industrial and marketing, that’s where we see some upside going forward. And we will also show that in the spot illustrative number, earnings up in the ‘18/19, pretty significant items. There were a few impairments booked for those that like trawling through the 120-page financial release, you can see where those some were in – they were all effectively in our metals business with some margin contraction via price as TC is challenging and just mine plan updates that we – that we have done as well. And the equity free cash flow, $24 billion, that’s obviously a key number from which we can return cash to shareholders. We can invest in the business. And obviously, manages around our net debt position as well. We will get through all those slides later on.

If we look at the industrial, starting with a few slides, as I said, very, very familiar generally. You can see the yellow charts bottom right, that’s where the big increase was ‘21 to ‘22. So an overall 59% increase in industrial EBITDA up to $27.3 billion. The increase was $5.6 billion to $18.6 billion, all in the Energy segment, primarily coal. Of that $13 billion increase, $12.7 billion was in coal. We do have the small fledgling E&P business, which does generate cash does of exposure upstream, both in the liquid and the gas side and that’s been contributing and generating cash also for the business itself, but clearly, materiality drowned out by the coal business.

The acquisition of Cerrejón, effective 1 January 2022 had quite a profound impact. And incrementally, there was an uptick. I mean, just Cerrejón itself in terms of our own earnings, $3.6 billion EBITDA for the year compared to $452 million pickup in 2021. Had we still owned one-third, it would have gone $452 million to $1.2 billion. So there was a $2.4 billion EBITDA presentation just in Cerrejón by virtue of having owned the increased 66%, which we have had as well.

We will see on the next slide, there will be a waterfall pricing was by far the largest variance then we will work through some of the costs and volume variances as well. Within the metal side, again, bottom left, you can see in the gray area, we are actually down $2.7 billion from $12 billion to $9.3 billion. When we do show the spot illustrative numbers later on, we are looking to grow the industrial demand is of course subject to volume and prices as they stand, but we do see a tick up basis, macros and production performance for 2023. It shows the strength of being diversified and across both activities geography, processing, mining, metals and energy as well.

Where we did see margin contraction across the metals business in 2023, we did that was the business most impacted with higher costs. We saw it across the board, frankly, or ultimately, mostly macro commodity linked through energy, diesel power prices. We are also process – European power prices were, of course, a mess through most of the first 6 or 9 months of last year. We have had a few volume impacts. We have specifically called out. I mean, the two biggest assets, at least year-on-year and there is volume, there is cost, there is price variance at all. It was at Katanga. It’s been well talked about through the course of 2022. The outcome for the year was a 220,000 tons of copper compared to 264,000 in the previous year. And the net impact across cost volume price at Katanga was a drop of about $1 billion in EBITDA between the two – of that $2.7 billion.

The other reduction of any material nature was Mount Isa, which is across multiple assets, integrated business across both the mining of copper, zinc and smelting in production through to final product that it does as well. Isa itself was down about $0.5 billion. There was some non-cash impacts as well that does land up going through the EBITDA line. We did have to take some inventory fair value adjustments through the WIP through the ultimate realization of those products as it goes through the system. So we will see what impact that, that had on costs as well. But production-wise, at Isa, our zinc was 290 against 330 in the previous year. We have called out [indiscernible]. It is a high grade. It’s been a good cash contributor over the years, but like all good things, some mine in our business, there is an end date on that and that’s looking like ‘24, early 2025. And the copper business, well, it’s a sort of an aging business across the copper as well and we reported $71,000 compared to $92,000 in the previous year.

So those were two to callout on the mining side. Where was the action in terms of the industrial bridge from 17.1% out to 27.3%. As we have said, the biggest bar clearly is in price. You can see bottom left, some of the larger contributors was at least on a benchmark term. Newcastle was up 163%. The other coal and crude were, of course, up as well. Copper in fact average down 6%. We will see an impact later on. Zinc and nickel on the country were actually up average prices year-on-year. So the 12.2, 12.5 was positive energy really all in the coal part of the business as well.

On the metal side, there was an impact negative 0.3% across pricing. The big impacts we saw in the copper business was actually down $1.6 billion. We will see individual slides later on as well. Average copper prices – provisional pricing had quite a material impact and that’s based on the sequencing of sales, the timing of the – timing and frequency and curve of the reductions that we saw in copper prices, particularly we saw weaker Q2 and into early Q3, there was about a $400 million impact there on the copper business.

Cobalt, also as a pricing variance does come through the copper business given the byproduct across our African business as well. Started okay on the cobalt side, that’s one of the weakest commodities clearly at the moment in terms of both supply and demand factors. Hopefully, this year, we can work through the lows of cobalt find the bottom and be able to move forward in that particular market. It still is a – obviously a commodity that has some favorable demand outlook ultimately, but for now, it’s struggling with a surplus position.

Within the volume side, we were net positive for the year and that was primarily on the energy side, and again, primarily Cerrejón, having made the acquisition and acquired the extra two-thirds. Overall, like-for-like, our volumes in coal were actually down year-on-year, but we – net-net, there is a positive volume variance and having generated good margins on what we added and sacrificed less margin than what was ultimately missed in terms of some of the covariant, some of the volumes in particularly in South Africa, maybe volumetrically reasonably material, but not as impactful on the bottom line in terms of volume contribution.

So energy was a positive 2.3%. It’s nice to see a positive volume variance. This is where the sector is struggling. We hope to be able to turn that positive as well as we look for 2023. Metals, we saw some volume impacts. We have been through the copper, zinc – impact zinc, in particular, volume-wise, I have spoken about Mount Isa as well, but we have also adjusted the portfolio over the years. So that does manifest itself in some of the volume.

If you think about our Bolivian and Peruvian operations, which we’ve exited entirely from those consolidated controlled smaller businesses that we had. Production wise, we only produced 27,000 tons of zinc from those business in ‘23 against 111 in the previous period. So that does work its way through the volume line. Those businesses whenever material profit contributors and it sort of works out in the balance between price and volume and cost. And Ernest Henry, as you are aware also from a volume cessation, we sold at January 1, 2022.

The cost variance, negative. It’s pleasing to see that, because it’s compensated by the price. So we have always won big blobs off to the price. And if we have to absorb some macro inflationary cost impact that are fueled by those exact commodity prices, which we saw as well. So it’s certainly very positively correlated, not in terms of shape, but we will get to keep most of the upside from producing at the higher prices, then we would have to absorb through the inflationary pressure that we have as well.

On the cost, they were primarily commodity linked as we put down in some of the commentary there, heavily impacted the coal business. We will see some cost charts later on as well as massive consumers of diesel, fuel explosives and the likes around large earthmoving open pit operations. Copper assets as well diesel, big fleets that we have across the business as well reagents across being both minor and processor. Zinc assets, very exposed to energy and power in Europe. It was a major cost increase in 2022. Labor in Kazakhstan as well, that moved quite early in the year in terms of adjusting their cost of living adjustments that they have as well. Many of those factors across the cost side of the business, unfortunately, have been moderating lately. And I say unfortunately because the price side of the bar is they are also going to give back some as we move forward and we will look at the spot illustrative.

A little bit of FX benefit as well with about 10% weakening that we saw across each of Aussie dollar, rand and euro in 2023. So quickly as we go through some of the individual pages. And again, you would be very familiar with these slides. Copper, we did see a reduction 12%. Some of it was portfolio around Ernest Henry that was about 45,000 tons. Very little update from these slides compared to where we are at the December 2022 update. Katanga in terms of our own long-term asset was the one that’s reduced production around the 220,000 compared to 260,000 plus in previous years. That has had a good Q4 production performance. We obviously saw that in our production report annualizing it sort of higher than that sort of 220 level that we are guiding or 205 plus/minus 15 that we are guiding bottom left in our production for this year. So, fairly steady copper business production. This was an area that long-term has enormous portfolio growth optionality both in a brownfield capacity but ultimately in a greenfield capacity.

Today’s presentation is not going to talk too much to the growth and the portfolio optionality. There are some slides that we put back in the presentation as well. The pricing impact, as I mentioned in terms of putting a $5.7 billion print on the copper business ‘22, again, something that might have been higher. We have called out provisional pricing was about 5% and had a 5% impact than would otherwise have been the case on our realized copper price. So we sort of come in at 364 and provisional pricing not been a factor last year, we would have been $0.19 a pound higher. I suspect you will see this across the industry, generally printing, that equates to about $400 a ton. We are across 900,000 tons of production last year sales, is about $350 million to $400 million impact just in our copper business on provisional pricing impact.

Costs have been ticking up and remain elevated, a volumetrically to do with Katanga in terms of cost absorption, but also now increasingly the impact of cobalt that is having across our cost with the enormous byproduct. Cushion that we normally get. We have seen it both in metal, but even more importantly, on the hydroxide side, which is a commodity that’s more impacted by surplus units at the moment. We have seen payabilities finish the year in the 50s compared to having averaged 84% most of – through the first half.

So, that’s led to a progression. You can see the 221, unit cost of 67 and up to about 80, and we are at $0.91 at the moment of having rerun macros effective February 1, 2023. At our Investor Day, we are about $0.92. So it’s as you were, there has been a slight moderation in costs generally, which would help around diesel and consumables and some of the reagents.

As we roll forward into ‘23 on the right hand side, you can see we are looking for around $5.9 billion. We have got all the details on Slide 28. So we have got a higher price of 390 compared to the average of last year at 364 with their provisional pricing impact. Cost has ticked up a bit, primarily on account of cobalt and we will see a slight progression there. As we will go through the year, we will need to – whether it’s Q1, whether it’s the first quarter production, whether it’s the full year results, we will look to be dynamic around managing cobalt production and sales. So, we want to see where the market is, we want to see what makes sense in terms of that market, how any sort of rebalancing and how quickly that necessarily occurs.

We are a decent sized producer. We certainly don’t have to be always continuously price takers. We can obviously have a bit more discipline in that market to the extent we choose to stockpile a bit in the cobalt side. Ultimately, there will be cash realization, but that would potentially impact the $0.91 if we are not selling all that cobalt during the year. That still be worked upon.

In zinc side, we have spoken about the reduction in production. We have seen some portfolio changes in that business. And I call that Isa as well ultimately focusing on our industrial mining assets orientated towards large and long-life assets in Kazakhstan and Australia. So that’s going to be the zinc business. It’s going to be the McArthur River, it’s our processing business and George Fisher itself, a long-life asset that we are looking to obviously improve performance and drive returns from that business over the long-term.

There were some non-cash charges within the zinc business. It was worth calling that out. Some adjustments around stock valuations, some onerous contracts, non-cash adjustments that does find its way through mechanically into the derivation of that $0.603 cost. Without that, it hasn’t clearly cost the business in cash, but it does mechanically work through in $0.60. There was around $300 million. There was a bit of non-cash adjustments around Kazzinc business and also in Portovesme when we moved to curtail some of those lines that would otherwise have reduced us $0.38 a pound pre those non-cash impacts. And we are looking for ‘23 to bring the portfolio down to $0.28, primarily a moderating in energy prices.

If you think about the European power price structure, gas, energy and the likes, this is where we see some of the benefits. Yes, you give away too somewhere here and maybe you pick back sort of $0.10, $0.20, $0.30 in the dollar as we go across the portfolio as well. There is a slightly better byproduct prices that we have zinc. In our zinc business, we produce most of our gold and silver. At the margin, those have also improved in prices both relative to last year and relative to our guidance that we had in December, which I think was $0.35. So that’s now the portfolio is coming in at $0.28. So we finished $1.5 billion on a spot basis, this business moves to $1.7 billion. I suspect there maybe a question on Zhairem later on. I will leave that for Peter to comment, but the same comment has come through that. We expect the continued ramp up through ‘23 with steady state by Q4 this year. That does – that’s for us is quite a big game changer in terms of both cost and volumes and cash contribution across the zinc business and long life assets that we have there.

Moving on to nickel itself, ticking up a bit in production. We saw Koniambo operating on two lines for most of the year. It’s clearly not at any nameplate capacity, but at least a tick up and pleasing to see performance and better operating performance there at around 25,000 tons. It’s not sustainable at that level. It’s an operation that ultimately would need to be in the 30,000s with a cost structure also that was more competitive. This is another one of those assets where you take two in the one hand and you give back a little bit. It is primarily coal fired. So, their energy costs and their costs generally exploded in 2022, which has led to some of those increases you can see in both ex-K&S and post-K&S unit pricing on the bottom right.

This is the business that has some of the largest brownfield expansion transformational projects happen in Canada both in the Raglan territory as well as Onaping Depth. They will be brand new, fresh, long-term, more robust businesses once they are up and running from the sort of 2025 year and we would look to see unit cost, again, starting to move south and improve across that business.

Guidance for ‘23 is looking at current pricing around $1.5 billion with nickel and prices the way they are at the moment in that particular business. Coal, where most of the action was clearly in 2022 and continues to be in terms of both impact prices, volatility and leverage to prices, particularly in this business as well. Production-wise, we have spoken about the Cerrejón tick up, but bad weather did have a large impact across all of our jurisdictions, leading to a like-for-like $9 million reduction in tons as well. Very higher costs across the board, energy fuel explosives. Also, this is the business most impacted by at least in the mechanics of paying royalties, across all of our jurisdictions that does work its way straight through to our cost structure.

We are very happy – I will be very happy to be at $0.82 or $82 cash cost at the moment, $0.67 where we are at the moment in part reflects lower royalties basis, the curve that we have used as well. From a CapEx perspective, it goes without saying, but of course, now bringing in 100% of Cerrejón as opposed to 33% just mechanically. We will have those $113 million, and there is just the ongoing – some inflation on the CapEx and just timing of fleet upgrades and replacements that we have on that business. Of course, the CapEx over time will sort of broadly follow the production decline in the portfolio generally, where Gary spoke to a three mine closures or our ports generally. We talked about 3 mines that do close in the next sort of year or two and at least sort of 12 mines that will be closing before our 2035. You will see that corresponding CapEx come off those businesses as we move forward. We have had to – we are trying to work out when do we cut and draw the numbers on the coal business and the spot illustrative. It is a moving feast. We cut it off, I think, Martin as of end of Monday or through the course of Tuesday, and we used the Newcastle strip of 202 average I think it’s about that level at the moment.

And the team down in Sydney can rerun their numbers sort of on sort of complicated spreadsheets. They look at all their times, they look at all their volumes, they look at all their sort of portfolio variations, qualities between South Africa, Colombia. Of course, you have got met coal itself, which has been more stable across the business. That reduces the portfolio. We have got domestic contracts. We get short we get long-term and so on. That’s why we need to keep freshing up and guiding you guys every sort of as frequently as we can, because it’s impossible to model the entire coal across pricing, fixed curves and discounts that we do have as well. But as of now basis, the 202 Newcastle Strip, we have a portfolio adjustment that’s narrowed down to 51 million with 152 realization bottom right. So we are a margin of $84 a ton, producing a $9.3 billion EBITDA estimate as we see it basis. Today’s macros were a 2023 result on coal basis, 110 million tons of production, again, which is our latest guidance. We will see the full figures later on across coal.

Marketing business at $6.4 billion, a massive increase. Of course, 2022, we are not alone in this market. I think if you would see either independent or the oil companies or market participants clearly being – having to have managed risk well, having been liquid having had execution capabilities. It was a market structure that offered opportunity clearly through a lot of the dises: dislocation, dysfunction, disequilibrium. You throw all into the mix. It was primarily an H1 story, although some of it did to go over into H2. So we have that very big yellow bar at 5.2 of anything we have done historically.

Metals business, 1.6 came off a bit, 0.9 from what was quite a good year in 2021 with the post-COVID. The reopening markets generally moving tighter and premiums higher, but we started to see a softening China lockdowns and tighter manage conditions generally within. And again, as I said on the metals industrial, both on metals marketing as well, this is hopefully where we can see some positive progression as we go from 2022 to 2023. The two halves, I mean, the first half was $4 billion across energy and metals, where $3 billion in energy moderated to – it went from $3 billion to $2.2 billion, still a very good second half. Metals was 2.6%. So it was a tougher H2 within the metals business as well.

A quick callout to Viterra, which continues to perform very well. Numbers are somewhat not hidden, but they sort of work out in the corporate and other. We pickup our 50% share of their net income, which for us was $494 million and that was 50% of our net income of $1 billion of an EBITDA 100% of $2.6 billion. So, very strong performance. We provided a few details on Page 29 later on to read in your own time. But business is performing well successfully. They have just closed on the Gavilon acquisition towards Q4 last year. Our integration is going well. Synergies exceeding expectations. So that business has continued to go from strength to strength as well. We get to some of the more interesting slides but sort of what it all means from the balance sheet and working capital movements, which I am sure there is keen interest available liquidity of $13 billion. That’s very strong, very healthy levels. We could even push that higher. There is obviously no point at some point. It’s just a sort of a carry cost, but that’s just sort of mechanically through the cash generation and the rollover in refinancing facilities, were at $30 billion.

As Gary said, we brought our net debt down from 6 to basically flat and we will look at the bridge on the next slide later on. RMI increased $2.6 billion from up to 27.4%. That’s explained by some price movements and some volume movements across the RMI. On price-wise, the two most impactful for us in our businesses was in nickel. We have seen prices start and finish the year 43% higher. And whatever is in our general float and cycle across both metal and some of the other products that we trade across the nickel. There was a step up in RMI in the nickel business. Oil price is 10% higher, not necessarily carrying more volumes. It doesn’t give backwardated curves through most, but of course, just the sheer moving of oil and products at 10% more. And we have seen a lengthening of working capital and trading cycle across inventory generally as people have had to navigate longer trade routes sort of all the previous Russian either exports, tranche shipment, if you think business of ours in Kazakhstan, moving product in and out. It is taking longer to get metal concentrate from than it might otherwise have done in the past. Shipping routes have also changed. So that has at the margin added some volumes that we might ordinarily not have had in a more normal work environment as well.

The non-RMI, I will talk to that on the next page and then $8.3 billion across other working capital. We’ve got some slides on that. I don’t like the way it shows up in the financials as working capital, a lot of how it gets presented through the cash flows really OpEx in nature, just the fact that previously we would have raised accruals or provisions when you ultimately settle them, they go through as a working capital reduction as opposed to just a normal sort of expense or some other sort of operating cash flow that you might have. And these affect all our legal provisions, all reductions in bonus accruals or some areas around rehab and all these things, they do land up coming through as a working capital adjustment. That is OpEx. That’s not an asset of the business going forward. The classic working capital around receivables, payables, margining that is an asset, that is an investment in the future, and we do generate returns. And I have tried to split out those two different categories as we as we move forward, a nice net debt to adjusted EBITDA of 0.0, which is good. They are on the bottom right.

So let’s move into what’s happened in in working capital. And we have split it out between H1 and H2. I think that provides some useful insight. And we’ve sort of got those categories in the gray, and I’ll work through them in turn, are the more classic working capital that is cash. It is an asset, it’s monetizable. It’s generating returns for the business, all that on the left is not necessarily in that category. But if we start on the $6 billion net debt on the left hand side, we have generated FFO which is you see EBITDA less interest and tax and the likes as it works through.

Net CapEx at $4.5 billion, investments generated some cash for us, [indiscernible] a few other bits and pieces. And then let’s get it – just quickly non-RMI. There was an increase of $2.5 billion as we report that non-RMI. The biggest component of that $1.2 billion, and this is for those more sort of technical in places of financials and accounting and the like. We have an intersegment adjustment that we have to make in our consolidated statements. When we report to you industrial and marketing, we treat them as third-party sales.

So if industrial is selling copper from Collahuasi to our Glencore marketing, Collahuasi generates the income. We don’t say that there needs ultimately to be sent to a to a third party. So we will obviously present the earnings over there. From a financial perspective, we will need to eliminate their profit because it hasn’t ultimately been sold to their third-party smelter, whether they are in India and China or the like. So we will have this corporate adjustment. We will say industrial is made X. Marketing has made Y, but we will have to report a sort of elimination between the segments. So until that final sale has actually happened, there is a negative adjustment that goes through earnings and we report that in some disclosure.

That at the time would be a negative P&L significant item that we report and would be a negative cash flow movement as well because we haven’t actually, as Glencore, generated that cash in our system. This year, we did run down those inventories within our marketing that previously came from industrial. So we actually had a positive sort of accounting adjustment that sort of was a rewrite back up the inventory because the provision reduced that goes into non-RMI. So there was $1.2 billion there. And I think what’s quite useful if we just go quickly to 25, I’m not going to produce on the page, but if you have it in front of you.

On Page 25, we do provide the reconciliation exactly going from an EBITDA of $34.1 billion to FFO $28.9 billion. We’ve got Marketing EBITDA, we’ve got Industrial EBITDA, and then we have this positive $1.2 billion corporate. So we’ve actually have generated that cash during the business because we’ve now run down those inventories. But it’s a timing difference between years in the marketing business when we ultimately sell and liquidate that inventory that was sourced from our own industrial business. So that part of is $1.1 billion is within the non-RMI – we’re not putting it into RMI to get a credit nor should it. So it’s a sort of a corporate adjustment that happens within that part of the business. We did increase our non-RMI for the balance by circa $1 billion. Where does that happen and some of that will recycle back in and we should generate the cash this year. We’ve called out Astron. There was a $0.3 billion increase in our inventory levels at Astron. As you know, we had the incident a few years ago, and we’ve been rebuilding and refurbishing that refinery.

The restart started towards H4 2000 – and in Q4 last year, and it’s continuing and now refinery is producing product towards sort of capacity levels that we have at the moment. for a period of time, you actually need to run double inventories. You have to rebuild your crude to be able to then ultimately process through the 100,000 barrels a day, but all the while you’ve got product that you’ve imported to satisfy your downstream business and your retail business.

So we’re actually carrying both product as well as crude within that particular refinery operation. The timing was awkward because it built up through towards the end of the year. Going forward, that business doesn’t need the product. It brings in crude, and that’s its inventory and it processes whatever it needs for its downstream retail operation. Some of that will clearly come back, hopefully, most of it during the course of 2023. And then in the African copper business in Kazzinc, we are just holding more inventories generally around supply chain issues, sort of complexities, Russian corridors, border logistics business as well. We’ve just had to build up inventories generally to be able to operate in those businesses.

Hopefully, that’s been overcooked somewhat, and we can moderate and bring back some of that non-RMI also that’s been – that’s within that business. And then if we look towards our non-RMI working capital, $8.3 billion, which is the purple or red – the red box that we have over there. H1 movement was $6.9 million. If we add up all the H1 components and H2 was $1.4 billion. If we focus just on the right-hand side, that’s what I was referring to as the classic working capital. This is the normal conventional receivables payable. The margining calls. That increased $5 billion in H1, flat in H2. There was no movement across those three categories.

So if we look at bottom right, if we start with our increase in our net margin requirements, that was $2.4 million for the full year, $2 billion increased in H1. I was where the hoping or the probability existed that, that may reduce. In fact, it went up $0.4 billion. Our margining was – initial margining was $2.2 billion. So that’s the biggest component of that $2.4 billion. It was $2 billion in H1. It actually increased in H2. So there is been no letup in exchange requirements and exchanges to brokers. They have continued to function with ultra conservative around their models, looking to avoid systemic risk, their stress tests, avoid collapse, their VARs, they are everything that they do.

So in order to transact, there is been no let-up, if anything, things have even tightened up in some of these exchanges as they have closed out their reviews of what happened, the sort of investigations, the postmortems of some of the volatilities and panic that ensued through H1. I don’t see that as particularly concerning, the fact that initial margining is where it is. These are massive barriers to entry. They are there. They generate returns, the ability to transact, the ability to fund, the ability to manage those levels, creates a degree of bid offer spread and as being a sort of a big company game, frankly, in order to transact in order to put on these sort of derivatives and is not by all means exclusive. It’s not the sole reason, but it definitely contributes towards the returns and the invested capital and the earnings that we’re able to generate. To a large extent, smaller players either completely shut out of these markets or have capacity constraints that they need to come to bigger players like ourselves to say, help us function here.

And part of that help us function is in the risk management, is in the liquidity, is in being able to manage their own risk by leading on ourselves as a reliable counterparty with us not taking any undue credit risk ourselves in that process. So that hasn’t moderated. It has to at some point. I don’t think it’s healthy, frankly, from a consumer and an overall functioning market in terms of efficiency and ultimate cost to consumers and cost to businesses. If we then just move up in our classic receivables payables, this is just normal sell a cargo get paid 30 days later or by source aluminum, zinc, nickel whatever the case may be and get those various terms. We did call out in H1, we had a 1.5% build. One of the main reasons was the mix of business and the loss of Russian supply to us, which was quite large across both metals and energy in the past.

We were able to get higher than our average in terms of trade across the Russian business as well, the fact that, that has been removed. You saw that flow to working capital collapse at 1.5%. The turnout for the year was 1.9%. So that receivables payable did increase by 0.4%. What we have called out specifically again, timing difference around ‘22, ‘23 is a specific slow-moving exposure that we do have as well. That’s something to a specific counterpart. It’s been enhanced and reinforced with classic trade finance instruments that we have. It’s a basis upon which we do that business. And we are in the process of enforcing our trade finance security, if you like, across that particular business. And we’d expect successful resolution of that exposure in 2023. And that’s part of why it was a 0.4% increase, if you like, during that particular period.

And then across our physical forward business, 0.7 was the net increase for the year. This was an area where we did have some relief and some release in H2 in our mark-to-market physically across primarily the LNG book. This is our only business that really is longer term beyond 12 months. Low-risk business from both a market and a counterpart, but if you’re hedging 2 to 3 years of business, you are locking in some of the sort of arbitrage and margins and across be it U.S., Europe that may come in. We have import capacity. We have long-term supply agreements, U.S. and other origins.

You will – you know you’re going to make a margin, you’ll have to mark-to-market that physical and derivatives that we saw as we move through this. There is a timing is – the cash timing mismatch potentially because you’re not getting margin on your physical business, you do have to pay in hedging that did release across those three categories, then we did see net-net zero, which is good and that money is on the balance sheet. It is cash. It is an asset. It will come back. It’s working for us. It’s generating good returns. And January has also started pretty well in the Marketing business as well as we look in ‘23.

On the left-hand side, you can see some of that awkward geographic working capital movements as I said, particularly if you look legal provision, raised the provision $1.5 billion. As you know, last year, we settled $0.31 billion in H1, another $0.6 billion in H2. That $900 million comes through as a working capital movement as opposed to a significant expense or something. There is still $500 million to go. We have pro forma that as part of our shareholder distribution calculation. We will see on the next page.

We do have deferred income categories, both where we’ve received some cash in respect to future physical deliveries. We’ve also got at the bottom left where we ourselves might have prepaid customers for future delivery. These are non-core byproducts, mostly gold and silver from our industrial assets, where either shorter term, we will – where the markets and the appetite is such that it’s attractive to do, we will get some prepaids from physical consumers that like their product, their cost of financing is attractive, and we will take that money in. It also includes the old streams, the Antamina and Antapaccay streams that we did in the 2016, ‘17 period as well. So that came down $1.1 billion.

The overall balance sheet aggregate around all these deferred income streams is about $2.3 billion. It came down $3.3 billion to $2.3 billion. And then we have our various other provisions, which is our own advances that we’ve made. It’s settlements of bonus accruals as rehabilitation costs as movements of VAT. All of that was another $1.3 billion through those various categories.

We’ve increased our own prepays for product about $0.5 billion for the year as well. And that’s for every now and again, you’ll see an announcement, Glencore with banks as a $500 million prepaid to CSN for iron ore. So as an example, that was a $500 million facility that was recently done, we put 10% in that is our own share. So there is $50 million. These things is a key part of the working capital cycle as well that we do. Sometimes it goes up. Sometimes it goes down.

If we then look at what does all that mean on Slide 17, our shareholder – our top-up framework is very formulaic at least around the base cash distribution, which comes to $5.1 billion, $0.40 a share, $1 billion for Marketing, the fixed amount, 25% of Industrial free cash flows. Again, I think Slide 25 mechanically works through that calculation. Then we work out what’s the quantum of any top-up. We started 0.1. The base distribution, of course, needs to be provided for there.

The remaining buyback of last year’s announced $3 billion was $2 billion done towards the end of last year. We were still completing that, January, February. There is another $1 billion there, that’s almost done in the next week or so, the remaining legal provision of the $0.5 billion. And what we’ve needed to do and we felt it was appropriate to do as well, just given the materiality was the lag effect, particularly in Australia, around income taxes in respect to ‘22 that are due first of June 2023. That’s the big part of our coal business. We’ve seen those big earnings as well across that business. We have $1.8 billion to settle.

We paid a lot of installments. The actual tax we’re paying in Australia is multiples of that. something like $3.5 billion to $4 billion is now U.S. dollar is our taxes that we paid during the ‘22. There is still 1.8 to go. It is debt like in any sense of the word, and it’s cash that we need to reserve, if you like, to settle that particular tax. So that was $1.8 million less $400 million across the businesses we have some taxes receivable, we prepaid amounts and the like. So it nets out to $1.4 billion. Mechanically, that leaves us $2 billion of top-up and we’ve allocated that towards $500 million cash on top of the base distribution and additional $1.5 billion buyback. In aggregate, that’s the $7.1 billion Gary spoke about, $0.56 a share. We will complete that buyback between now and obviously interim results, and we will see the cash generation during the peer, and we will come back in 6 months’ time, and we will announce the top-up that we would be doing at that particular point. Basis the cash flow that we generate over the next 6 months, and you’ll see what our top illustrative profits.

No change on the CapEx. We were 5 or 6 weeks ago. We’re still $5.6 billion average per annum 23 to 25 same projects, same everything on the CapEx we’re still holding. And we went through these slides back in December, so I will skip over. If we then look at the spot illustrative numbers for ‘23, our various progression costs, I think on the individual slides we’ve been through all of that. What does that all mean? We’re at, as of now, at $226 billion of EBITDA running macros as of last 24 hours, around $10.6 billion of free cash flow up across metals. So across copper, zinc, nickel, slightly up. Cole is the one that’s at least against our December 22 update when we were at 28.7% as opposed to 22.6%. Coal’s gone 16.7% down to 9.3%. We’re all obviously looking to find the bottom there. But the business is obviously low cost. It’s going to generate cash. It has over year in, year out. It’s a competitive portfolio. It’s delivering into the right market segments. But of course, it’s a highly volatile construct that we have at the moment.

So $10.6 billion annualized free cash flow. If we stay like that, half of that should come back during the next 6 months. So with that, I’ll hand back to Gary, a lot of appendix slides for your own reading enjoyment. And I’ll hand back to Gary to close it out. Thank you.

[Gary Nagle, Chief Executive Officer]

Thanks, Steve. I mean just one slide really to close it out where we are. I think Steve has taken you through the details of the financials. But really where we are as a business, big picture, we have a sector-leading climate ambition, an ambition to be net zero by 2050 with a sector-leading ambition on our – or targets on our Scope 1, 2 and 3 emissions.

Our business is very unique within the industry. We’re not just a miner. We’re not just a trader. We’re not just a recycler. We’re all of them. We market, we produce, we recycle. We’re across the chain. We’re in the energy side, we’re in the critical minerals side. We’re in the carbon side, we’re in the solution business for our customers. And that’s something that is very unique across our business and we do that in the context of helping the world transition in a decarbonized world, responsibly and ethically across our business. We have a portfolio of critical minerals, as our coal business runs down, we continue to ramp up in various other critical minerals as the market needs it. significant growth prospects in our copper business, in particular, but also potential growth prospects in nickel as well as cobalt. And we will bring on those materials into the market as the world needs it to decarbonize and supply the minerals of tomorrow, while we supply the energy needed of today.

Our business model remains flexible. We can adjust as market conditions change as world’s requirement change, and we proved that during the course of 2022, was one of the most volatile and changing environments we’ve seen for a long time, and our business was incredibly flexible and incredibly adaptive to what was happening in the world. We will be responsible. We will be ethical where we operate, and it underpins the culture of Glencore. Our portfolio includes a large array of large-scale, low-cost, long-life operations, and we continue to invest in those as well as additional operations across our business and as Steve pointed out, highly cash generative, illustrative spot numbers, EBITDA of $22.6 billion and free cash flow of $10.6 billion.

So in a nutshell, a real terrific year for 2022, but the business set up for continued excellent returns across the business going forward. With that, we will turn it over to you for questions.

[Martin Fewings, Investor Relations]

Thanks, Gary. Myles?

[Myles Allsop, UBS]

Myles Allsop, UBS. Maybe a couple of questions. First of all, on coal. Could you give us a sense first around the operational issues you’ve been having in Australia, South Africa, Colombia. Obviously, you expect them to recur. Just with the guidance you provided back in December. And then maybe a little bit more around the market conditions where do you think we will find a floor to the Newcastle price?

[Gary Nagle, Chief Executive Officer]

Myles, operational challenges. I mean, you’re always going to have operational challenges in mines and particularly the size of our operations and the geographic spread that we have Australia last year was really about the weather, significant rain events, which we saw across both Queensland and New South Wales. In fact, Queensland have seen some rain events this year, but very limited impact on our business. So I mean, the biggest challenge we’ve had operation in Australia was around weather. South Africa, as you know, South Africa trading on with energy and with the transport network. The particular concern for us has been Transnet and the ability to roll out our material down to Richard Bay. We have supplemented that with some tracking, but it doesn’t make up for the shortfall and obviously, is quite costly. So South Africa’s biggest challenge generally has been the transport or the transport solution. In Colombia, really, it’s been a little bit of weather, but mainly sort of some community disruptions, but we continue to engage with our communities and the host municipalities and governments to ensure that we have a smooth operation in Colombia.

On the market, look, I mean everybody says, well, the coal price is plummeted. I mean let’s take a step back. It’s $200 a ton. Those who have been in the industry for a long time or remember, coal $18 a ton or $20 a ton. So okay, at that time, costs were $65 or $70, I agree. But $200 a ton is a terrific number. Market has come off significantly from the highs of 4 40, 4 50 in new castle. I’m talking new castle numbers now, obviously, Richards Bay is 1 40 and API 2 1 30. But – so where the market looks? Well, we’ve seen a year where people were desperate for energy, and we help supply them and give them the comfort that they have their energy sources. So stocks didn’t build up in Europe. We all know that Europe had a – has had a reasonably mild winter and gas supply into Europe was higher than people expected and storage, in fact, higher than people expected because of the mild winter. We’ve seen increased utilization of nuclear power in France. We’ve seen increased utilization of renewables across the whole of Europe. So Europe does have some excess stockpiles and that’s resulted in a little bit of downward pressure on European pricing.

On the Pacific side, as I said, Australia now, no one is expecting this big reduction in production, let’s say, because of the weather. So we’ve seen a more rebalancing of the market. And as particularly the real competing fuel for coal is LNG as LNG prices have come down. And if you compare where LNG prices sit versus coal on a like-for-like value and use basis, it’s about right. Now does that say it stays at $200 or $195 whatever it is today, that’s not what we have to say. But we’re saying it is competitive with LNG at current prices. And it is a real competitive. Something happens in the LNG market, there is another fire at Freeport or China does come back stronger than expected and start sucking in more LNG. Remember, last year, China was closed for a large portion of the year and LNG prices park, there is real potential. What happens to domestic production in China? What happens to domestic prices in Indonesia? So there is many moving parts on that. But we do look at this and say at $200 a ton, it’s still a very strong price. And there is a lot of things that can happen in the world. This time last year, there was no war in the Ukraine. Nord Stream was still operating. So things can change in the world, and that’s the joy of a bulk commodity business is that you can adjust and adapt. And as I say, we’re a very flexible organization. If things – if prices do come off, we can adjust our business to reflect that basis what’s happening in the market. If prices go up, we adjust differently. So – but generally, right now, $200 a ton, not a bad number.

[Myles Allsop, UBS]

One – the second question is on working capital, Steve. How much should we expect to come back over the next 6 months?

[Steven Kalmin, Chief Financial Officer]

I don’t mind if nothing comes back in the next 6 months because that will be indicative of probably better marketing returns. So if you think about the sort of return on equity, return on capital, cash flow generation, if we’re getting – I mean, if that sticks there, and every year relative to what an assumption might be if things work sort of more normal, and you can have a recurring hundreds of millions that’s coming through in the marketing each year then that would be a pretty attractive proposition for our own balance sheet and shareholders generally. So it’s going to unwind basis sort of the energy volatility, margins margining calm returning as some of those particularly sort of initial margins initially sort of maybe sort of if ever sort of normal counterparts returning within marketplace as well.

So the fact we are where we are, that’s helping the business. I think you will have, obviously, the LNG side, that 0.7 that’s still left prices are flat, that will just settle in, in the normal course that will monetize over sort of 12, 18 months. The marginings there, the harder one to call timing-wise because I just did it when the exchange sort of take their – sort of adjust their modeling because they have these crazy sort of VAR 7x standard deviations and they look at all the different counterparts, and they – and sort of overnight, you’ll have to place a lot more that does shut many, as I said, smaller players out of the market that plays to our strength, barriers to entries are huge. So I don’t mind if it’s there and we can keep coming out here and posting good numbers on marketing and having it back in a tennis match about whether our marketing ranges sort of should be higher. These are sort of more constructive and fruitful discussions than if that was to come back. Some of the non-RMI of course, some of that will come back. I’d rather position it for let’s sort of deliver and wait and see and grab and be thankful for what might come back, but at what cost? So I would just run it flat and let’s see where we go.

[Martin Fewings, Investor Relations]

Liam?

[Liam Fitzpatrick, Deutsche Bank]

Good morning. Liam Fitzpatrick from Deutsche Bank. Two questions. Firstly, on Viterra, the presentation has got a slide where it says the integration of Gavilon is almost complete. So can you give us an idea of some of the options you’re looking at? And could we start to see some movement on those in the next year or 2? And then maybe on the tennis match, Steve, on marketing, it does seem that with higher interest rates, volatility, etcetera, the capital requirements are up and earnings power is up. I mean will there come a point maybe this year when you are going to revisit that midterm guidance because it seems way out of whack with what the business is currently doing.

[Gary Nagle, Chief Executive Officer]

On Viterra, Liam – look, Viterra is a terrific business, and Gavilon is transformational for it. It’s really made it truly global in terms of all the geographies it services and operates in Steve mentioned some of the numbers we show in the pack, over $2.5 billion of EBITDA, $1 billion of net income. And all that we – and dividend paid of $400 million, and that’s in a period where they spent over $1 billion buying Gavilon and significant amount investing the working capital of Gavilon as well. So the fact that they were been able to pay a dividend just is testament to the quality of that business. It’s a – and it’s a sustainable strong business for the future and particularly, when we go with food supply being a critical on everybody’s agenda. So what do we do? What are we looking at that? I mean, we’re in no rush to do something with that business. It’s a great business. We can sit here and harvest the cash flows.

I don’t think as Glencore, we necessarily get the true benefit of the value of that in our share price. If we do a sum of the parts and you guys will run your models, I mean, our internal models is we don’t get the benefit of that. Perhaps it hasn’t been that cash generative over the past few years, but that’s because it’s been investing in its own balance sheet. And it did only pay, let’s call it, a $400 million dividend on a $2.5 billion EBITDA. So the cash flow, which does go directly to shareholders is not really being valued, we believe, by the market adequately for the true value of that business. But we certainly wouldn’t do anything just for the sake of doing something. But if we have a proposition for that business, which allows us to allow the market to get that see through value where we believe the market is – what we believe the business is worth, then we would look at that. And there is many things on the table. I mean there is always the backup option of an IPO. I mean, we’re not progressing on anything around that, but we can do that we don’t believe we’re getting the right value and their competitors in the market where one could value it against and see where they trade. We could do something with one of our competitors. That’s an option as well. Of course, there is antitrust issues one has to consider, but we could do that.

People have suggested we do what value are doing on their base metals and sell a small portion of it to set a marker out there for value. That is also possible, where we could sell 10% or 20% of it. All of these would be in conjunction with our Canadian partners who are key joint venture partners of ours, and we wouldn’t do anything without a joint decision with them. And the last option is we can just keep the business. Keep harvest in the cash flows, keep paying dividends, keep paying it back to our shareholders. And so eventually, the market does recognize the consistency of those cash flows. The quality of the business and recognize it within our share price. So there is an array of options for us.

[Martin Fewings, Investor Relations]

Jason? Sorry.

[Steven Kalmin, Chief Financial Officer]

Just on the marketing question. I mean what I’ve said, and I’ll continue to say, Liam, maybe I sound like a broken record and it’s – and at some point, it’s sort of things have moved on around the business given the data points we keep posting around this business is that it would still be good to see this business tested in a normal environment to get of which we haven’t had one for as long as – I don’t know what a normal environment is, but we’ve been through such from sort of COVID into lockdowns into sort of China on again, off again through the energy crisis that we saw last year. So these are all generally constructive environments from a commodity merchant and volatility and premiums and the likes as well.

So if you go back and I had that same sort of chart, yes, you’ve seen this lumpy last 2 or 3 years. There is a longer cycle sort of prior to that where we were in that sort of 2 to 3, 2. I think high working capital, higher interest rates. These are all things which we’d always hinted would see us at the top – I mean the question historically is when are you going to be in the top half of the range? That was the number one question. Not as your range wrong. Now I’m sort of saying, I think we are all things being equal, where you’ve got working capital, you’ve got interest rates where they are. And in fact, for the spot illustrative, I didn’t use the midpoint. We used actually $3 billion or $2.7 billion because those conditions say that even in a normal environment, we’d be top half of range today, whatever normal is. So I’m going to keep sort of just being a telephone on this stuff and hopefully, the marketing business given strength and barriers to entry. These are things that are structurally, I think, changed in terms of the market. Maybe we’re losing credibility in that range, but that’s okay. I’d rather lose credibility there and then raise it and then find that, that we’d sort of pushed it out too early.

[Jason Fairclough, Bank of America]

Just – it’s Jason Fairclough, Bank of America. A couple maybe related questions. First one is on growth. So if I look at your volumes generally the last couple of years, they have been going down. What we’re seeing elsewhere in the industry is people are sort of switching back into growth mode. You guys have alluded to some of the organic growth opportunities. Just wondering how you think about inorganic growth potential? And then second question, if I could, would be maybe related. Any comments on the big deliveries of aluminum into warehouses in Asia?

[Gary Nagle, Chief Executive Officer]

On the M&A, Jason, I mean, this company has always been – a lot of this company has been built on the back of M&A, and it’s part of our DNA, and it’s something that we’re always open to do and on the lookout for. However, we don’t do M&A for the sake of M&A. We’ve got a very strict capital allocation framework. We know the types of returns we want, the types of geographies we want, the types of commodities we want. And it’s unlikely that you would see us to be sort of the highest bidder in some sort of public process, whatever it may be. We – sort of our M&A opportunities come through largely through our marketing business, through the relationships that we have, the value we add to our customers who often then sort of we take equity interest in, where we perhaps have existing infrastructure nearby that we can then joint venture or do something with a nearby operation on an equity side, which makes sense. So, inorganic growth has always been on the agenda for this company, but we are not going to do it at all costs and sort of pay over the top for transactions, which makes sense. They have to meet our capital allocation framework. I mean, that’s just normal deliveries of Russian metal into ME warehouse. There is nothing really more to say. I mean Russian metal is not sanctioned. We have an existing contract, which we – that’s a contract that existed before the war. And we said we would keep doing we have to legally. And Russian metal is being used around the world and it’s nothing – there is nothing abnormal about delivering Russian metal into ME warehouse.

[Jason Fairclough, Bank of America]

Can you just remind us when does that contract end?

[Gary Nagle, Chief Executive Officer]

It’s a volume – it’s not a term, it’s a volume contract. So, we do expect some time probably towards the second half of next year.

[Jason Fairclough, Bank of America]

Thank you.

[Martin Fewings, Investor Relations]

Alain?

[Alain Gabriel, Morgan Stanley]

Thanks. This is Alain Gabriel at Morgan Stanley. Just asking the inverse of Jason’s question on inorganic growth. You do have quite a bit of assets that are locked into your diverse portfolio that you might or you have talked about exploiting such as either selling a stake or outright sale. Can you give us an update of where we stand on these transactions? If you can think about bringing any minority shareholders into any of these assets to just unlock value in a world where there is a genuine scarcity of these assets.

[Gary Nagle, Chief Executive Officer]

Are you talking about the growth assets that we have?

[Alain Gabriel, Morgan Stanley]

Not growth assets. Assets like…?

[Gary Nagle, Chief Executive Officer]

I mean those are – Alberton is a terrific deposit. I mean the more we look at it, the more we like it. It’s bigger, it’s better than we thought it would be, it’s a great asset. And that will be developed at some stage. I mean – but we are not going to rush into developing it for a number of reasons. One, a $9,000 copper, we are not developing it. We will develop it when the world really needs their copper, and we have been quite clear about that. Number two, it’s a greenfield operation. So, that will be last of the rank. We are not going to develop that where we have got significant brownfield operations and expansions that we can develop first. Lower capital, lower risk, no need to rush that in. Ultimately, when we do bring Alberton and Alberton will have to come into the world, the copper, the world needs that copper and Alberton will have to come on. How we do that is still to be determined. Could we do what some of the others have done, like Anglo did at Quellaveco and bring in a partner to de-risk and bring in some capital. Sure, that’s on the table. We would consider those options.

[Alain Gabriel, Morgan Stanley]

Thank you.

[Martin Fewings, Investor Relations]

Sylvain.

[Sylvain Brunet, BNP Paribas Exane]

Sylvain Brunet with BNP Paribas Exane. Just in maybe with El Pachon. I think since you mentioned the feasibility at the CMD, there has been a bunch of events in Latin America, in Indonesia, in Russia, even suggesting the vulnerability of supply for copper. Is there a case where you could consider bringing forward or accelerating the property work you are doing? And do you have the resources to do that internally to bring El Pachon sooner?

[Gary Nagle, Chief Executive Officer]

We are doing work. It’s not that we are sitting on our hands. There is a lot of work being done around all our projects, in fact, not just El Pachon, but all our other projects. We are doing drilling. We are doing permitting. We are doing consultations. We are doing land acquisitions. We are doing environmental studies. Those continue all the time. So, our ability to bring on the assets is not always necessarily dictated by those sorts of things. It’s dictated also by the market. Now, do understand that an asset like El Pachon, you don’t just decide to bring it on and you have copper the next day. It does take some time. But we want to be comfortable and confident that the market conditions there are right for us to bring those production on. You look at the copper market today. You have got a couple of new assets coming into the market. You have got Cameroon ramping up. You have got QB2 ramping up. You’ve got [indiscernible] ramping up. So, there is copper coming into the market over the next 2 years, 3 years, additional copper. So, for us to say we categorically will go ahead with that project now to bring in the copper, yes, it only comes in, in the next 2 years, 3 years. That’s a call that we are not ready to make yet because we are not comfortable enough on the tightness of the copper market. We do believe in the long-term future of the copper market, and you look at any of these estimates and where copper demand will go. And the key will be timing that and getting it exactly right. But in the – while we time, we are doing a lot of work on those projects. So, when we are ready to pull the trigger, we will. Now, before we do that, as I have said to Jason, we are going to bring on some of the quicker short-dated stuff that can come on earlier, some of the brownfield as we see strength in the market. And as our extra tons into the market don’t result in prices coming down again, we will feed into the strength rather than oversupply markets.

[Sylvain Brunet, BNP Paribas Exane]

Thanks Gary. Maybe another one for you on the recycling, could you give us a sense of how much CapEx this represents in the company today? And how much is happening on the ground already in your development?

[Gary Nagle, Chief Executive Officer]

It’s a material CapEx. Sort of we spend a bit, yes. You sense us we make an announcement, $40 million here, $50 million there. I mean this year was 2022, we put the $200 million into last cycle. I mean it is a convertible. So, it’s CapEx in a sense, but there is a repayment of that through the repayment of the convertible. We take equity and do something with that. So, it’s not big, but it’s key in terms of building the network, building the distribution channels, building the R&D. So, it’s not going to be big. And it’s virtually self – in fact, it is self-funding because we are spending less capital generally on a general basis than EBITDA that, that business produces. So, it’s sort of virtually a standalone that whatever EBITDA produce – not even whatever, less EBIT – it spends on capital less than the EBITDA it produces. So and then continues to grow the EBITDA line. So, it’s a terrific business with huge growth potential and limited risk given our existing infrastructure of smelters and processing facilities around the world. So, the return on capital becomes significant.

[Sylvain Brunet, BNP Paribas Exane]

Great. Maybe just one last one for me, which was on coal CapEx, which was increasing quite materially, if you – year-on-year, if you could unpack that, which portion was the Cerrejón consolidation? And what was inflation? And what was extra investment there?

[Steven Kalmin, Chief Financial Officer]

Yes. I think – I mean we had on Slide 13 I think it was, so we increased it by about sort of $300 million or so. $113 million was just mechanically an extra, extra two-thirds of Cerrejón that we now own during the course of the year. There was more than any of our other business, you have CapEx is often capitalized OpEx. So, all the deferred strip that you do as well, this is workforces. This is diesel. This is moving sections and opening up voids and expanding sort of new areas, accounting technically and that sort of old days, you would have just thrown all that stuff into OpEx. Whereas now mechanically, you have said, is there a section of work, which might be hundreds of workers and 150 sort of items of kit that are opening up a new area within a Cerrejón or opening up a new area in some of the bigger sort of Australian operations, which would be then capitalized and then depreciated over the period. So, deferred stripping is actually the biggest component of our coal CapEx, given the size and earthmoving operation that we do have. That was subject to the same inflationary impacts of exposures because you just – it’s all that’s going into that pot. And then you are saying 12 months, I am going to capitalize this $200 million, $300 million, $400 million, $500 million. So, deferred strip and it’s both in terms of the actual activity that was done and the inflationary impacts of that work would have accounted for together with some fleet replacements and the likes as well that hits in that one particular year. Now, there is always questions. The coal decline, you are going to see that CapEx clearly progress towards zero ultimately and as we bring down and meet our targets in 26, 35 and the likes. It’s not going to be a complete straight line. You will see a certainly a sort of a line with a diminishing percent factor over that period of time. Within certain years, it’s going to be subject to timing of fleet replacements generally sort of 7 years, you can have on some choices sometimes return whether you are buying or leasing. Generally, we buy, but sometimes there is tax or other incentives to even lease it, that also affects that number. You will have the inflationary. We have seen some moderations and the timing of some asset disclosures. So ‘22, a little bit anomalous. It will trend towards zero over time.

[Martin Fewings, Investor Relations]

Ian?

[Ian Rossouw, Barclays]

Good morning. Ian Rossouw from Barclays. Just following up on two questions. Firstly, on Steve, on the working capital. Just pushing you on that, I mean with the collapse in some of the commodity prices you have seen understandably, the volatility would not see some of those working capital inflows come through, but just traditional receivables/payables, would you expect some benefit in working capital to come through from that and if you can put a number on that?

[Steven Kalmin, Chief Financial Officer]

Will you certainly would through – I mean again, through those categories, and this is where it’s – I don’t want to go out. I mean I was hopeful and expecting in terms of some of the initiatives that were happening, there is a big exchanges and some of the discussions were happening that back in August, when we had this $2 billion even in initial margining, I said I could see a pathway towards a 40% reduction in that, which would have been $800 million of a potential release that didn’t ultimately transpire. So, I am not going to now sort of give a timetable. At some point, inevitably, there will be some contraction in the margining side of the business, which is the biggest component of all the stuff. I don’t know exactly where that point is going to do. As long as it is out there, that for me is not something that I feel is not working for the business, as I have said, in terms of the competitive barriers to entry in the line. So, I think it’s actually helpful in terms of the relative competitiveness and the strength of some of the bigger players that they have. We would look to obviously settle and close out on that slower moving exposure. I did mention that as well. That’s in the receivables/payables. That should bring back. You saw a $1.5 billion in first half, it’s gone to $1.9 billion. But that certainly should come back, a portion of that as we don’t see the Russian supply coming back anytime soon. So, those sort of structures in terms of trade that we have, I think there is a stickier element there. And all of that physical forward that 0.7 should all come back. That could even turn negative. I mean this can create some float some time. It’s just – this is not always one way either exposure or sensitivity or correlation. You could have some of these. I mean if we were locking in future margins around locking in an import arbitrage between U.S., Europe, at least Eastern LNG, if you had a situation where – because it’s un-margined on physical and paper. I mean if prices go down from that, we actually generate working capital. It’s a bit sort of fake working capital you have generated because it’s got to recycle back in. But you will have a mark-to-market liability on the physical side and you would have generated cash on our margining. So, it can actually go the other way around depending on prices in the business.

[Ian Rossouw, Barclays]

Thanks. And then just a follow-up on Viterra. Could you give a sense what you see the potential synergies would be for the Gavilon integration and then what the Gavilon contribution would have been pro forma if it was contributing EBITDA for the whole year? And just on your comments around value unlock. What would be a potential timeline you have in your mind? It seems like not near-term, but what do you have in mind for that?

[Gary Nagle, Chief Executive Officer]

Yes. Ian, there is no particular timeline. I mean David is running a great business, and he has done a terrific deal on Gavilon. So, there is no timeline. I mean it is – sort of for us as management, we frustrated with the fact that we don’t believe we are getting the full credit for such a good business. And sort of – so there is no particular timeline if the right opportunity comes up tomorrow, we will pursue it. If it doesn’t, then we will sit on it and harvest the cash and let David continue to grow that business as he has been growing it. Why is Gavilon such a good business, I mean if you looked at Viterra, pre-Gavilon, it was dominant in all the big geographies around the world in terms of origination and distribution and storage of agri products except the North America – or not North America, the United States market, very big in Canada, very big in South – pretty big in South America, Australia and Eastern Europe and even Russia and Ukraine. But there was a clear gap in the portfolio, which is the United States market. And the Gavilon assets are premier assets. These were chased. They were wanted by other of our competitors, and it effectively is the last piece in the puzzle and completes that to make it a truly world-class operation. Pro forma wise, I mean I don’t have the numbers off the top of my head, and I am not sure Steve if we give those or not. But I mean it is a significant contributor to the business.

[Ian Rossouw, Barclays]

And then just one on the coal marketing side, there were some stories in the news about the Japanese looking at starting to source lower quality coal and coal from South Africa and other sources, I mean do you have any thoughts on that?

[Gary Nagle, Chief Executive Officer]

Yes. Well, I mean when Newcastle was up in the 400s and South Africa – South African coal was in the early 200s, it’s clear that there is a disconnect in terms of pricing. So, you have seen now South Africa is $140, Newcastle is $200, so you’ve got a $60 differential. There is less incentive to do that. But one of the reasons you saw Newcastle come down so quickly from $400 million to $200 million was those who could and not everyone can because many of the Japanese utilities, their boilers are built specifically for Newcastle coal and they have to take it. Also in some countries, you have got trace element restrictions, in particular, places like China and Korea, where you can’t always take South African coal depends which operation it is or which utility it is. So, it’s not as simple that a utility can sit there and say, okay, the arbitrage is $200 – or the differential is $200 and the freight differential is for $20. So, it’s an easy $180. They don’t do it. They can’t do that because of course, sort of taking the restrictions. But those who can, yes, they did. And that’s one of the reasons why you have seen this closing.

[Ian Rossouw, Barclays]

Alright. Thank you.

[Martin Fewings, Investor Relations]

Danielle.

[Danielle Chigumira, Credit Suisse]

Thank you. Danielle Chigumira from Credit Suisse. I have a question around critical minerals. So, in terms of the strict definition according to EU in the U.S., it’s a list of pretty esoteric minerals that Glencore doesn’t have huge exposure to. So, when you talk about increasing your exposure to critical minerals, are you expecting that list to be expanded, or are you going to go and build a rare earth mine?

[Gary Nagle, Chief Executive Officer]

No, we are not going to build a rare earth mine, and we are not going to buy a rare earth mine. Rare earth is not a product that we would invest in. It may be critical. It is critical. But we focus more on the bulk side that’s where we – we don’t see where we can add any value on rare earths. I understand it. Firstly, it’s small volumes. There is not much in terms of blending. It’s easy to move around the world because of small volumes. Our business involves areas where we can blend dirty concentrates with clean concentrates, high CV coal with low CV coal. Buy in concentrate and use it in our smelters. So, those are the types of things where we can add value in terms of critical minerals. And we don’t see an area where we can add value on rare earths.

[Danielle Chigumira, Credit Suisse]

Sure. And a question around the outlook for cobalt hydroxide. So, what are your views in terms of the drivers of the significant weakness that we have seen? What are you expecting in terms of an outlook? And you mentioned the decline in payabilities, what are you baking into the cost guidance in terms of payabilities?

[Gary Nagle, Chief Executive Officer]

Steve, you can talk on the guidance, I will just talk to on the market. I mean the market is weak now. We have seen it in terms of hydroxide pricing and the payables. And that’s – it’s not unexpected. You have had China closed for effectively a year, if not longer. Now, if you look at the cobalt market, it’s not all an electric vehicle story. You have got about one-third electric vehicles, one-third into consumer products and one-third into sort of specialty areas. Now, electric vehicle has been pretty good. What is last year, about 10 million electric vehicles going up to 13 million, 13.5 million electric vehicles this year. Not all of them use cobalt. It depends on the chemistry they use. But electric vehicles, we have got no issue with it. Where we saw real weakness on the demand side is on consumer goods, cellphones, pads, pressures, whatever you want to call it. Those are the little bits of cobalt that go into there. The Chinese stop buying. Many of the world stopped buying. That was particularly weak. So, we have seen weak demand. Now, we believe now with China reopening, we will see that coming back. Pent-up savings in China is very high. So, we do think demand will come back. With that said, there is an excess of an overhang of inventory within the market. We see Taipei [ph], for example, has big stockpiles. And once they are able to export if they solve their issues with the DRC government. There is that cobalt to come out. We have just recently ramped up some production on Mutanda. Kisanfu is producing. The Indonesians are producing as a byproduct of their nickel production. So, there is supply. Now, where will the lock – so short-term, cobalt doesn’t look that great, to be perfectly honest. It doesn’t look that great. And we can always look at various supply responses as we have done previously, and we are not shy to do that is to pull back production because we don’t believe the market needs that material and something that we are considering and can consider. But longer term, the investment thesis for cobalt still looks very, very good. Electric vehicles, if it’s only at 13.5 million vehicles this year, you will all got your own models, what electric vehicle penetration will be. But if you buy 2030, 2035, you are up at 50 million, 60 million, 70 million electric vehicles and a lot of those will have cobalt. The – just the general economic growth of the world and the need for cobalt in all other parts of the industry, whether it would be consumer goods or specialty, looks very strong. And the supply side is as funny as it says now because we are oversupplied. The supply side is totally constrained because most of your cobalt sits in the DRC and most of it is both DRC and around the world, it’s a by-product. So, if you – it’s not that you can just open up a cobalt mine. And the DRC is challenging, and it’s not that you can go and have competition out of – major competition out of Canada or Australia. Yes, they do produce a little bit of by-products, but not enough to supply that growing demand. So, longer term, cobalt, we still believe is a very strong commodity. We just need to work through this dynamic within the market now of coming off weak demand and strong supply.

[Steven Kalmin, Chief Financial Officer]

And just there was a point on what we used within our costs. We used to for some by-products, we cut it all off basis first of February macros, which works through the entire sort of costs. So, we were around $12 realized on sort of hydroxide, which is sort of circa $20 on metal and then in the $50s or so towards.

[Martin Fewings, Investor Relations]

Okay. Time for a couple more. Ephrem?

[Ephrem Ravi, Citi]

To Danielle’s point earlier, there is an increasing trend towards localization of supply chains, U.S. IRA requiring 80% metal locally by 2030, etcetera. Does that play into the strength of Glencore, or is it a weakness for you? You have seen as the ultimate player on globalization, right? You get the metal from halfway across the world and supply at the cheapest rate. Is localization a long-term threat to your business, or does it kind of create opportunities? And linked to that, to kind of benefit from the localization? Are you looking at sort of moon-shot projects like Britishvolt. Is that the way to go, or is it more buying a stake in $2.5 billion sale to kind of increase your local exposure?

[Gary Nagle, Chief Executive Officer]

So IRA is net positive for us. We like that. I mean what does it do, it stimulates demand for electric vehicles. It stimulates demand for decarbonization projects of which we supply the minerals and metals. Now, the IRA can say and do whatever it wants. You aren’t going to all of a sudden find cobalt mines in the United States. It’s in the DRC. It’s nothing they can do about that and electric vehicles and Elon Musk and GM and Ford, they all need the cobalt. So, you can – so what the IRA does is it encourages people or encourages companies to produce electric vehicles and encourages people to buy electric vehicles, those incentives and the likes. But you can’t by a long-range electric vehicle that doesn’t have cobalt in it. And there is very little U.S. cobalt. So, it has to come now. Maybe what we do is we take our cobalt from the U.S., and we maybe process it in the United States now or in Canada or in Mexico or somewhere like that, where you can get the benefit of some of these IRA benefits because it may not be sourced there, but it may be processed either in the United States or a country that the United States is a free trade agreement with. So, there is certainly a lot of benefits for that. And remember, when you have got these on-shoring or near sourcing or whatever you want to call it, those creates disconnects in the market as well. So, when markets don’t operate totally efficiently because you have got these kind of barriers or incentives or changes, that’s where we do really well because we can optimize our position around that, given our global strength around the world. So, we see that as net positive. Your second question was, sorry?

[Ephrem Ravi, Citi]

I mean in terms of how do you get exposure to that local one? I mean like I was taking an example of Britishvolt.

[Gary Nagle, Chief Executive Officer]

Britishvolt, we are not buying, don’t worry about Britishvolt. I mean Britishvolt – our exposure to Britishvolt was immaterial. But because it was a UK flagship thing, it seemed to get a lot of press. And it’s unfortunate, the business. I think if you look at what we did with the Britishvolt’s like we do everything in our – not everything, but some of the areas in our recycling in our business. So, it was a bit like venture capital for us, not that we are setting up any venture capital funds, so don’t get ahead of yourself. But we put a little bit of money there. We have put a little bit of money here or there in every way. Now, 7, 8, 9 out of 10 are working. We are doing very well on a lot of our others, whether it would be Frayer, whether it would be manage them, whether it would be a life cycle. This one didn’t work. It’s unfortunate. We want to see gigafactories built. We want to see them grow because that will help decarbonization and it also helps our business. And we believe the UK is a good place. It’s had a long history of auto manufacturer. There is a lot of knowledge base here, and they have got great infrastructure in terms of the land area and where Internet connector comes in. So, we do hope something does happen with that, and we would be – it would be encouraging for our business, encouraging because we are be able to supply materials to the gigafactory there, and we think it’s good for the UK. But I mean, Britishvolt is small.

[Ephrem Ravi, Citi]

Question was a bit more philosophical in terms of are you going for the VC approach of moon-shot or is it more like steady state proven projects like, for example, Vale’s stake?

[Gary Nagle, Chief Executive Officer]

We won’t be buying a stake in Vale’s project either. That’s for sure. It’s not available to us. It wants to sell it to sort of non-mining companies, and that’s up to him. There is a little bit of – I wouldn’t say Britishvolt was a moon-shot. I mean it was a real prospect, a real project. A gigafactory is not moon-shot. This is not new, some sort of left field stuff. There is gigafactories all around the world. The fact that it failed in the UK in this particular project was for different reasons. But for us to advance some money to a gigafactory or a project for a gigafactory is not moon-shot. And it may not even be venture capital in the truest sense of the word because this is proved, tested. The demand is there. We know it’s needed and it’s going to happen. So, it’s more investment in relationships, supply chains because it just promotes the development of these kind of projects, which is good for our business. So, it’s less moon-shot and more sort of consistent with how we want and how we see the market developing and helping the market develop.

[Martin Fewings, Investor Relations]

Okay. Last question, Tyler.

[Tyler Broda, RBC]

Hi. Tyler Broda from RBC. Gary, you have had your feet under the desk now for a year. You have got record results. You have got a balance sheet with net – no net debt, basically. How do you feel fundamentally about the structure of Glencore? The shape of the company, I guess. Where do you see sort of over the next sort of 3 years to 5 years where you want to sort of evolve this company, if at all? And then the second question is for Peter. You have been – had your feet under desk for a slightly longer period of time. Just out of curiosity, the industry has been going through a really hard time in the last couple of years. From your point of view, what’s different now from an operational perspective than where we were, say, 10 years, 15 years ago? And why – and are those challenges surmountable? Thank you.

[Gary Nagle, Chief Executive Officer]

Closer to 2 years for me, but we are not counting.

[Tyler Broda, RBC]

Go ahead, sorry.

[Gary Nagle, Chief Executive Officer]

Still record results, 2 years in a row. Look, I mean the business is great, and the business that Avon handed over was great. So, we need to – we obviously need to be on the front foot evolving as the world changes. But we are not sitting here thinking that the company was weak or the company had gaps or the company had issues or something. It was a terrific company that I took over from Avon at the time. There is Ceran for us. So, in that sense, the company was in a great position. Now, what have we done since then, we have continued to evolve. We continued to invest in our recycle business, which we believe is critical and will be really complementary to this business. But as I have said, it’s – you are not going to go see billions of dollars of capital invested in that. These are incremental $10 million, $15 million, $20 million, maybe $100 million in a year or whatever it may be, which really grows that business is huge flow through our marketing is. And sets the business up for something very big in the future because your real exponential growth in recycling is only going to come 8 years, 9 years, 10 years, 15 years from now, when all these 13 million electric vehicles today start going through the recycling when that is. I mean there is still recycling material today, whether it be e-waste or battery scrap and all those sorts of things. So, that’s an area that we are focusing on. We are also obviously sort of continued focus it was there with Avon and continue with me as well there is on safety and to show we continue to be safe operators. We continued to grow our business. We want to do M&A, but in the right areas and very cautiously around our – or strictly around our capital allocation framework. We continued to grow our marketing business and supply. Supply, our customers with the products they need. We have grown that marketing business in the sense we have now encompassed things like a carbon business, which we have spoken about previously. That carbon business is an ability as a revenue generator for us, a P&L generator for us, but a service provider to our customers where we can provide them carbon-free products or carbon-free freight or whatever it may be. So, we have invested in that part of the business. So, the energy business has grown. We started to trade at the margin, some lithium. Now, don’t get ahead of yourselves. We are not going ahead and buying big lithium ions and starting getting into lithium in a big way. That’s not happening, especially at $80,000 lithium, we are not doing that. But because of our recycling business, we naturally have a lithium position. So, why would we not look and trade around that where our customers are talking to us about it, where we supply them, cobalt, we supply them, nickel, we supply them, copper and they say, can you supply lithium. And we have a source of lithium and our skills around sourcing material and blending material and moving material, why not apply that to lithium, so it will be in a small way with a little bit of small bounce of working capital applied to that, but it’s an ability to grow. So, we continued to grow the business off the base that we had.

[Peter Freyberg, Head, Assets]

Thanks, Tyler. What’s changed over the last few years or 5 years or 6 years, I think the confidence – our view in terms of commodity demand growth going forward has strengthened as it has across the industry. And that really opens up a lot of interesting opportunities for us in terms of how we look at our resource base and our future growth options. Still in line with what Gary was saying earlier on, we need the right signals to develop some of these, but we are certainly looking at our business in a different way in terms of how those growth options might be brought along. At the same time, we are having to contend with challenges in a number of the geographies that we operate, whether it is Peru or Kazakhstan or Chile where we have seen some social issues coming to the floor over the last couple of years post-COVID to do with inflation and other social issues that have erupted in some of those countries. So, that leads us to a place where we would like to grow our business. We are seeing some challenges. And really, at the end of the day, if we can perform and there is increased focus on this by all of our stakeholders, if we can perform in the areas of how we interact with our communities, ESG, safety that does puts us in a good position in terms of how we grow our business going forward. So, all of these sort of key drivers are dynamic and as a matter of keeping up with them.

[Martin Fewings, Investor Relations]

Thanks Peter. I will just hand back to Gary to finish off.

[Gary Nagle, Chief Executive Officer]

No. I mean a great year for the company. We have still got a lot of work to do around sort of certain areas, particularly safety, but a good year for the company. Commodity markets is a little bit weaker, going into this year than we thought, but there are a lot of good signs in the economy that we see and potential growth opportunities for us and hopefully, another good year up ahead. So, thanks for all your support and any sort of questions or feedback afterwards, we are always available to you guys. Thanks very much.