Anglo American plc (AAL) Earnings Call Transcript & Summary

Good morning, and welcome, everyone. As most of you know, Anglo American has been on a long transformation journey, which includes a clear tilt towards future-enabling products. I believe today's announcement and our intention to demerge the South African thermal coal assets into a separately listed business marks another positive step in this transformation journey. However, before I say anymore, I would ask you to look at your cautionary statement. Obviously, today, statement has a little more relevance. And the lawyers would like me to remind you that today's presentation is only intended as a summary. And there's no replacement for the Anglo American circular issued early today, and that's where I'll leave that conversation. Onto the agenda, let me introduce the team that will be presenting. Myself, obviously; July Ndlovu, CEO; and Deon Smith, the CFO, for Thungela Resources. And on the flow of the conversation, I'll recap the journey that we've been on before handing over to July and Deon, who will give you more detail on the South African thermal coal operations. I will then tail the conversation with a short summary before we take questions from all. So next slide, please. As Anglo American, we strongly believe in a responsible transition from our thermal coal assets. We have been on a pathway for some years, leaning towards a portfolio of future enabling products with a healthy but intense competition for capital across the group, the bulk of our discretionary capital is focused on copper, as in Quellaveco, in new opportunities in crop nutrients, as in Woodsmith, and in terms of additional investments in brownfield operations and across our broader portfolio in the beers, PGMs, and other positions across the portfolio. To risk -- the risk to thermal coal is it is now standing at the back of the queue in terms of capital allocation. Therefore, we think it is much better to free it and give the business a chance it deserves to evolve and improve in its particular market. We think this is the responsible thing to do for the business, for its customers, its employees and for South Africa. Now, to put that into context, as we've seen today, thermal coal represents around 4% of group revenue. From our point of view, and what's clear in the feedback that we've received, it is a deterrent to some institutions in investing in Anglo American. On the other hand, it's not a material part of the portfolio for those investors that see thermal coal as an attractive value play. Therefore, there is an increasing dis-synergy between the 2 businesses. And we think there's a good chance that the separation will solve both sides of the equation. And by that, I mean, we think there are lots of people who would like to own Anglo American shares, but are concerned that we have thermal coal in the portfolio, and there are lots of people that see the potential in our thermal coal assets, but at the same time, given it's such a small part of Anglo American, they can't reasonably make that investment on their knowledge of the thermal coal business. We've always said that we are committed to delivering a responsible transition. It is very important to us that we go about these things in the right way. This means maintaining the transparency and accountability that comes from the public scrutiny of the listed business. In order to achieve that outcome, we must set the business up to sustainable success. So from our point of view, there are 4 key aspects to sustainable success in the context of what we're talking about today. First, we're making sure we've got the right people. We have that in July and Deon and their team, and they've done a great job over the last few years in continuing the transformation of our thermal coal business. They will stay with the new entity, having successfully delivered over the last few years, and in particular, set the business up, in our view, for success for the longer term. Look at the right, balance sheet. We will provide initial funding of $170 million -- about $170 million, and so the new entity will have no debt. In fact, it will be net cash. We will provide transitional support in marketing. So this will enable July and his team to focus on running the assets and getting them set up for continuing improved performance. Our marketing team will off-take the export product for sale over a 3- year period. We will then transition the marketing activities to the new team within the following 6 months. And then fourth, we will provide capital support to the end of 2022. This marketing agreement includes a price law to give the new business a buffer while the transition sorts. Details are in the prospectus as well as a summary in the appendix to this presentation. So if I can go to the next slide, please. The mechanics of the demerger are very straightforward. The South African thermal coal assets will be transferred to a new holding company called Thungela Resources, that will have primary listing on the JSE and a standard listing on the LSE. Anglo American shareholders will receive 1 share in the newly listed business for retained shares held in Anglo American. Anglo American will also hold some shares in Thungela, due to some uncanceled shares following the buyback many years back, meaning we will retain about 9% interest that we fully intend to exit, but will do so over time and, obviously, in a responsible way. I'm pleased to say that we've already satisfied all other substantial conditions and regulatory approvals. So the next step in the process will be gaining -- will be to gain 75% shareholder approval at our AGM next month on the 5th of May. Assuming we get that approval, we would then expect to complete the process a month after that on around the 7th of June. With that, more than happy to hand over to July to give some insights into Thungela resources. Thanks, July.

Thanks very much, Mark, and great to be here with you all today. I've been Chair of the World Coal Association since May 2020. And in that role, I am fortunate to have the opportunity to speak to core players across the core value chain and to get insights about the future of coal. The World Coal Association's role is to shape a sustainable part for that future, and I'm excited to share with you the role that this company, Thungela, will play in that future. Let me take a moment to explain the significance of our name. Thungela is, in Zulu, a word meaning to ignite. This name was inspired by the change we want to see because we know that when we are led by our purpose and guided by our values, we can ignite change that makes individuals, communities, our organization and society prosper. This is the new beginning for us, if you will. Next slide, please. The South African economy, one of the largest in Africa, was built on the back of affordable and reliable thermal-coal-generated electricity. Today, in conversations we have as part of the World Coal association we hear similar messages in the Pacific Basin, South and Southeast Asia and the Far East, a region representing 1/3 of the world's population, that thermal coal will remain a significant part of the energy mix going forward in countries such as India, China, Pakistan, Vietnam and others. Thermal coal is expected to remain important for South Africa for the years to come. The importance of thermal coal goes beyond just providing electricity. In 2018, it was the single largest foreign currency gain. It is a significant employer, employing roughly 90,000 people, which represents 20% of mining jobs in South Africa, and it provides significant benefits to those communities. Coming to our business. With a well -- with a set of well-established, well-managed assets, strategic located in the high-filled core basin with well-established export infrastructure, our assets produce high-quality export coal with a very competitive cost position, well positioned to benefit from improved market conditions. And over time, we expect to further improve productivity and optimize costs. We do have significant optionality in the business, but our focus is to remain capital -- to manage capital efficiently with our priority being strong cash flow generation to deliver value, including shareholder returns to our stakeholders. However, where appropriate, we'll make investments to extend the life of our mines with a focus on those projects, which allow risk, provide their returns and have a short payback. We'll come back to this later, but first, I would like to turn to ESG. Next slide, please. ESG is fundamental to our business. And we have a robust framework to ensure we manage ESG metals responsibly. We care deeply about the protection of our employees. Care deeply about the delivery of value to our stakeholders. And we ensure that we uphold the highest standards of governance. Our commitment to responsible environmental stewardship are based on the efficient use of resources, climate risk management and promoting biodiversity and lens stewardship, which will also deliver significant benefits to our host communities. We are committed to closing our mines responsibly. To enable sustainable future land uses. We are also committed to delivering significant benefits to our employees and host communities. And this is an area where we really want to spike, set ourselves apart, if you will. We want to ensure that our employees and host communities participate meaningfully in the future success of the Thungela, and accordingly, provision has been made for both an employee partnership plan and a community partnership plan. That will each hold 5% direct equity in our South African core operations. Each beneficiary employee will receive a minimum dividend allocation of ZAR 4,000 per annum guaranteed until 2024. The community partnership plan will receive a minimum dividend of ZAR 6 million per annum until 2024. This will be an important part of strengthening our partnerships with our key stakeholders. All of the above is underpinned by strong governance that is essential to delivering our strategic priorities and building trust with our shareholders, communities, regulators and employees. Next slide, please. If we look at our business, in recent years, we've done a lot of work to upgrade our portfolio. We have repositioned it. We've resized it. We've made sure that the portfolio has changed from what we had in 2015 to a far more export-focused producer. Back in 2015, a significant part of our production was tied to supplying ESCO. Today, we produce 16.5 million tonnes of export product a year at a competitive cost position. This positions us well to generate compelling margins and strong cash flows. As part of upgrading the portfolio, today, we produce a very high-quality product and with a very -- with a competitive and attractive resource base with significant resource potential to be able to invest in quality and competitive license extension projects going forward. Next slide, please. So if we look at our assets in a bit more detail, we have 4 open pit and 3 underground mines. We produce export quality core in Mafube, Khwezela and our 3 underground mines, the Zibulo, Greenside and Goedehoop. Isibonelo produces coal for Sasol Synfuels production, while Rietvlei is a mine we recently commissioned supplying in the domestic market. Zibulo is by far our largest asset with significant resource potential. Next slide, please. Now to ensure that we deliver on our strategic priorities. We have a very experienced management team. And looking at this slide, you can see that we have deep mining experience, over 100 years between us. The team has been together for a number of years. We have managed the business through tough times, yet delivering on operating performance and achieving productivity improvements. We know the industry and have intimate knowledge and understanding of our assets. The management team has developed a fit for purpose operating model, one which is lean at the center with a relatively small corporate function. The responsibility for delivering value and superior performance rest with the mines, and we make sure that we have efficient decision-making processes with clear accountability. Although our center is lean, it has been designed to ensure that we deliver the highest levels of governance. Our singular mission as a team is to absolutely make sure that we deliver maximum cash flows from these assets, that each one of our assets is able to deliver its full potential. We have a laser-like focus on costs, and that could continue to drive our cost down using practices which are more appropriate to our business. Obviously, being a single-commodity, single-country located. We are improving our integrated supply chain management practices. I will now hand over to Deon to take us through a little bit more detail.

Good morning, and thank you very much, July. You can give me the first slide. So as July mentioned earlier, over the last 4 to 5 years, we've continued to improve the quality of our thermal coal portfolio. So firstly, we delivered on Mafube, which is an export-focused mine. That project was delivered on time and on budget, and today boasts around 11-year life of mine. We also invested in a life extension for the Khwezela mine called the navigation but, again, on time and on budget. So navigation is currently in ramp-up. And is poised to deliver value over the next couple of years as those volumes tick up. We've also taken a number of tough decisions. Where it was necessary, we took out high-cost production, the most recent example being a holey pit within Khwezela, which was placed on care and maintenance. We also closed Wood Mac south mine, which was also high-cost production. In terms of improvement initiatives, we've been very privileged to benefit from Anglo American's continued implementation of its operating model. And clearly, into the future, we'll continue to benefit from those gains, mainly in terms of efficiencies into our future. We've also gained much in terms of breakthrough productivity thinking and have, for example, invested in automation-ready dozers and drills at Mafube. Some of our underground mines, where we face narrowing seams into the future, we've implemented prime sections, which essentially refers to rather than one continuous miner plunging in and starting to cut intermittently, two continuous miners in these sections, which dramatically increases for cutting time, as illustrated in the example at Wood Mac in 2020. Next slide, please. So all of these decisions and also continuous refocusing of our business, coupled with the productivity and efficiency improvements beyond those that I've spoken to have all proven very necessary in order for us to continue to maintain a relative cost-competitive position as demonstrated in the global seaborne curve on the screen. This Wood Mac curve of seaborne thermal coal positions our assets in the lower half on a relative basis compared to other miners. The exception is clearly Khwezela, which is mainly a result of a low-production denominator, which is expected to improve the navigation, but as we ramp that project up to full production. Our position on the cost curve has allowed us to weather a period of lower prices over the last 2 years and should allow very good margins in a stronger price environment. Thank you. Next slide. So there are a number of studies. And most of these, including this Wood Mac study on energy, forecasted decrease in thermal coal's share of global power generation over the next decade. In this instance on screen, it's from 35% to 31% into 2030. This is as the planet's increased energy demands are set to be generated, for the most part, from renewable sources of energy. These studies all point to a continued reliance on coal for baseload power, where the absolute coal contribution flat in most of these studies or presented a good increase over the next decade. So this increase, coupled with tighter suppliers, investment into new thermal coal mines reduce, should, in our view, be price supportive. So simply put, many developing economies and countries are highly reliant on thermal coal as a baseload source of energy for continued economic development and prosperity, and we're well positioned to deliver into that demand. Next slide, please. So to illustrate this point, India, as July mentioned earlier, remains a key destination for our coal, given the favorable freight differential between South Africa's East Coast. Where Richards Bay Coal Terminal is situated, in which we own a 23% share and India's coastline. So based on this Wood Mac study, demand for seaborne coal into India is expected to increase by roughly 13% between 2020 and 2030. And over the same period, we also see South Africa reducing exports of high-quality thermal coal by 25%, and that's mainly on the back of depleting mines and lack of new investment. Next slide, please. So we accordingly believe that the supply and the demand dynamics will remain attractive for some time into the future, which should be price supportive. And as the graph, which would make prices on -- demonstrates and albeit in nominal terms, the trend in real terms is expected to remain steady for the next couple of years, and then move to gradual improvement over time. Coal prices, in our view, will remain attractive and margins for those on the right side of the cost curve should be healthy into the next couple of years. Next slide, please. So we've touched a bit on the business' ability to generate cash. And we recognize that we have to think responsively about this. We continue to have a disciplined approach to capital allocation. And firstly, to maintain the health of our assets in an efficient manner, spending sustaining capital will remain a priority. We will have also focus on funding our closure liabilities. So currently, our liabilities are around 45% funded. This is through cash collateral in the trust with a balance supported through guarantees. So our intention is to gradually increase this 45% as we believe that it is a critical element of being a responsible operator. We are absolutely committed to delivering strong returns to shareholders and we're committing to a minimum dividend payout of 30% of net cash flows from operating activities after funding sustaining capital. We will, however, continue to review that payout ratio in favor of a gradual increase over time. Each of our mines have either value or life-enhancing investment options, but it is important to highlight that we will take a conservative approach to managing capital and preserving cash flow for our shareholders and therefore, we'll only invest in low risk, quick payback and value-accretive IFIX projects where we have a high conviction that our strict investment criteria and hurdles will be net. These projects would need to be very competitive. Next slide, please. So today, our assets have lives ranging from 5 years to 11 years, as July pointed out earlier. But they also have brownfield projects, which have the potential to increase and extend the life of the group's assets to beyond 2035. Of course, these options will need to meet the capital allocation and the strict investment criteria, I spoke of earlier. And in the interim, we'll continue to study and do work on these projects before we need to make a decision, most likely in 2023. So this allows us to prioritize cash returns and balance sheet strength as a stand-alone business over the near term. In addition to these brownfield options that I'm talking about, we also have certain replacement options that are longer dated, such as [ dailies ], Hope and Elders. And Elders, for example, is actually contiguous to one of our existing operations. So these assets would only be developed at the appropriate time and clearly subject to a number of criteria, business operating performance, macroeconomic conditions and that coal is actually required and needed. Thank you very much. With that, let me hand back to Mark.

Thanks, Deon, and I got to meet you this time. So to recap, in defining what we believe a sustainable future looks like for all stakeholders, we are committed to delivering a responsible transition as we position our portfolio towards future-enabled products. And today's announcement, I think, merges or progresses us strongly in that direction. While representing just a small proportion of Anglo American today, we are laying the foundation for South Africa's leading export thermal coal business. Enjoying a low-cost business while producing some of the highest quality thermal coal in South Africa. So we think the business is well positioned for what could be a very interesting period for thermal coal markets over the next 5, 10, up to 20 years. Importantly, the demerger unlocks sustainable value for all our stakeholders, as it better positions Anglo American within the investable universe of diversified miners for our shareholders. While giving this business, Thungela, the opportunity to prosper outside of the Anglo American portfolio, ensuring its sustainable success for the business of all of its stakeholders. We believe this is the responsible way for us to divest the business. In essence, what it does is to create a bigger shareholder pool for both Anglo American and Thungela. And on a net-net basis, we think that's good news for both shareholders. Next slide, please. The Anglo American portfolio provides both geographic and commodity diversity underpinned by quality assets. And certainly, it represents an industry unique position. And today, certainly, that position looks even better as each year goes by. Our value-added growth trajectory, our growing margins and our continuing business improvements further underlines the quality and strength of our business versus our peers. Once this transaction is complete, the remaining 96% of the Anglo American portfolio will be well positioned to capitalize on broader global feeds. A growing population provides consumer-driven demand for diamonds, crop nutrients and PGMs, while the transition to a low-carbon economy and electrification drives demand for our copper, nickel and again, PGMs, which contribute to the hydrogen economy. And our iron ore and met coal businesses are both high-quality, both physically and chemically, making them highly desirable for steel mills that must lower their emission. We are very much a key driver in the green steel economy as well. We are well positioned to help our customers lower their carbon impact as the steel industry transitions over the next 15 to 20 years. Our mix across these high-demand growth sectors positions us well for the next few decades. Next slide, please. And with that, we'll be happy to open the line for questions for the 3 of us, and Stephen will also be on the line, if you have any questions for him. Now in terms of answering your question, July and Deon will likely deal with 90% of the questions. But also, Stephen and I will be happy to answer any questions in relation to Anglo American, obviously. And with that, Paul, can I hand across to you? I know you wanted to say a couple of words.

Yes. Thanks, Mark. So very briefly before we start the Q&A., just to remind everybody that in addition to the press release and the presentation as an appendix to the presentation, we have the pleasure of giving you 111-page shareholder circular, which is on the website. There's a 434-page prospectus that will be available this afternoon. And July and his team will have an Investor Day on the 6th of May to give you even more detail on Thungela. So with that, Eula, can I hand over to you for the first question, please. Thank you.

[Operator Instructions] Your first question comes from the line of Alain Gabriel from Morgan Stanley.

Two questions from my side, if I may. Just firstly, on the liabilities and other contingencies. Is there anything that we need to take into account, in addition to the cash transaction that you will be making to Thungela and the minimum price guarantee on terminal coal and also the deconsolidation of 400 million of rehabilitation liabilities. So is there anything beyond that? Or any other contingencies that we need to be aware of, that could potentially resurface in the near term? That's the first question.

Deon and Stephen, if you want to put your arm in the water, but I think it's between you 2 guys to answer those questions.

Hey, why don't I answer because I think it's from an Anglo perspective from Alain and you're asking the question. It's complicated, is the simple answer as you effectively sort of deconsolidate some of these operations, you'll pick the main aspects up. So remembering as of day minus one, so the day before, this is a separate legal entity in this time, right? The same shareholders own the same assets and the same businesses. It's just now becomes across the other side of the line as a separate business. And so there's not a huge amount of accounting impact that you need to think about. There will be a little bit of currency translation reserves and things going through retained earnings accounts. But not a huge amount in terms of the key balance sheet items itself.

Okay. The second question is probably for Mark. From your conversation with ESG-focused investors, do you think that this will be enough for them to reengage? Or do you see Cerrejon as being an obstacle still going forward?

I would think that this should be seen as a one big step and probably earlier than most people anticipate. So I think it's a big positive step. Certainly, from many shareholders, this is the one they wanted to see and they do understand there's a bit more complexity with the Cerrejon position, given we've got 2 other partners. But again, we're pretty confident probably within 2 years, we'll be out of Cerrejon as well. So I think are compared to what some people are holding and other it is -- teams with much bigger carbon footprints. This is a pretty positive step. And I couldn't imagine there'll be too many that would be disappointed. In fact, the feedback we've had so far is very, very positive. So pretty optimistic, I think.

And your next question comes from the line of Jason Fairclough from Bank of America.

Just a couple of maybe hopefully simple questions. I'm just -- Stephen, I'm wondering if you can give us any headline numbers here. I understand it's going to be in the prospectus. But in terms of assets that are leaving the business here, and what's the sort of headline number on the assets? And apologies if you said that upfront. And is there a gain or loss that's going to happen with the merger or the demerger rather?

Yes. So Deon, you may know that number off the top of your head, it's around $1 billion of assets, from memory. Not net assets, but gross assets. Obviously, there's some liabilities and provisions that go with the business as well. There's not a huge amount of P&L. There's a little bit of small amounts of tax leakage in South Africa, but relatively minor amount, so less than $100 million. The main P&L impact will probably be around accumulated foreign currency translation reserves over time. It's a complicated one that goes back through history. So we're still just finalizing the detail on that. But outside of that, because of the way this leaves the group as a capital reduction, there's not significant amounts of P&L impacts.

And sorry, Stephen, the $1 billion includes the $170 million of cash? Or that's asset another $170 million on top of that?

Sorry, Jason, you broke up a little bit. So does that include the $170 million cash?

Yes, exactly.

Yes. That does, as I understand it. Deon, you were going to just confirm the gross asset number?

Yes, absolutely. So Jason, as at the end of December, the gross assets number was around ZAR 19 billion or about $1.2 billion.

And then just a more general question about the process. How are you thinking about flowback? Because if I think about this, I'm a U.K. shareholder, I own Anglo or I'm a European shareholder and I own Anglo, and I'm giving a South African listed coal pure play, I probably don't keep it for very long. But yes, I'm just asking, I mean, what's the thoughts around that? Are you just going to have to let it happen? Or is there some view to having some kind of a road show or some kind of a marketed placement?

Yes. So Jason, yes, there will be detailed interaction with the market by July and Deon, as Paul mentioned, the Capital Markets Day following -- well, hopefully, following the approval by our shareholders for the demerger. Yes, we are aware, obviously, that some shareholders may make a choice not to continue to hold asset -- the share in the new company. We are maintaining a London standard listing for Thungela. So that should help facilitate, and that recognizes the fact that a large proportion of Anglo shareholders hold -- they're holding through the NOC. So we will try to facilitate as smooth as possible transition, but we do recognize that holding Thungela may not be for all of Anglo's existing shareholders. But as Mark and Deon and July have mentioned, we do expect that there will be a new pool and some of the existing Anglo shareholders will see the value in Thungela and that business going forward.

And your next question comes from the line of Brian Morgan from Morgan Stanley.

Well done getting this closer to fruition. Can I ask this business kind of struggles to generate cash at a price below $80 a tonne API 4, which is not far below where we are today, as a fair distance but not too far and not beyond the realms of possibility we could get back down there. We've got ZAR 3.2 million of unfunded liabilities, less than 10 years of reserve life. Even with the transitional arrangements, are you short ZAR 2.5 billion of cash in there?

Yes. So Anglo -- I'll answer perhaps the capital support question, and then I'll throw it to Deon perhaps on the mine life and potential extensions and resources. So Anglo provide capital support in 2 key forms. So the first is the USD 170 million, which is around that ZAR 2.5 billion that you referred to, and that's cash on the balance sheet on Day 1. And the second form of capital support is in terms of contingent price support and roughly using an index price of around USD 80. We would provide up to USD 100 million for the balance from listing to the end of '21 and potentially a further USD 160 million to USD 170 million for 2022. Now that obviously depends where the price goes, and there's quite a lot of commentary out there in terms of forward-looking thermal coal prices. So prices would have to fall somewhere around 25% to 30% from today's price for that -- for the whole of that period for that contingent support to kick in. There may be periods of time where it's well above that. That's great for the new business. There may be periods of time where it's below that, and we would provide that contingent support. But the aim of that support is to really help this company get established well, provide a good buffer in terms of working capital and time, in particular, for the management team to deliver on their plans and really take this business forward. Deon or July, would you like to add that?

So Stephen, absolutely right. The capital support, not only the cash upfront, but then also the contingent price support gives us a very solid foundation as a management team to ensure that our plans and our execution of such a nature and whatever austerity and other measures we need to take in a lower-price environment to guarantee that the business continues to generate some level of cash over the next year or 2 as we stabilize the balance sheet. There is no short-term life extension capital requirements. And those decisions, as I said earlier, only 2023 roughly, we don't foresee that the capital intensity of those projects would be enormous. And it would make it impossible to invest in the capital intensity or the competitive position doesn't justify it. And as a result, if we invest in some of those projects, it could extend the life of the business by around another 10 years from its current 5- to 11-year life. So taking it to, let's say, around 19, 20 year life, which gives us a good enough runway to ensure that we could fully achieve the funding of the future environmental liabilities. And with group prices, continue to pay some dividends to our shareholders. So we believe that the package of support through a combination of all of the measures we're putting in place will be sufficient in order to ensure the business sustainability into the future.

July, it might be worthwhile explaining the hard things you've done in the last 12 months on continuing the restructuring, closing high-cost operations, you set yourself up for success and I think that's an important point to make relative to where we were even 2 years ago, you've continued to improve the business. And on a look-forward basis, you're in a good setup and you're looking to continue to improve. I think those points are really important. You talked about those this morning.

I guess to highlight why we think that this is a competitive business, which has got the ability to generate cash flows through the cycle, is the number of things that we have done. Firstly, not only have we upgraded the quality of the portfolio. I made that point earlier this morning that the quality of our portfolio, if you go back to 2015, we produced a relatively poor-quality coal. Today, we're producing a very high-quality call at [ CB ] 5,500. Secondly, if you look at our portfolio in its entirety and weight is on the cost curve and our competitivities, we are in the lower part of the cost curve. That has come about as a result of a number of things. One, where necessary, we have actually taken out high-cost production. For instance, 2 years ago -- and in fact, the beginning of 2020, we closed [ Quellaveco ], which was high-cost production. Recently, we put Bokoni, which is both high-cost production on care and maintenance but at the same time, which is the point that Deon made earlier on in his presentation. We also have very intentionally invested in high-quality competitive production, converting our resources to production like, for instance, where we brought in the Mafube Life-X, which is a very competitive mine today, it's steady state. We've got a navigation, which just -- which was in ramp-up this week, as we speak. And we expect that over time, as we continue on our productivity and cost improvement efforts that is going to move below part of the cost curve. That alone should allow you to be able to ride the bottom of the cost curve care. Our intention going forward, and I think Deon said this when he was talking about the capital allocation going forward, is, one, ensure that we improve the capital intensity of our projects, given the nature of our assets, their lives and where they are. That's one. Secondly, Anglo American has been on this journey of improving productivity and costs. And that's a journey that we absolutely intend to remain on because if we are cost competitive, we should be able to continue to generate attractive returns. And of course, one says this with one thing in mind, that we think the fundamentals, of course, certainly in the near term, are actually improving. We're not seeing the level of investment in coal, and yet demand is actually projected to either remain flat or slightly improve. So against that dynamic, we think that is going to be price supportive. So a competitive portfolio from a performance point of view in a relatively improving dynamic should position us well.

And your next question comes from the line of Tyler Broda from RBC.

Great. Just 2 questions from me. One, Mark, I think you did a good job coming up the growing dissynergies between the thermal business within Anglo. Do you see any growing to dissynergies elsewhere, I'm thinking particularly about met coal juncture? And then secondly, I haven't had a chance to go through the 400 pages yet. But [indiscernible] of this Thungela and how that looks? And also if there are any plans to try and reduce those through hydrogen drops or how you want to look at it?

Okay. Thanks, Tyler. The discussion around met coal, we think it's actually quite different. Firstly, on thermal coal, it is a relatively small part of our business today, let's say, between 3% and 4%, whether you look at the capital base or you look at the earnings. So that's one point. Secondly, the life of mines around on reserves is that 5- to 11-year time frame. And yes, the team has the potential to extend those lives beyond 20 years. In our case, it becomes harder to justify those extensions because of the amount of shareholders that keeps off our register. And so as an Anglo American, you look at your capital allocation and say, "Guys, every additional dollar we spend in extending the life actually means there's another shareholder that probably won't want to hold us." And yet at the same time with the Thungela itself is too small to move the dial, you really need to break the 2 up to, if you like, broaden and deepen the pond for all shareholders so that we both benefit. And I think that's significant from both sides. And we certainly got a lot of interest in South Africa because people know the quality of the assets. And I think that's important. Met coal, it's a more material business. The actual case for met coal is very different to thermal coal. Met coal is an absolute necessity in terms of producing steel as it stands today. And anybody who says that they should be getting out of met coal needs to have their heads ripped. Steel is key in the decarbonization of the world's economy. And until we have new technical solutions to that, met coal is absolutely critical for decarbonization. Over time, that will obviously change, and we'll obviously have to continue to adjust as those things turn. But certainly, through to mid 2030s, probably to 2040, met coal remains very important. Now from our point of view, we have 25% of our Scope 3 emissions in thermal coal. So there's a positive step from an Anglo American perspective there. Met coal represents about 30% and our assets have a life of around to 2040. And if we were to run those assets through to that time, that's probably a good place to be. And then iron ore represents about 46% of our Scope 3 emissions. And we would expect because we've got high-quality iron ore, it will be directed preferentially to green steel application because it's got a much lower carbon footprint relative to, say, let's say, the Pilbara type products, which have got lower iron ore content and higher deleterious elements. So we think our portfolio is a very positive one in terms of Scope 3 and by 2040, we think it's a different conversation around met coal. 2021, way too early to start talking about stepping out of met coal, given its importance in producing steel. And with no alternative technology, we think it's a very different debate. And if I can put it this way, sophisticating investors understand the difference between the 2, and I think most of our investors are sophisticated. In terms of Scope 1 and Scope 2 emissions, I know July and the guys have got their ideas around how they can continue to improve. If I hand across to July, he's best placed to answer that question.

Yes. So we set ourselves a target to reduce our emissions by 15% by 2025. You'd notice any materials that we provide that we have reduced thus far by roughly 16% from the best line up to 2020. And that comes out of a combination of things. Apart from the efficient improvements and making sure that our footprint comes down, taking out unprofitable high-cost production also is significant benefits in terms of emissions. So that's a trajectory we're going to continue on going into the future because being a carbon company operating responsibly is one of our key objectives.

Broda, I hope we picked up the key points for you.

Your next question comes from the line of Tim Clark from SBG Securities.

Congratulations on getting the demerger through. Just a couple of questions for me, please. First of all, just your unfunded rehab liabilities. It's 45% funded now. Would your goal be to try and move that up towards 100%? Or is -- just to give us some indication of that cash flow? And then secondly, just on central costs, when you come out of a big group, I would imagine there's a big central cost allocation that sits in your numbers, it seems as though the cost allocation change is neutral. Is that fair?

Deon?

I'm happy to pick this. Thank you, Mark. Yes, Tim, so a couple of things, the first one is the demerger is still subject to shareholder approval, but thanks for that. In terms of the rehabilitation liabilities, what you pickup is that we have around $430 million of total future liabilities for rehabilitation, decommissioning and the like. Of that, around $193 million roughly is in a trust and cash collateral. So that's the 45% you spoke of. And we've made a commitment to, for the unfunded portion, invest in a green fund a minimum of 5.5%, around, let's say, $12.5 million per annum. The plan is absolutely not only through cash collateral, but through steps in and around our mines to, over time, manage that liability, which means there are many facets to managing that type of liability, whether it's technology in water treatment or whether it is a top swell technologies and the like. So it's not only a cash contribution, but we have, indeed, as you set up, committed to ourselves, our communities, society as a whole to fully fund that liability into the future. So over a period of time, gradually to increase that 45% to 100%, not only through cash contributions, but through all of these mechanisms combined. So I hope that answers that question. The last question you asked was around the -- over cost allocation. If you look at the HFI -- and I'm sorry, it might be on Page 188, roughly of the PLS, so you might not have gotten it yet. You're correct that -- so currently, the head office or Anglo American cost that comes into our business is around ZAR 800 million per annum. Of that ZAR 800 million, there's a portion of services that will continue to be delivered into Thungela, under a transitional services arrangement. Those services are typically those such as a short-term information technology access to platforms and the like. And the reason we structured it in that way, Tim, is to give us a high degree of confidence that the business will continue to operate efficiently and effectively from Day 1. And over time, clearly, as Thungela moves away from some of those services, we are envisaging that, that type of cost would reduce. And clearly, to a level that, as July pointed out earlier, appropriate for our size business, the nature of our business and our geography. So the intent is absolutely to apply a level of austerity. On those type of costs and services. And to do so, however, at the right time.

So of the $800 million, the majority will stay and it will just sort of work its way down over time. That's how we should think about it? It'll be...

Not entirely. So there are 3 buckets to the $800 million. So there's a bucket of around 1/3, that would stay as a -- for the transitional services. There is roughly 1/3 that would have to be replaced by stand-alone costs in our business. And then there's 1/3 of opportunity that we need to deliver on, in achieving savings and synergies in our own world as we transition to delivering some of our stand-alone services and functions by ourselves. So the better way to look at it is 1/3, 1/3, 1/3, with the bottom third being services that we continue to get from Anglo, the middle third that we need to replace like-for-like cost in order to get that service, and then the top third is the opportunity for us to whittle down over the next year or 2.

Okay. Brilliant. And then just in terms of that environmental liability cost. So should we try and work that through over the sort of the 20-year period. So assuming the Life-X projects are going to proceed at low capital intensity. Is that the most fair way to think about it?

Tim, I think that is a reasonable assumption. But having said what I've just said, some of those environmental liabilities could moderate in chunks rather than necessarily over a period of time. So if you make an assumption that we are unable to develop any good technologies or other enhancements that would limit or reduce that liability over time organically. So if you assume the liability stays, your assumption of only cash funding is over a 20-year period, is a reasonable assumption, yes.

We've also made it clear to July and the team that the work we're doing on rehabilitation technologies, the work that Anik and her team are doing on the community support work and the work that Tony and the team are leading on the living mine concept are all technologies that we think will mitigate longer-term rehabilitation cost because we can find other uses for land forms that work with the community needs, all of those things are things that we're always going to be happy to talk to the [ 2 yellow ] team that because it's also in all of our interest to make sure that these things are done the right way.

And your next question comes from the line of Sylvain Brunet from Exane BNP Paribas.

Congratulation on the still-to-be-confirmed deal. My first question, I'm not sure if that was Tyler's question, what was the benefit of deconsolidating South African coal on Scope 3 and, let's say, starting the Scope 1 and 2 reduction from an Anglo American perspective, would a 20% or 25% number be a fair assumption? My second question is on basically the process, you've been presumably testing investors appetite as well before deciding on the spinoff. Would you say that the structure of the transaction would be actually a good template to think about for Cerrejon after basically, you reached the conclusion that it was difficult, potentially, to think of their trade sale? And my last question, from an Anglo American standpoint, obviously. So if we place ourselves post June 7, say, you'd be looking at an even simpler portfolio with more cash generation, is it a fair assumption to think that this an even more favorable environment for capital return for shareholders after that transaction?

Okay. So Sylvan, a few questions there. I'll pick them up, and then throughout to the guys if they have got anything to add. Firstly, on Scope 3, we are still going through a rework on how these numbers are calculated. The one thing that struck us across the industry is everybody's calculated these numbers in slightly different ways. So we're trying to do consolidation. And we're also looking at how Scope 3 numbers report, not stopping at this certainly, but go right the way through the water manufacturing. We don't think the equation has actually been calculated correctly. But if we use the traditional methods that we've talked to -- it's around 25%. It's a ballpark number that I think is reasonable to you. So that's the first point. So that's obviously helpful in terms of the numbers that we're looking at on a go-forward basis. Secondly, the feedback we've had from literally all of our stakeholders in terms of the demerger proposal has been a positive one, many shareholders say, look, we're worried about holding and the fact that you've taken this big step, that's a big positive, and we hope that it's enough to bring a few other big investors back. Secondly -- and the feedback generally has been very positive. Secondly, it's one thing that you've invested, but you've also got governments, you've got customers, you've got employees, generally, the fact that we've handled this in a very careful way, we've consulted, we've included communities in the restructuring, we've included employees in the restructure and made sure that we've taken all of our stakeholders alone. I think that feedback has been very positive from everyone. And people understanding that we've left the entity in a sound position, net debt and also made sure the proper way that we'll help it through what might be a volatile period and that we've got 9% that we'll sit on for a little while and only deal with that in a responsible way. So obviously, we'll let things settle. I think all of those things have provided people with comfort that we've done this the right way and with a lot of thought in terms of all the moving parts. In terms of Cerrejon a little more complex because we've got 2 partners, clearly, 2 as sellers, including ourselves and the other one is probably still trying to work out where their portfolio goes in a broader sense. But I would think those things will probably be resolved in the next 6 months in terms of the debates, and then the picture would be pretty clear. Certainly, from our point of view, the feedback we've had so far in this process has been very positive. But I wouldn't necessarily draw a direct line across this being the right way to deal with Cerrejon. As I said, we've got 2 other partners that have got different views, and we'll work that through, but I think we'll get there in terms of a view in some way, shape or form within the next 6 months. And I would expect we'd be there within 2 years. And on June 7, Stephen, would you like to pick that up or hand across to Deon or July?

Yes. I think the question was aimed from an Anglo perspective, Mark, so I'll take that one. So I agree with you. I don't think there's any direct read across in terms of Cerrejon. In terms of post June 7, does it increase the chances of additional capital returns at the Anglo level? I would say no, not in its own right. As Mark has pointed out a couple of times, the thermal coal business as a percentage of contribution to the Anglo result is relatively small. I think it's really the current price and the price across the portfolio of commodities that we're dealing at the Anglo level and the underlying business performance that will drive considerations of additional returns. As we consider those every 6 months per our Anglo capital allocation policy.

And your next question comes from the line of Andrew Snowdowne from Sanlam Investments.

Two questions from my side. The first one for the Anglo team. And then I've got a follow-up question for the Thungela team, if that's okay. First of all, to anybody in the Anglo team, just with regards to this process, I know you've looked at all opportunities. Maybe you could just give us a sense of the extent to which disposals were indeed considered, whether you've had any potential bidders? And again, given the focus on exports, I was wondering whether you could give us a sense of the extent to which any of these come from -- any potential bidders came from outside of South Africa and relative to within South Africa. Mates, if you can answer that then I'll throw a couple to the Thungela team.

Steve, do you want to talk about the bids that were received and the logic?

We were approached by a number of parties, probably the majority of those were South African rather than international. But for a number of factors that we've often spoken about and spoken about this morning, we felt this was the best way to go in terms of how the business is set up, the management team, the experienced management team that comes with the business, the support that Anglo can provide both on Day 1 and in the next couple of years to make sure this business is set up well. So we really did, across the balance all of our stakeholder interests, particularly in our community, South African government, et cetera, I think this was the best way to go. And I've answered the question on South African versus international, so probably that covers that point.

So I'm correct to assume for that answer that there's definitely interest, it wasn't that, it was 0 interest, this was more to do with what you felt was a good value option rather than, again, I'm just trying to get a sense of the appetite that's there. And from what you're saying, there was also some interest from outside of South Africa. Is that the correct conclusion?

Yes, that's the correct conclusion, remembering this transition out is not just about value in terms of dollars and cents. It's the complete suite of value that we see in terms of the ongoing businesses' relationship with communities and governments and country, the resources and its role in society as well as the dollar value and setting the business up well. As you can see, Anglo is putting in a reasonable sum of money, both in terms of its upfront capital support and then its potential contingent capital support to make sure that it gives the team time to make it a success.

Andrew -- a key point there, Andrew, is the business is set up net cash, low cost position, high-quality product into an export market that's very strong. And so the initial setup is probably as good as you can expect. And all of the stakeholders appreciated that different staffing position with a good management team. And I think that was pretty important to all of the key stakeholders. Stephen, said -- I've been quite direct in that, but is that -- do you agree with that?

Yes, I would, Mark. And obviously, interested parties are welcome to buy shares in the open market post that date in June. That level of interest that we have seen, hopefully bodes well for investors going forward.

Great. Maybe then just following up the question for the Thungela team. And again, I'm asking this from the perspective of trying to get a sense of new buyers. Again, you just answered the fact, Stephen, but new buyers versus an Anglo investor, in fact is inheriting a stake in this new cold pure play. And the -- maybe page 19, I think, is a very good -- of the presentation is a very good illustration of the profile going forward in terms of production. It's not a very long life of mine versus some of your peers or coal peers out there. And maybe if you could just give us a sense, first of all, the blue section, i.e., the export production profile whether Khwezela is included within that. And then just talk with regards to the Life-X options, that is highlighted in orange over there, should I be thinking of this business, as things stand, most likely maximum 20-year life of mine, will these expansions be brownfield? Or are there any greenfield opportunities that you may potentially have to consider and in with regards to that plan for expansion? What is the target return that you'd be looking for? Are you thinking that in terms of cost per tonne of expansion or percentage target return. And then a final one on that. And then I have got a follow-up question after this, but on the overload, maybe you could give me a sense, your Page 10 shows the various operations, where those Life-X options really exist, at which operations. And if you look at resource versus reserve and the extensive resources, Zibulo, Goedehoop, Mafube tend to look like the most obvious options. At the same time, you've got Rietvlei with only a 3-year life of mine. Maybe you could just give me a sense of which operations you most likely would look to increase that life of mine, if at all?

I know, July, was trying to get into these questions. Over to you, guys.

So let me start with that. And then Deon, we can do with somewhat more detailed specifics around what are we looking for when we invest in these assets? Firstly, to make the point that we are studying a number of options with respect to that and those options could take the life of assets, in particular, the key ones, well into 20 years plus. But there's to be a certain number of things that have to line up, which are quite important. There's to be demand, we believe there is demand. These have got to be competitive in terms of where they are on the cost curve. We did say that we think that we have better certainty about the next 10 years. I mean, there's no view of 100% certainty. But the fundamentals look quite supportive over the next decade. So well into the 2030s. Beyond that, there is some concern. And therefore, that's why we made the point that 1 of the 3 key crits rather than the traditional metrics like AR and those kind of things, capital intensity is, are these projects short term? Because we cannot afford to put capital into long life core assets unless we absolutely have conviction that it will pay back. Which asset do you think that have got resources? In fact, we've got resources on every single one of our tenements. Some of them are better standard than others. So Zebula has got, by far, the biggest export resource Mafube has. Khwezela has got and you did notice that Deon always talks to one of the examples as Khwezela life extension. Beyond the current view that we've have got, we do have projects around some of our mines like Elders. Although we call it a greenfield project, actually, it's contiguous to Goedehoop and therefore, should take advantage of the existing infrastructure, which should actually help us to lower the capital intensity project. Goedehoop has got significant resources that we are beginning to study and think about differently. So if you ask me, do we have resources? Yes, we do. Do we have the history and capability to convert resources to production? Yes, we do. We've done it at Mafube at a very competitive price, on budget, on time. We've just done it with navigation. Rietvlei is a good example. It's a good example from the point of view that a company which is single commodity, single country like ours, also has got different opportunities like ours, these are the projects you can take. When you have relatively shorter-lived assets, in coal, we're not always going to look for a 30-year project. Maybe as [ EMEA ] project, which meets all that criteria could just be as competitive, supplying the local market. The last point I'll make about looking for opportunities in carbon is that in South Africa, it's a well known, it was spoken issue that there hasn't been enough investment into supply and the local utility in terms of the mines. And therefore, there is going to be a shortfall. We tell you what that can be debated. But again, that provides new opportunities. What we have just shown you is export profile, we have not spoken to what we could supply in the domestic market. If the economics are compelling, we do have the options to be able to develop projects. Deon, do you want to add anything?

Yes. Thanks for that, July. I think you've covered all of the key points, but just to add 1 or 2. The profile on Slide 19 that you're scratching it, Andrew, has got a picture of the export thermal coal. So that's the average 5,500 [ CB ] coal product. To answer your question explicitly, Khwezela is indeed part of that bloom. So part of that 16 million tonnes, which thereafter starts tapering off from about 2025 gradually, as you can see. As I mentioned earlier, the Life-X project that we need to make decisions on is around 2023. These type of projects are, given they are brownfields and have installed infrastructure already, and it's, therefore, just opening up additional resource converting it to reserve, have a fairly low capital-intensive or should have a low capital intensity. The decisions, if you look at that blue that we need to make, it's around 2023 in order to construct '24, '25 in order to, therefore, bring about some of the orange you see on that slide. The point -- the other points that you raised, for example, around Rietvlei and the slide that July went through earlier. You'll see that whilst Rietvlei has 2 million tonnes of reserves. It has around 10 million tonnes of resource. And the conversion at Rietvlei hinges on economic offset or contract. So given the fact that as we stand here today, we have a short-term contract that defines the life of that particular asset in the domestic market. If we sign up on a contract beyond that, we would be able, at the right economic terms, clearly, to extract that resource, which would elongate Rietvlei quite materially. In terms of the criteria -- sorry, I'm going through all of your questions quite quickly, please do interrupt if you think I need to give you more clarity on any one of those. To go to your question around the economics of these projects and what would drive our decision-making. I think July scratched it exactly the right point, it's not about a single particular measure around the large NPV or an IRR. In our mind, we've got good conviction on the supply and demand over the next decade. We, therefore, want to focus on short payback projects. And in doing that, clearly, a number of other measures are also important. It's relative competitiveness. So cost per tonne all in, capital and OpEx, and also the capital intensity, all comes into play. Because clearly, if we have a high-conviction view for a decade or 2, we certainly don't want to invest in any projects that don't pay back convincingly within that period of time. So it's a suite of investment criteria, ranging from economic parameters with the NPV, IRR, payback and the like. But it also extends into competitive positioning costs, CapEx and the like. So it's a realistic assessment. And clearly, we cannot make that type of assessment without reflecting carefully on the returns to shareholders. And whether or not, we are able to continue to pay a compelling dividend, doing that and post that type of Life-X period. So there are a number of considerations that we would need to carefully reflect on before we make a investment decision.

Yes, thanks. I think we've got 2 more questions coming from Richard and then Sergey, and then I think we'll wrap up. So Richard, please.

Just a few questions. First one, this -- the realized price has obviously taken some discounts versus the benchmark. I just wonder whether you can give -- I can see some slides in the pack, but I just wonder whether you might be able to elaborate a bit more on what discounts you're seeing at the moment and your outlook for that. And the second one is just on the marketing cost that you're going to pay to Anglo to market the coal. And are you able to give any kind of flavor as to what kind of process going to be. And then lastly, Deon, just to kind of push you a bit on the Life-X. I just wonder whether you might be able to give us any kind of numbers to hang around the capital intensity. You say it's low, but I just wonder whether you might just be able to give us any kind of steer on what that CapEx profile looks like as we go out into the mid-2020s.

Guys?

Thanks, Mark. So let me start off with realized prices. Over the last 2 ideas, as you've noted in the pack, the price realization as a percentage of the benchmark price has widened slightly to around 74%, 73% price realization of API 4. And the calculation there, as you probably know, is in the first instance a linear CV adjustment for the inherent quality of the product that we sell. Our qualities have remained stable at around 5,500 and is set to continue to remain fairly stable at 5,500 relative to that 6,000 benchmark price [indiscernible]. We do, therefore, not foresee that first linear adjustment moving materially in the short to medium term. In terms of the product discounts, which is nonlinear, and more reflective of supply demand. The -- those have increased in recent times and the increase has primarily been driven by a lot of uncertainty around COVID in 2020 and supply-demand dynamics in '19. We, therefore, see that, that additional discount is likely to moderate slightly into the future. And to put just sort of some perspective on it, I think Stephen mentioned earlier, the capital support until end of '20 -- 2022. And essentially, in that price support, whilst the headline API 4 number where that capital support kicks in is around $80 a tonne, the price realization level is around $60 a tonne. So just to put that in context. So we actually do see that, that discount is likely to narrow slightly over the next year or 2 as the normality returns, but we've also seen recent price support, no doubt due to Australia, China sensitivities. We're seeing increased China interest. And that clearly is helpful, not only for the top line, but also for the discounts. And in terms of the marketing fee, the terms that we've agreed with Anglo American are very much arm's length market-related type fee. And it shouldn't be a very material consideration because what's more important for us is the ability to achieve the best realized price and recognizing Anglo American marketing powers on achieving that best possible realized price. There's obviously good value for the small fee that we pay for that marketing service. In terms of the Life-X, I'm hesitant to hazard a guess as exactly where we will land. As you can imagine, with the birth of a company of our nature, we will be on a journey to reevaluate every critical standard and ensure that it's fit-for-purpose for our business into the future. We also need to reflect that the projects that we want to invest in are necessarily shorter life than typically a Quellaveco or Mogalakwena or Woodsmith, which has a much longer life. And therefore, some of the standards that you might want to apply are very different. And we're in that journey currently, we have progressed and we continue to progress at least 2 of our key Life-X studies. And so Zibulo, Khwezela study and Elders actually to be ready at an appropriate time for us to trade-off against our own studies as not all of them are likely to get funding at the same time in order to plan the most appropriate investment sequence for the options that we have. So I would love to hazard a guess on exactly what that capital profile looks like. Safe to say that if you look at -- and I think we've provided in the prospectus, the near-term capital profile and how we see that moderate, we've clearly also, therefore, want to achieve a level of capital efficiency in our business that would support our equity story into the mid-20s.

So are we talking like $1 or $2 a tonne for marketing fees? And so -- sorry, my last one is just do you think we can drag OpEx costs out of this? I mean, I think Anglo has done a very good job in trying to pull cost down. But as you demerge, do you think there's opportunities to kind of pull cost out as you become a bit more nimble as a business rather than as part of the diversified money in the company?

Deon, maybe -- Deon, let me make a comment initially. It's obviously Deon area because he's negotiating partners [indiscernible] point of view, I can assure you, he's done a very good job in minimizing any fees across to Anglo. Back to you, Deon.

Thank you, Stephen. So just to sort of set that out that type of marketing fee at the right price, you write in the $1 per tonne. But clearly, that sort of requires a very healthy market price to get to those type of levels, given that it's been struck in a percentage then part of -- then in a dollar per tonne land.

And then your question on OpEx. I would have to say that, one, you are right that Anglo has done a good job in terms of driving costs. And if you look at what we have done, actually, we have kept our cost flat over the last 3 years. And how -- that's how resilient we have been. We become single country, single commodity or operations within 70 kilometers red years. There could be opportunities that we can continue to look at. And that's absolutely our intention to, again, keep our assets in the lower part of cost curve because that ought to immunize our portfolio against price cycles. So yes, we continue to look for those opportunities, both in terms of cost reduction but more importantly, driving productivity, and I think Deon shared an example of some of the work we've been able to do by changing our mining metals underground at -- we're able to drive productivity by -- in excess of 50% [ section ]. So those kind of efforts are all geared towards making sure that our all-in sustaining cost as a portfolio remains in the right part of the cost care.

I think there's a really important point to make is the guys have been important players in improving their own business. They get an opportunity now is that, obviously, at the Anglo American level, we're investing in a long-term cost drivers, and we all share a bit of that cost. The good thing for Thungela is they get to enjoy a little bit of a runoff as they don't carry the same broader cost base, which has a longer-run payoff but inside of that 5 years, they've got to look at new opportunities, but they get a real benefit over the next 5 years in terms of their ability to drive the near-term work but we'll keep the relationship and compare notes on ways to improve things because we want to see them successful as well. And so they get a little bit of a -- it's not 100-year period, that's not the right term. But for our broader improvement, when we look 5, 10, 20 years, they're going to make sure they're in a good place in the next 5 years. So they get a bit of the best of both worlds for that period. And then it's up to the team to continue to drive beyond that.

And our final question comes from the line of Sergey Donskoy from Societe Generale.

Yes. I will -- I have just one question. And it's a follow-up on your life extensions. The question is this, is it possible to quantify in what range of export prices, these Life-X options make sense. What I mean more exactly is this, your mine life is relatively short, ranging from roughly 5 to 10 years. If it was in tens of years, you would be able to wait and time the expansions to better market environment. But say, in the 5 or 4 years from now, we have another bout of weakness with prices falling back to like $70 per ton, which is perhaps not impossible given past volatility, would you proceed with your life extension options regardless, relying on your longer-term view or you will wait and let your production sleep?

I guess the answer -- I'll ask my CFO to finish up because he's going to tell me that, ultimately, we're not going to put any money unless that project is compelling, and that's right. Remember, we said it's not just a price issue. In fact, when Deon said explaining it, he said we're not just looking at NPV, we've got to take all the suite of measures to decide whether before it goes ahead or not. Secondly, I don't think you want to make an investment based on spot prices because he did that, equally, you could run the risk of starting a project just because short-term prices are very high. You've got to ask yourself with a good conviction about your long term, it just happens that our long term is not 20 years compared -- our long term, as we have just said, we're absolute conviction about the next 10 years, beyond that, there's some uncertainty. And if we can get a project to pay back within that period, given that is our long term, we probably wouldn't do it. Deon?

Yes, I think that's absolutely right. Maybe to add to it, we have, over the last number of years, demonstrated that we're certainly not shy to take high-cost tonnes out of production, and we're certainly not shy to have to do the right things for the business to ensure that the residual portfolio we have, even at that point at a slightly lower level, is a robust portfolio. Having said all of that, July is absolutely right. It's not about a stock price. We're about a particular conviction on one price line that would drive a decision making. It is rather about our conviction on the relative competitiveness of the tonnes that we enable, both capital and OpEx. Because clearly, if you have, one, a high convection on price into the future. But two, on top of that, the tonnage that you're enabling or that you're investing in, either replaces higher cost tonnes or will be competitive globally then clearly that makes the investment decision easier than not having those 2 features available to you at the same time.

Look, everyone, next date, 5th of May is the AGM and the shareholder vote, the 6th of May will be the Thungela Investor Day. So thank you all for your time and your interest this morning. Please do let us know if we can help with anything else on Thungela or anything to do with Anglo American. Until then go well, go safe. Thank you very much indeed.