Anglo American plc (AAL) Earnings Call Transcript & Summary

Good morning, everyone, and good afternoon to those a little further afield. Thank you for joining us today. You've got both Stephen and myself. Next slide, please. For those that enjoy a bedtime read, we've got the cautionary statement. Next slide, please. For today, our order of play is consistent with our established routine. You'll have myself touching on performance and highlighting a couple of, we think, key points. Second, Stephen will run through the numbers to provide the detailed insights and to reinforce our focus on capital discipline, which is reflected through our returns to shareholders and our capital spending priorities. And to close, I'll take you through how we are positioning the business for the future. And as you've seen from our thermal coal announcements in the half, there's lots happening on this front. Next slide, please. On results, a record half for us, our highest ever EBITDA in a reporting half, somewhere in the 70% range higher than anything we've ever done before. The result was delivered despite us running at around 95% full production capacity. COVID remains a factor across the globe. And while it's been carefully managed our people and across all of our jurisdictions, it did have an impact on the operations. So from our perspective, we still see improvement in the business as countries move through the vaccination processes. We're also impacted in the operations with our met coal constraints, although Moranbah was operating again at the end of the half and development work has restarted at Grosvenor, although that will still take a bit of time to bring through. Growing EBITDA margin of 61% tells much of the earnings story, a function of both solid costs in terms of where we come from in the last few years and improving product prices. And our focus on quality and delivering value in use credit in terms of the prices we've realized above and beyond benchmark prices has really come to the fore, and I think has been a very obvious part of the story in terms of the results. Return on capital employed, 49%. And if we adjust the capital base for Quellaveco and Woodsmith spending so far, which do impact the denominator, our ROTE would be, in fact, 56%. So again, both very strong numbers. Of course, high commodity prices have been very important to us. But at the same time, we've seen increasing prices. Unit costs were up 15%, largely a function of stronger FX, particularly in the emerging economies. If we exclude the FX impact, where unit costs were up 6%, reflecting our 5% productivity pause through the COVID issues and some higher input costs as commodity prices have driven our input or, if you like, the consumable pricing. But Stephen will give you more color in his part of the presentation. But all in all, an encouraging result. It reflects -- and has been reflected through additional shareholder returns of $2 billion on top of the base dividend of $2.1 billion, and that reflects a 77% million payout just short of the 80% -- just short of 80%. From our point of view, if you add in Thungela, the returns look very good. But again, Stephen will unpack all of those parts of the story. So next slide, please. On safety, health and environment, we continue to focus on our improvement journey. Looking at safety first, you'll see that we have been fatality-free in the first half, which I think reflects the good work we've been doing on the elimination of fatalities task force that we put in place a few years ago. The negative there is the slight uptick in our injury frequency rates, and that's the total injury frequency rates. And we've seen a higher injury rate in our precious metals business and in the Quellaveco project, 2 countries impacted by COVID. And so the team is being very careful in terms of how we manage work to make sure that we don't see that negative trend continue. But real focus on safety and making sure that we're balancing off and making sure that COVID doesn't impact the processes we follow in terms of doing the work. Health, again, great improvement over the last few years, reflecting the focus on elimination of hazards at source. And on the environment, again, no incidents in the first half, which again reflects the improved planning and operating disciplines that we've introduced across the business. And whilst it's good to see no incidents in the first half, we've still got a way to go to make sure that we're happy with all aspects of the operations. Next slide, please. On the healthy environment and thriving communities, which is the broader social conversation, the critical -- or the progress we've made on improving towards our targets per the sustainable mining plan have been solid. We're targeting an absolute reduction of 30% in both energy and greenhouse gas emissions by 2030. And that's from the 2016 levels. And that's our scope 1 and scope 2 equivalent. The recovery from COVID has been patchy and required -- and we require improved operating stability to make sure that we're operating at our best energy-efficient level. So a little bit more to be done. But certainly, from our point of view, a pretty good results so far. We've also been making pleasing progress towards decarbonizing our operations, both of the energy efficient work and by switching power sources, particularly in South America from traditional fossil fuels to renewables. And as of next year, with the agreement done in Peru on Quellaveco and recent changes we've made in Brazil and Chile, we will be 100% green main supply electricity across South America from next year. So that's a major milestone for us in business. And we also plan to generate hydrogen from electrolysis at our mine sites along across the globe. We're using those renewable energy sources. So the move to eliminate diesel in our operations starts with these changes. And if we're able to get our truck fleet done by 2030, that in of itself would be a 15% reduction in our energy -- or in our greenhouse gas emissions. So an important milestone with the truck that we've got coming in at Mogalakwena. As you know, last year, we designed our new Social Way 3.0 program, and that is a package of social standards and practices. We are working to fully transition to this new set of standards and processes by the end of '22. Implementing this new high bar and industry benchmark for community engagement and social performance is very important to us. And certainly, there's been good progress in the half. And by next year, we should be in really good shape at that next level. Next slide, please. Throughout the COVID-19 pandemic, our WeCare program has enabled us to make a responsible, holistic and coordinated effort to protect people, both in the business and in our host communities, while also making sure we secure and maintain the integrity of our operations. And that 95% production rate reflects the processes, the procedures, some absenteeism due to COVID, but making sure all of those pieces are done properly and that we're looking after people. We'll continue to follow a well planned and managed approach to controlling the spread of the virus, and we'll make sure that we continue to work with everybody in terms of mitigating the operating impacts. A comprehensive suite of robust operating protocols and controls remain in place at our operations and certainly would expect those controls to remain in place for the balance of the year. The investment we've actually made in our own testing laboratories helps us rapidly identify new sources of infection and take action to limit the spread. And again, that's been very much appreciated in our local communities and on a broader scale at a national level. And we represent in a few countries that we operate the most significant private run testing program across those countries, and that's certainly been appreciated. We are firmly committed to vaccination and supporting governments in rolling out national vaccination programs, and we've already got a program in South Africa that's been supported by the government. Next slide, please. In terms of contributions and benefits to all stakeholders, I'm also very pleased to announce today that we'll be making a $100 million special endowment allocation to the Anglo American Foundation, providing further support to long-term health, education, livelihood and environmental projects that contribute to our sustainable mining targets across the globe, which, as you know, are aligned with the UN sustainability development goals. The funding will go to a broad range of projects, spanning climate change initiatives, health infrastructure, childhood nutrition, clean water and sanitation, early childhood development, just as a few examples. This investment in the future builds on the comprehensive contribution that we make to our stakeholders that totaled over $25 billion in 2020. So it's not just a shareholder story, it's about the good we do on a much broader basis. Having worked in this industry for longer than I can remember, I'm deeply proud of the contribution both Anglo American and the mining industry makes to our societies. In particular, the countries in which we work, we do make a real difference to the lives of local people, acting as catalysts for positive change. I don't think many industries can demonstrate such a positive contribution to the countries where they generate their profits, the taxes we pay, there's no industry that matches mining in terms of its contribution to local economies. And for us, we all need to be proud of that contribution. And for us, this is a very important part of our conversation today. Next slide, please. To business, across our key business sectors at De Beers, we saw good sales in the first half, certainly a big move against last year. Consumer demand for polished products has been very solid. China has been good. U.S. continues to improve. Despite the impact of the second wave of viruses in India, and we saw that in the numbers in our fourth site, the most recent sites have been very solid. And again, people are aware that we announced our site 6 numbers yesterday. And again, they were very strong. So from our point of view, we think the fundamentals for diamonds are very strong. And whilst we talk about the big contribution from iron ore, from copper, from PGMs and other parts of the business, we've got to remember that De Beers is in recovery mode. And so in the second half and into next year, we think it will continue to improve its contribution to the business. Copper has continued to deliver -- the copper team have continued to deliver consistent operating and cost performance. The near-term water management initiatives we put in place at Los Bronces are delivering results. And we are continuing to work on the longer-term solutions to reduce our water footprint across the country. In this price environment, you may see many different stakeholders, including governments looking for a bigger share of the pie. And we need to remember that our contribution to Chile, Peru and other countries is significant and will become more significant, and we've been involved in a lot of programs and dialogues with both government and our stakeholders in both countries, and those conversations have been very positive. And in particular, helping people understand the contributions we're making, I hope and we think, will change some of those debates, particularly in both Chile and Peru, where we think the conversation is becoming quite sensible. PGM is a solid mining performance despite the impact of COVID. And the ACP running extremely well. It's actually operating 18% above plan for the first 6 months, reflecting both a higher operating rate, reflecting some of the technical changes we made in the last refurbishment and as well, we're seeing much better maintenance availability. So again, a reflection of the due care and attention that Natasha and the team are putting into the unit. Strong pricing, clearly, supporting record margins and cash generation despite the impact of the higher U.S. dollar prices. In Bulks, we generated record iron ore margins during the first half, reflecting the quality of iron ore that we produce from both Kumba and Minas-Rio and with the realized iron ore price for our products for the half being at $210 a tonne, I'll pick up why that's occurring a little bit in a minute. But certainly, from our point of view, we think it's a real differentiating point. Our focus on quality, and we've talked about it for the last few years, you are seeing it in the numbers. And I think it's very important to make sure we explain how we're doing that. Operationally, there were some unplanned maintenance at Minas-Rio. And I think that does track back a little bit to the impact of COVID on maintenance scheduling. I think we've now got that back in balance and I would expect a much better second half from the Minas-Rio team. And at Kumba, the team managed the external impacts of COVID very well, and they are working very closely with Transnet to make sure we utilize rail capacity to the fullest. In met coal, Moranbah restarted at the beginning of June. We'll take things very carefully as we work through some geological conditions, but again, each week is getting better. At Grosvenor, work restarted underground in April. We're also reviewing all the findings of the Board of Inquiry. There will be numerous learnings, I think, for both us and the industry, and we are targeting a restart by the end of the year. But again, we'll just make sure that we've got all the issues covered before we kick things away. But certainly, we're making good progress. Next slide, please. So just to explain the work we've been doing. And when we talk about marketing products, people are still asking us questions about quality and what's it worth? As we restructured Anglo, the big headline was 50% less assets. We're producing more today out of half the assets than we were back 7 or 8 years ago. And our unit costs have dropped, if you look at these results, around 25% in nominal terms over that period. So it reflects both portfolio change and the focus on the industrial processes and the technology work that Tony and the team have been contributing. This relative performance has been delivered despite the mitigation measures we've implemented to offset COVID in the last 12 months. So if we include the reduction of thermal coal from the mix, the reduction in numbers of assets is around 60%. The longer-term improvement approach has been driven by portfolio restructuring, our technical reconfiguring, as I said, the benchmarking work, the operating model P101. And P101 is about focusing and improving on industry benchmarks for shovels, trucks right across the board. So today, we are, per the chart, operating across our businesses at about the 28 percentile on average across the portfolio. If you then compare that to our peers, the top 5, they operate somewhere between 33% and 46%. Now a few years back, we're at the 49th percentile. Now I'm using the inverse margin curve, which takes quality and then looks at a breakeven cost in each of our commodities to come up with that figure. And so our focus on cost improvement and price improvement for the quality of the products that we produce, then the margin is what's reflected in that price or cost position, which is a breakeven position. So if we go to the next slide, we'll just take it, that's it. One example, Kumba. Kumba was operating top end third quartile, almost into fourth quartile, we've literally taken almost 50% out of the cost. Shovel productivities are up 40%. Truck productivities, load factors are up 10%, 15%. So that's moved us to the left. But our focus on going from 62.5% quality product to 64.5% quality product, the introduction of the new technologies has kicked our price realizations up at the same time. And the marketing team are selectively selling to those steel producers that pay for quality. And so put all those factors together, Kumba is now a first quartile producer and Minas-Rio is at the front of the curve. And so it's not about costs. It's not simply about costs. It's about cost, it's about quality and getting value and in the marketing. So it's a 3-dimensional strategy that's driving margins and driving returns. With that, I'll hand across to Stephen.

Thanks very much, Mark. So let's jump straight into the numbers on the next slide, please. So turning to the first half numbers. EBITDA at $12.1 billion, a great result and that's driven a record EPS of $4.30 per share for the half. That translated into $1.71 per share base dividend at the 40% payout ratio. So clearly, the balance sheet strengthened further through the first half off the back of the very, very strong cash flows with net debt at 0.1x EBITDA. That's allowed us to announce an additional $2 billion of returns, taking the total returns to $3.31 per share. This nicely demonstrates the 3 key themes that I'd like you to take away from today's presentation, capital discipline, balance between growth and returns and continued focus on operating performance. We are seeing some upward pressure on costs, and you'd expect that in this price environment, largely driven from 2 factors: strengthening producer currencies and perhaps not surprisingly, increased commodity input costs. So up 6% on an FX-neutral basis, and I'll touch further on some of those cost details later. So if we go to the next slide and look across the different BUs. So a great recovery in diamonds, as Mark mentioned. Demand for polished product is strong, and that's coupled with limited supply and that's led to great demand in our sector. The midstream has largely destocked, and prices increased 14% in the 6-month period. COVID still remains an element of risk that we're monitoring in the cutting and polishing sector and also closely monitoring from our own operations perspective. At Venetia, as we transition from the open pit to the underground, we'll see some variability in grade, and that will result in some variability as report over the next few periods. Copper, continuing good operating performance, a great control of costs from the team, so really well done there. PGMs, strong refining performance during the first half with the ACP running well. That looks set to continue through the second half. And price is very, very strong with the minor metals, which are not so minor anymore. So $3.4 billion revenue from rhodium in the half and over $400 million from iridium and ruthenium combined. Healthy margins at 70% despite the higher U.S. dollar unit costs. Turning to bulks, iron ore, firstly, 70% margins, strong pricing from our high-quality products from Minas-Rio and Kumba and that really plays into the modern demand themes that we're seeing across the steel industry as operators value that quality, the efficiency that brings from an energy and greenhouse gas point of view, and that flows into the premiums that we've seen in the half. It was a challenging period for met coal, Moranbah now coming back on stream and ramping up and obviously, Grosvenor scheduled to come back on later in the second half. Hopefully, they flow into a strongly improved pricing environment for met coal. So overall, a strong set of numbers, but still room to improve in the second half and as we move into '22. So next slide, if we look quickly at the drivers of EBITDA itself. Price, clearly, a big factor, no surprises there, but also really pleased with the year-on-year recovery in volumes that we saw from the prior period that was quite heavily impacted from that initial period of COVID. We do continue to have some impacts of COVID, and that's flowing into our ability to realize some of those cost and volume benefits and some of those improvement initiatives that should flow through into the cost and volume bucket in due course. Next slide, please. If we look at across at our unit costs, so as I said, 6% up on an FX-neutral basis. So foreign exchange was the single largest driver at 9% as producer currencies strengthened. So combined, up 15% over the same period last year. So general CPI across the geographies that we're working was up 3%, but we do need to keep that in perspective. So the CPI pressure here amounted to $200 million impacting our EBITDA, whereas the price impact in the half was close to $8 million positive impact. So given the strong pricing environment we've enjoyed through the first half, there's no surprise that we're starting to see higher input costs from things like steel, I think met coal and iron ore and copper, I think copper price. We've also seen some input increases through diesels and reagents. And you got to remember that COVID has also resulted in some significant impacts in our supply chain, which has also fed into prices in terms of our input costs. That's added a little bit of pressure into maintenance costs, which have added another 2%, but I expect less of the maintenance headwind in the second half given that we've front-loaded some of the work through the year. So just a reminder, this is on a unit cost basis, so impacted by volumes and costs. And I'd like to think that as we continue through the second half of H2 and then into 2022, that we recover some of those volumes and that should feed into this outcome. So looking ahead to the second half, we've supplied some full year guidance in the appendix in today's presentations. But on the basis that spot prices continue where they are, which is obviously great for revenue, then we would expect producer currencies to remain strong and provide some element of headwind. But as I say, hopefully, modify as we've written volumes back through '22. So turning to the next slide and looking at CapEx. So CapEx for the half was $2.2 billion. As I say, COVID has had some ability on our capacity to execute some of the noncritical works during the first half. So we have slightly underspent in terms of where we're expecting to travel for the first half and particularly as we prioritized our maintenance costs and activity rather than the capital works. So we do expect to catch up some of that through the second half, but probably not all. And we will see some of the same headwinds that we're seeing from a strong currency and some [indiscernible] teams also through the capital space, again, steel, copper, oil-related inputs, and that should materialize a little bit or may materialize a little bit in the second half. So in total, we are revising our guidance down by $200 million to $5.5 billion to $6 billion of capital for the year. Next slide, please. So the half clearly saw some incredibly strong cash generation that's reflected the operational recovery, obviously, as well as strong pricing. It's driven down our debt by $3.6 billion for the half year period and that's obviously a big impact from the higher realized prices. That pricing impact, though, in terms of working capital has probably hidden some of the great work we've done as we've reduced and refined the PGM work-in-progress stocks that we've built up at the end of last year. And we've also run down our inventory in De Beers. So what you see is some of the positive price impact feed into receivables and our purchase concentrate in the PGMs business. So if you can have a good increase in working capital, then this is probably it. So the balance sheet in excellent shape to support our program of capital, investment in growth, and it's allowed us to make those greater returns to shareholders. Next slide, please. So looking at those returns, we're really pleased to announce the additional $2 billion of returns to shareholders for the half in addition to that base dividend that has naturally increased to $2.1 billion. So $4.1 billion in total. And just a reminder that we also distributed the Thungela shares during the half, which I think as of this morning were trading around GBP 2. And so that equates to another 20p on a 10:1 ratio in terms of distributions to shareholders. As you know, I'm a fan of balance. Mark often calls me Mr. Balance. So the additional return is structured as a $1 billion special dividend and a $1 billion buyback. So that's 77% payout for the first half and reaffirms our commitment to that capital discipline and returns, exactly as we would say, would do. That takes our returns since we reinstituted the dividend in the first half of '17 to over $10.3 billion. The 40% payout ratio remains in place. We really do believe that that's an appropriate payout ratio for a company like ourselves through the cycle, particularly when we offer that combination of high margin growth as well as attractive returns, so remembering through the cycle. So as Mark mentioned, next slide, thanks. It's been a record half for our shareholders, but also for many of the other stakeholders that we touch across the operations. In the first half, our activities resulted in $3.1 billion of taxes, taxes collected and royalties for our host governments, and that's over 2.5x higher than the prior period. Now it's probably not often you hear a CFO say, but I'm incredibly proud of that large tax number and the contribution that we make to the countries that we operate in. Importantly, we pay our taxes where the profits arise in our host countries. So when prices rise, so do our tax payments and royalty contributions. It's a win-win, and that's how the tax system is in fact supposed to work. I expect of higher profits again in the second half that we would continue to make significant tax payments through that period. Now depending on the country, the timing of those cash tax payments across different jurisdictions may vary based on tax installment regimes, profitability, level of past investment, losses, et cetera. But overall, I expect our tax payments to increase year-on-year quite significantly. If we look to Brazil, just as a quick example, clearly, the contribution in the current period doesn't reflect the multibillion dollars of investment we've made over the last few years in Minas-Rio. But now that we have utilized a lot of the tax losses, et cetera, in that country, I would expect we will have utilized all those through the second half and our tax payment should rise significantly before year-end. Now as Mark mentioned, clearly, it's an important topic in many of these jurisdictions that we work, but we are having constructive conversations across the board. And I think people do really appreciate that broader economic contribution that we make. Next slide, please. So as you know, every period, I'd like to recap our performance against our capital allocation model and scorecard. So cash generation for the period of $6.2 billion after funding sustaining capital. That continues to drive our payout ratio-based dividend with a total of $2.1 billion declared for the first half of the year. As I say, it's always about balance as we continue to invest for near-term growth with $800 million or $0.8 billion allocated to growth capital through that first half and the additional $2 billion of returns in addition to 20p from Thungela. So if I can turn to some of the growth that we do offer, and that's both in terms of cost and volume and margin, as well as capital projects. So as I've mentioned, the first half has seen some impact from COVID in terms of our ability to drive some of those operational improvements and some of the technology roll-out. It has been hampered just practically in terms of the things that we've had to deal with. And clearly, the priority on every site is the safe and healthy working conditions for our employees and contractors. So we do remain absolutely committed to the $3 billion to $4 billion improvement target, but the delivery has been delayed by 1 year to 2023. Now it is worth noting that I would expect that target to now actually increase given -- excuse me, that in 2023, we'll have a full year benefit from Quellaveco and that will feed through, I think, both in the cost and the volume line. But we'll formally update that guidance in December at the investment update. But make no mistake, the big ticket items that we are chasing continue to remain our focus. And while you're not seeing it drop to the bottom line at the moment, we are very confident in the delivery. Next slide, please. So in terms of growth projects itself, they remain broadly on track, and more than 90% of our growth capital is allocated to future-enabling products within our portfolio. So those metals and minerals that are essential for the decarbonization of the planet and meeting our global consumer demand trends. In the near term, Quellaveco remains on track for next year, delivering at least a 10% uplift in copper equivalent volumes. We also have several smaller, quicker return projects coming on stream in the next 2 to 3 years, the diamond vessel in Namibia, delivering some of the highest value diamonds across the portfolio, the Sishen UHDMS technology project, delivering more of that premium product and the debottlenecking at Minas-Rio. In addition, incremental expansions at Collahuasi. So a little further out, we've also got the Mogalakwena project, but we're still working on that best configuration of size, technology to integrate into the project. I would expect the studies would be largely complete by the end of the year and then in a position to potentially make a decision in the first half of next year. In met coal, clearly, the current focus is around stability and safety in the operations as we bring them back, and we look at how that low CapEx expansion in the wash plant may feed in, in due course. Mark will provide an update on Woodsmith shortly. But similar to the operating side, we are seeing some impact from COVID as we just sensibly roll out these projects. And again, if there's any change to the timing, we'll update you in December. So last slide for me to wrap up. A familiar message, it's all about balance, competitive returns to shareholders with over $10 billion return since 2017. We offer attractive high-margin, near-term growth in future-enabling products. We do remain confident of achieving that 45% to 50% mining margin across the cycle. But importantly, we're really delivering on the integrity and sustainability of the business to make the world a better place. Mark, back to you.

Thanks, Stephen. Just go to the next slide, please, if we could. I think in the conversation and in what both Stephen and I have talked to, 2 of the key differentiators, we think in the business. The relative improvement we've made to our operating cost, which is an ongoing journey and still lots more to do and lots more potential. So we think that's very important. Secondly, the marketing work we've done in understanding and driving for higher realized prices even against benchmarks established in the industry, and that's helping with our margin growth, and they've been 2 key differentiators. The third and probably goes at the top is our portfolio. So the balanced investment program that Stephen talks about is coupled with our move out of thermal coal and into crop nutrients. That will position our portfolio increasingly towards future-enabling products to play well into key demand themes. And again, I think the movements that we've created over the last few years in our portfolio really is helping us shape a very different future for our company relative to our competitors. And that we think is very important and it's one that I don't think we've yet been given full appreciation for in the market. The world needs the metals and minerals we produce to enable the transposition to a low economy -- low-carbon economy and to meet other global consumer demand trends. A growing copper production is key to electrification. Our PGMs are essential for decarbonization mobility today. And we think will play a key role in hydrogen -- in the hydrogen solution for the longer term, while our high-quality iron ore, and I'm talking high-quality iron ore, relative to others is essential to enable the delivery of the cleaner steel necessary for building a low-carbon infrastructure that supports the energy and carbon transition. The balance of mix is in met coal where we produce predominantly premium hard coking coal. And while the world needs still to deliver on our decarbonization targets, met coal in the short term and high-quality met coal, in particular, is absolutely critical to produce steel to enable that decarbonization. In the long term, the move to hydrogen and other technologies will see met coal reduce in the mix. And so by 2040, which is about the length of our resources in the ground, we think that matches with the transition that we have to go through and that our high-quality hard or premium hard coking coal is important as part of that transition. Next slide, please. So touching some more on those portfolio changes. We're very pleased with the progress on thermal coal. We said we'd be out of thermal coal within 2 to 3 years, and we've delivered well ahead of schedule, but importantly, in a responsible way. As you know, we completed the demerger of the South African operations at the start of June, maintaining the public scrutiny and accountability by listing the business. We've also ensured that we do the right thing by all stakeholders in setting that business up for success with the initial funding we provided as well as our transitional support being key to that responsible transition. It's been a good outcome all around. We would prefer to put our capital to work in those future-enabling commodities, as Stephen outlined, and there were clear dissynergies between the thermal coal business as it stood today and the rest of the portfolio. Building on that success, we're very pleased to announce the sale of our 1/3 interest in Cerrejon to Glencore. Assuming we secure regulatory approvals, we expect to complete in the first half of 2022. However, economically, we'll have been out from the 31st of December 2020. So looking at the future-enabling changes to our portfolio, next slide, please. And on Quellaveco, construction remains on schedule and on budget. The second wave of COVID in Peru meant that they got off to a slightly slower start in 2021. So we expect capital to be a little bit lower or on the lower end of the scale, that is the $0.8 billion to $1 billion range for 2021. That means some of the works will shift into 2022. But Tom and the guys have been very careful in the way they've scheduled the critical path activities. So we've maintained our resources on those critical path activities as a priority. And so we're still on track for that mid-'22 commissioning date. There's been good progress on the infrastructure projects, big milestones with completion of the construction of the Vizcachas dam, so that's the water infrastructure. That also is important from both a project point of view and a community point of view because it's an important source of water for the community, gives them all around water for "365 day a year" agricultural activity, which is a really important commitment to the community. [indiscernible] and the team are already starting to focus on the ramp-up of the mining operations. And as you can see, they've also got a flare for the colorful. For those that don't know what those colors represent, they're the colors of Peru and [ McKague ]. So despite times being tough, it's always good to see they go celebrate a milestone. From our point of view, they're about 25% ahead of the mining volumes that we've committed to be -- where we committed to be from the outset. And so that all goes well for our commissioning as we start on those key works early next year. So really pleased with the progress and the guys have done a great job in what has been fairly difficult circumstances. Next slide, please. Turning to Woodsmith, our greenfield crop nutrients program in the U.K. A technical review of Woodsmith has made significant progress, and we're working through the findings to finalize the design and schedule and budget. The renewable work has further emphasized the high-quality nature of the resource. The work that we're doing in the markets, and we're now in full commercial trials with the product. So we've proven that the product can deliver and does deliver material benefits to the crops that we touch. And so we're now in about 550 commercial trials. And that's about building the customer base for long-term use of the product. The review has further emphasized the quality and the different type of product we're producing. Because of the resource, basically run of mine material, on a ship able to go anywhere in the world, it's a first quartile product in terms of cost. Very low carbon footprint, the right physical configuration and with work on the project infrastructure, all those projects are going pretty well. As we said in February, as we work towards bringing everything up to standard, we do see some challenges in the timing of the shafts. We're working through those challenges. And our intention is to make sure that we finish the detail, which we'll do by the end of this year. We then program out the shaft to make sure we manage the cost in a very tight envelope. And so by probably next year, we will give you then the full plan and the projected timing from the project based on that detail. As we've said at Anglo, the lessons learned over a long period of time in projects is you must get the strategy right, the detail in the planning right and then the execution will follow in an efficient and cost-effective way. And we won't change that model and that formula for any project. And so we're quite excited. We think we're in a good place. We've still got a lot more work to do. And I make 1 final point about the nature of the product. It is not potash. It is a multi-nutrient, low-chloride fertilizer certified for organic use. It has a carbon footprint, 85% lower than conventional products. If you don't understand that conversation, please contact us, we'll explain to you why this is very different. It's bottom quartile cost. It can literally travel anywhere in the world, and it's a unique product as our future customers are starting to see in the crop trials that we're going through. Next slide, please. In terms of the metals and minerals we're producing, I think there's another differentiating point that really comes through in our FutureSmart Mining and the way we've linked that to our sustainability work and the focus on creating a healthy environment. While the metals and minerals we produce are critical to decarbonizing our planet, we're under no illusions. Improvements must be delivered sustainably, and our technical innovation program must connect with all of those objectives across the business. These leading capabilities are also the key to delivering our sustainable mining plan and carbon-neutral operations by 2040. Importantly, these targets are backed by solid plans and work programs that would deliver long-term sustainability, while also driving productivity and cost improvement. One can go with the other, if you've got the technology right, and you're executing the key sequences to make sure that you make this a net business performance improvement as well as being a cleaner, healthier set of operations. I believe we will be in a position for our sustainability update event in October to announce our Scope 3 targets, that will then demonstrate to people how we believe we can travel over the next 10 to 20 years, making a net positive impact across the globe and certainly demonstrate that mining can be one of the key drivers of a clean future for the world. Next slide, please. Consistent with that theme and again, scratching at and pointing to that -- another point of differentiation in the business. Our technical innovation program is holistic in its scope and approach, and it's about changing the way mining is undertaken given where we've come from over the last 100 years. Tony's team are looking at a broad range of integrated technical and digital solutions that will reduce our energy and carbon footprint, as I talked to earlier. Our water consumption will also materially drop as well our physical footprint. That is production intensity will improve, which means your capital intensity drops as well. With the added benefit that whilst being created decarbonizing, it makes sense from an economic perspective. And I think that's critical. And again, it explains, I think, a differentiating point with how we put these programs together to drive business performance. We've talked a lot about these technical innovations with Tony updating you most recently in May. That's worth checking out if you can get a copy of the presentation. His guys spoke a lot about the VOXEL platform that is really exciting and is industry-leading and helps us tie all the key moving parts. We were ahead of the curve in building our technical function when many in the industry were cutting theirs. And even when we went through '15 and '16, and it was tough times, but we felt that this commitment would be a game changer. And so it's turning out to be and certainly underpins both our business improvement initiatives and our commitment to decarbonization and improving our environmental footprint or reducing our environmental footprint. Next slide, please. Very simple example of the innovation that we're driving across the business. The first 300-tonne truck is actually being constructed as we speak. And this is the early peak of where we are today. I know many of you have been very interested in the progress we're making with the truck. The components are currently going through bench trials ahead of delivery to Mogalakwena in October. The hydrogen production plant should start commissioning in November. We will then conduct extensive field testing through '22, '23. It should reduce operational emissions by about 15% across the globe once fully installed. So with that, we are also finalizing conversations to get the build of the 100-megawatt solar plant underway, which is also expected to reduce our emissions in the PGMs business by 25%. Now this is an important step as well as it's also a part of the coordination and connection work we're doing in South Africa and looking at helping them build their grids in a very different way. And as you would be aware, most recently, the South African government actually approved for the industry, the building of 100-megawatt -- up to 100-megawatt power plants to be operated by private players. And so we'll be one of the first to move into that space. Next slide, please. So how does this all come together? We're working on growing the portfolio in the right products, while ensuring that we deliver those products in the most sustainable way from both in the ESG and operations performance standpoint. And as Stephen talks to, our capital allocation has been balanced in terms of improvements and in terms of growth for the future and making sure that our shareholders share in those returns as we continue to improve performance. We believe we need to continue our trajectory from being a focused mining company, i.e., digging holes, to be a metals and minerals company we are today. That is we're focused on customers, margins and making sure that we're getting the right value for the products that we're selling. And that is the value we're creating for our customers. And our transition to be a material solution provider takes into account where we think the world is going and how we believe we can shape our business to continue building new profit pools and improve our returns for the long term. So we're not simply about costs. We're about costs. We're about value. We're about sustainable delivery of value for shareholders, for all of our stakeholders. Because with that approach, we believe we'll get support to continue developing and growing as we've shown and as we're demonstrating in terms of our investments in growth in the portfolio. Next slide, please. So finally, and in summary, we believe the delivery of sustainable returns to all stakeholders is an imperative that will define the long-term success of our business. We are well positioned to deliver on these key imperatives as we are differentiated with a combination of technical, marketing and sustainability capabilities that have been developed as competitive advantages in our rapidly changing external environment. Coupling these capabilities with our world-class assets, strong balance sheet, and our ongoing improvement journey underpinned by the people that are developing and very proud of what they're delivering, we believe the future has been set, the foundations have been set and we should continue to improve. We've been clear in terms of what we're focused on. Delivering better than 10% free cash flow through the cycle is the key to both investing in future opportunities, delivery of returns to shareholders and making sure we continue to build and grow the business. And by focusing on our returns on capital, the ROCE number, makes sure that we're not blowing returns by putting -- by over capitalizing the assets. And that natural tension between the 2 is critical. And from our point of view, is about delivery of long-term value for us. And then making sure that, that value is sustainable and growth is sustainable, our 7 pillars of value, starting from safety and health through to the social performance right the way through to making sure our balance sheet is flexible so we can be countercyclical. And so we continue to be a balanced player in the market, as Stephen described, is all about getting these parameters and these targets right. And so for us, this is what we come to work thinking about each and every day, and these are where the debates are focused in making sure we've got the position right for the future. So with that, very happy to take questions.

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

Mark, the first question is for you. I have 2 questions. So you've had a perfect score card in the first half. You have done estimates, you've lowered net debt faster than expected. And you've surprised positively on by quite a margin on capital returns. Is this as good as it gets? And do you see scope for further improvement in your underlying business H on H, putting -- clearly putting commodity prices and FX aside? And which assets would that improvement come from? That's my first question.

Okay. There's a mouthful in that line. Firstly, the share buyback, I think, tells you that we don't think this is as good as it gets. As you know, we've been investing in the business. We've been improving. We're the first to say that we're nowhere near where we want to be, so we can continue to improve. The second half, obviously, we have to work through COVID. We're operating at about 95% capacity. So that's my first point. We'd like to get that to 100% as we go into 2022. But I think it will still be with us for the next 6 months. I think that's important to note. In terms of commodities, I think iron ore might soften a little bit. But the underlying or the fundamentals are still very good, and the fact we've got quality, I think, means that we'll preferentially maybe do a little bit better, but that's a bit hard to judge, but I certainly think we're in the right place in the market. And as people tighten up a bit, they generally like to see a little more quality supporting their volumes. So I think we're okay there. PGMs are well still short. Palladium and rhodium already tracked back a bit in my view. So I don't think it will go too far. Copper, I think the underlying demand fundamentals are strong. So again, we don't think that will fall back. Diamonds is in recovery mode. That's improving. And in met coal, we've still got more to do and more to improve and whilst we won't see much of Grosvenor this year, we think continuous improvements in Moranbah and then Grosvenor adding to that means that through the balance of this year and into next year, lots of things to be positive about. And then you've got Quellaveco. So from our point of view, no, we don't think this is as good as we can be. We still got a long way to go. Pricing, a little bit more of an open debate, but the breadth of our portfolio, the depth, the cost position, I think we're set to take advantage of that, and we're growing. And not many others in this industry can say they're growing with the quality that we're growing with. And those positions will also improve our relative cost position. So I think we're in pretty good shape, Alain.

And the second question is for Stephen on the cash flows. So your cash taxes were quite a bit below your P&L tax and you have underspent on CapEx in the first half. So one, should we expect a catch-up in tax payments during the second half? And two, with CapEx deferral and rising inflation, is it fair to assume that there's some upside risk to your CapEx forecast for '22 and '23 that you provided on Slide 40?

Just on the second part of that question, I think we've got that broadly well captured. Clearly, we'll keep that monitored as we go through the planning process through the balance of this year and give you updated guidance. But -- yes, it's a balance between some of the currency, the costs, but our ability to execute still, we're just a little bit constrained in terms of some of the COVID workplace practices, et cetera, in terms of full mobilization. So those things, I think, will balance out fairly well through '22 and '23. On the cash flow, Alain, sorry, just remind me your question there about that flowing through.

Yes, this cash factor, quite a bit below [indiscernible]

Yes. Nothing particularly to note there. It's just a question of timing and when those things come through. So you'll see some of the installments, I think, are more second half weighted for, say, regions like Australia. You'll see Brazil catch up and move into cash tax payable, I expect in the second half depending on prices. So just the normal fluctuations that you would see through an annual cycle. I would expect our cash tax payments will increase in the second half.

Your next question is from the line of Jack O'Brien from Goldman Sachs.

Congratulations on the first half. I think your improvement on the cost curve stands out for me today, particularly as we think about sustainable margins going forward. So my question is just as you look ahead and cognizant of everything that's already been achieved. But as you look forward, which divisions do you see the greatest scope for improvement from here? And how do you see that coming about?

Thanks, Jack. Look, I'll give a broad perspective, and I'll invite Stephen -- although he doesn't need to be invited, but in any way, we'll chat. But look, if you look at the business, I think De Beers has more improvement potential on its operating cost. It's had a really bumpy ride in the last 12 months. It's a major restructuring. Bruce is bringing those changes through to reduce its costs. It's certainly been impacted by COVID, both in Canada where we had to stop Gahcho Kué for a month. Botswana has been struggling with COVID. We're all part of the solution there and they're improving. Namibia will have the new ships. I think De Beers will be in good shape and continue to improve, particularly as we go into 2022. The copper business guys have done a good job. Quellaveco coming in, 300,000 tonnes of copper at around $1 and in fact, will come in a bit less than that in the early days. And we'll probably commission up pretty quickly based on the new mine plan. So that will make a real contribution on the copper side. [indiscernible] and the guys have still got some more work and improvements they said Kumba. Minas has been a bit in and out, although they're 20% under the original feasibility costs. I think getting more stability and a little bit more volume will help them on the operating shots of improvements. Then you've got Tony and the team's full technology program. We're just starting to put some of those new technologies in the business. We haven't really seen a big contribution yet other than the incremental stuff you're seeing across the board. So in the next 2 years, those impacts are at least in the 5% to 10% range. So that might help us balance off some of the input pressures. Steve?

Yes. Thanks, Mark. A couple of quick comments to add to that. I think copper, being, [indiscernible] yes, 300,000 to 350,000 tonnes around the $1 mark, let's call it cash cost, that's clearly going to bring us down the copper curve across our portfolio. Iron ore, I think quality premiums generally will remain. Even if in absolute terms, the iron ore price and the premium number come down, I think as a percentage and as a differentiator, that theme will continue. And then in PGMs, that's assuming we finalized the Mogalakwena expansion and just that increased focus on quality and returns from that expansion. And [indiscernible] have set some pretty challenging cost targets that they're going to get after. So I think that could flow through as well. And just to pick up one of the last points Mark made on the technology and innovation is we know you're not seeing it in the bottom line just at the moment, but we are very confident that those benefits are emerging in the business and will continue to emerge. Maybe slightly delayed, as I said, from where we had originally envisaged, but they should start to come through strongly through '22 and '23, in particular.

I think Stephen picked up a point I missed. I think Natasha and her work in PGMs, you haven't seen the full benefit of the cost side come through yet. The modernization of Amandelbult, the work she is doing at Mogalakwena. So in '22, '23, I think her good work on the cost side. [indiscernible], we've seen that 18% improvement. I think that will also come through on the PGM side. So I apologize to Natasha if she is watching. I didn't mean to miss her, but they have done some...

[indiscernible]

As you usually do.

And that's great color. Just one follow-up, if I may. Clearly your balance sheet is in great position as it stands, prospects of free cash flow looking good. And you've discussed a number of growth projects, not least sort of in the near term, but slightly beyond that, whether it's Mogalakwena and so on. Given those organic opportunities you have and also your policy on shareholder distributions, should we be thinking that inorganic or M&A expansion is unlikely given everything that you have on your plate as it stands?

We're balanced to quote someone famous, do you want to answer that, and I'll pick up the [indiscernible].

I mean you're right. We've got a great balance sheet, and we've got fantastic growth opportunities in our portfolio. Now that is a brilliant combination to have as a starting point. I think as we -- Duncan and the team cast their eyes across the industry, most things look fairly fully priced at this point in time. And that's why we were so pleased to bring the Woodsmith project in when we did. And that provides another both portfolio transition sort of part of the strategy, but also a growth strategy on top of delivering Quellaveco and the copper opportunities we have. So we don't need to rush to do anything outside of the fantastic opportunities we already own. And I think we can keep this balance, the capital discipline, the allocation into growth and deliver fantastic returns for shareholders in the near and medium term. It's a great starting point.

I think, Jack, the fact that we see a share buyback as being appropriate tells you what we think of the value in the business in terms of what we've created. But the really important point is we've got growth through 2030. So there is not an imperative to go out and do something crazy because we've got it inside the portfolio. And if we see a value opportunity as we did with Sirius, then we're not scared to go out and make the call. And for us, you've got to be countercyclical, keep the balance sheet conservative, make sure you're delivering the returns as you should. And people over time will start to see this is a very different business to where we've come from, and we think in terms of where we are relative to our competitors. And again, I think the share buyback says a lot and sends a very clear message about what we see and what we're going to do over the next 5 to 10 years in this business.

I just have one final comment. We are quite a unique size. So we offer the capital, the growth, but a $2 billion to $3 billion project, a $3 billion to $4 billion project can be really meaningful for us in terms of that growth delivery. And I think, again, that combination sits really well and quite differentiated for us.

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

Congrats on the great results. Fantastic. Look, you are the big miner growth story. So I guess a couple of project questions. One easy, one maybe a little bit curlier. On Quellaveco, just wondering how we should think about the ramp-up. So on the one hand, maybe it's gradual in terms of ore going through the mill, but on the other hand, you probably put people in place to make sure that it comes up quickly. And I'm guessing that you're going to have some nice high-grade ore to put through in the early days. So is it possible we see over 200,000 tonnes of copper out of Quellaveco in 2021? That's the first one.

Jason, I think you mean 2022.

Sorry, '22. Yes, '22.

We like to set challenging targets, but [indiscernible] a little bit too challenging.

Well, firstly, let me talk about that first, Jason. We're currently scheduled to start the commissioning around mid-'22. The guys are working hard on the first line. And so if we sneak inside the midyear, it might be by weeks. Then the second line will come in probably about 3 months later, but there's a staggering. The ramp to full production, we expect will take 12 months from first copper. So we will -- it's almost a -- it's not linear. It's better than linear. And by mid-'23, we'd be at plus the 300,000 tonne rate. So I think 200,000 tonne might be a bit of a stretch, but I'll hand across to Stephen. But the ramp -- sorry, I'll just make one other point. The ramp we estimate will be around 12 months, not the original 17 months that we had in the original study. Because of the mine plan, drilling and the mine plan work looks pretty good. Steve?

Yes. So the guidance we've given is $100 million to $150 million in '22. And I'd have to say I'm pretty comfortable with that as I balance out both the great work the team are doing, but also the COVID challenges that the country and the project is having to deal with. So I think realistically, I'm very comfortable with that. If we can do it to the top end or a bit better, that will be an absolutely brilliant outcome. But I think realistically, in the current circumstances, that guidance is pretty good for next year. Yes, we'll obviously keep you updated as we get closer, but pretty happy with that. You're right. We do get into good ore pretty well. And if we can deliver the course particle recovery system as part of that, then that will help the recovery, but my gut would again say that's probably more into early '23 than perhaps really a big impact at the end of '22.

Yes. I think it will be a bit foolhardy at this stage, Jason, to push it harder than that at the moment in terms of our forward looks. But again, we'll have another look at the end of the year and if there's a...

Tom and team keep surprising us.

Yes, we'll give you an update. But with COVID, we've still got a couple of months up our sleeve in terms of the way we're planning out the operation. I don't mean that in terms of forecast, but the way Tom is scheduling the work. But you can lose that very quickly if you get another run on COVID. So we're being a bit cautious for the right reasons.

Okay. Just a follow-up then on Woodsmith. And Mark, listening to your comments on the approach, acknowledging them. It is a big fertilizer project. It isn't formally Board approved, I don't think. You are spending quite significantly on maybe what we call preparatory works with the final decision to be taken later. So we've seen this movie before with another big mining company in Canada. And to be honest, it hasn't played well. So I guess is the ending of your movie going to be different?

Jason, look, I think the start of the movie is a little different. We purchased Sirius at a price that reflected the invested works in the ground. And that's quite unique for an acquisition in this industry in these days. The resource is better than we thought. The mining methods we think are appropriate. We've said that we'd bring a bit of capital forward for the ventilation shaft to give us more flexibility. We have gone for a fully continuous miner automated operation as opposed to some drill and blast. So we made technical changes, which means you change a few parameters. The main issue are the 2 shafts. Now we've got the first SBR that's turned last week. That will actually start operation during the course of August. And that will tell us because that's the critical path work what the shafts would look like. And so we'll have a bit under our belt in terms of the SBRs and their performance by the year-end, which will then inform our investments going forward. But even if we take an envelope of good and bad, it's still overwhelmingly a positive strong project. The Board bought Sirius, and we bought Sirius to build and go forward. That hasn't changed from anything we've seen. In our due diligence, we picked up the shafts as the issue. They certainly are. And when we come to you at the end of the year, I expect we'll be telling you what the execution strategy and ultimately, the only debate will be the date of acceleration. And for us, it's important to make sure it's right and done well before we go forward. But we'll be going forward with this project, I believe.

Next question is from the line of Liam Fitzpatrick from Deutsche Bank.

First question, just following up on strategy and capital discipline. The business is clearly in a very strong shape. But we can all see there are still challenges from COVID, tax changes in LatAm and so on. And when I think back to what you were telling us at the December investor update, you were targeting 3 or 4 projects to be approved or accelerated from the back end of this year. So has the experience over the last 6, 12 months led you to take a more conservative and phased approach when you're thinking about those projects? And linked to that, is there a ceiling in terms of how much CapEx this group can handle? Is it around $6 billion to $7 billion? And then a separate slightly cheeky follow-up, just on a question for you, Mark, on your tenure. Not that I'm wishing you away by any means, but you previously suggested that you aim to remain CEO until Quellaveco is delivered next year. Does that timing still hold? Or has COVID pushed things out?

I'll come to that one last. I'll do the -- yes, you do the capital first. Steve?

Yes. No, I don't think that there's any link to any timing in terms of probably to COVID or capital capacity at the moment. It's really about bringing the projects through in the right time with the right discipline. And so a couple of the obvious ones, things like Moranbah, Grosvenor, that's really been operated by the operation -- have been impacted by the operational aspects that are really well known. So really, until we get those back up and running at the capacity, we'll reassess then the impact on the wash plant. If we hit that capacity quite quickly, I imagine that wash plant expansion may make perfect sense. But let's wait, let's get back and then we'll make that decision. The planning work for that project is progressing. We'll put it in [indiscernible], and then we'll see how we go. Mogalakwena, again, it's about doing the right work and making sure we've got the right technology matched with the right size and scale for mining, for processing, et cetera. And so that work is ongoing. That should complete by the end of the year. And as I said, hopefully, by first half. Woodsmith, I think Mark's covered well. So they're really the main moving parts. You then got Collahuasi, various of those things. So we have, I suppose, captured those elements within the capital guidance that we've given. Yes, they have to drop around that sort of, let's call it, $5 million to $7 million when you combine that with the sustaining, the life extension, et cetera. So, yes, we think we're pretty well placed across that portfolio. I probably wouldn't want to spend too much more than 6 or 7 a year, but our capacity to do so, I suppose, potentially increases as we keep improving our cash flow in our operations and progressively bring projects like Quellaveco 1. Mark?

Yes. I think that underlying physical approach, one major project at any time, we're set up to do that in a very efficient way. Hence, Quellaveco, the team -- some of the team will roll off into to support the team there. The smaller projects, 2 or 3 smaller projects each year, quite within our capacity to handle physically and from a balance sheet point of view. And the way we've sequenced those moves something like Mogalakwena, we don't want to put too much material in the market. So we're very sensitive to pricing despite what 1 or 2 others may say, we really pay attention to diamond market, PGMs market. And so making sure that we don't bring on too much at any one time is also an important point and a responsibility point from our point of view. There's no point undermining the value we create by getting that wrong. So that approach is consistent. And certainly, from our point of view, it's about the organization capacity as well to spend it in a sensible way. On my own personal situation, I've said and made a commitment to the Board that I would see Quellaveco through, and I would continue to serve at their pleasure. That hasn't changed. As all organizations do and should do, we've tried to make sure that the Board has got -- and my job has been to make sure they've got internal options, and I think we've done that, and they'll make the decision when it's appropriate. We'll let you know when that decision has been made, if it's going to be made in the near term.

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

Congratulations on very strong results. May I just ask a question on the diamond market. It's been very strong. We've had good price momentum and good discipline across the midstream. But I just noted that the trading margin of 11% is strong. Is that just a timing difference where you were working away inventories? And does that mean that perhaps some of the -- of that momentum is a little bit of a one-off in the first half? I just noted, Mark, your comment that you thought that there was still steady improvement second half into next year to come. And then my second question is just on the buyback versus special. You've noted that you still see value. Was it an easy decision? Is it just a balanced decision between buybacks versus specials? I just wondered if you could talk to some of those thoughts.

Yes. I'll put my $0.02 worth in, and Stephen will do the cleanup as he usually does, Tim. Look, firstly, on the margin in De Beers, it was a timing issue. We're usually around the 7-ish percent, as you know, and that's what I'd expect us to trade back into. Bruce has done a lot of good work. The team has done a lot of good work on with customers and he's trying to improve that margin. But at the moment, that 11% reflects products coming back into the market, different customers wanting different things, good quality products that we're able to put our hands on. So it's a combination of things that have popped it up to the 11%, but that would be hard to maintain in a steadier market. So we'd like to see to continue, but that will probably track back a little bit. Stephen, do you want to say anything?

Yes. I think Mark's right. In a period where you've seen increasing prices from the start of the half through the half and at the end of the half, then it's probably just subtly flattered a little bit by those circumstances, a bit like having open copper, invoices open at the end of the year and you get your price true-up in time. On the buyback versus special, yes, a couple of factors we take into account. Shareholder preference is clearly one of them. And we recognize that there are different views in the market with different shareholders, perhaps particularly across regions. Again, we try to strike a balance. So if you look at the $4.1 billion, $3.1 billion of that is dividend and $1 billion is buyback. And I think Mark touched on it as well in terms of value. We believe what we're delivering. We believe in the journey ahead of us, and we believe in the value that we can deliver.

Tim, when we talk about Anglo American and the discount that we see against some competitors. When we look at our relative cost position across our commodities, when we look at the diversified portfolio and the strength of contributions across a number of commodities, when you look at the work we've done on marketing and improving our margins and our recognition of value in use, when you look at the technology strategy and where Tony and the team are helping us drive, that we'll continue on cost improvement and also with our growth opportunities, we don't think a discount is justified. We've deregulated or we've come to an agreement with the South African government on the deregulation of foreign exchange controls for us. So we've got a single balance sheet. And when we look at the future and the growth we have, we think we're differentiated in that the market is not fully realizing that value. And Stephen and my job and the team's job to try and help people see what we see. And I think the share buyback is a strong message in terms of what we think about our business and our commitment to continuing to improve.

Perfect, okay. Just a follow-up, the sort of nominal net debt after the payment of the dividend is sort of near $6 billion. Should we be thinking of the range a little bit of that sort of range and a little bit maybe above given the cash tax payables that are coming? Or is that sort of a level that perhaps you're feeling in the current portfolio you're relatively comfortable with?

Listen, clearly, we'd be comfortable with that in terms of a pro forma. I mean, obviously, since June 30, even the cash flow ins have continued at a very, very strong pace given where pricing and sales have been. But just to be clear on that, $2 billion net debt, $900 million of that is finance leases, capitalized finance leases, and $1.1 billion of that is the Mitsubishi loan associated with Quellaveco. So if you like, the true net cash, net debt position if you're taking out accounting type adjustments is 0. So we think we're in a pretty healthy start to the period in terms of supporting those extra payments.

Your next question from the line of Tyler Broda from RBC.

Great. Congrats on another great result. I just had 2 questions. One, Mark, you mentioned in the presentation just about how the conversation is changing a bit in Chile. It would be worth having your thoughts there on how you see things sort of playing out in Chile and perhaps Peru, if you could? And then a second question on costs for Stephen. Obviously, the FX has been a big headwind for you guys, especially [ this hour ]. But I'm just wondering from sort of a -- sort of fundamental inflation perspective, how much are you seeing sort of sticky inflation, i.e., labor being sort of ahead of CPI here, suppliers being more forceful in their negotiations? Just curious if you could provide some color there, if you could?

I'll do the political bit and give Stephen a chance to get these numbers together. Look, on the Chile conversation, we led an interaction with the Senate Committee for the industry. And the reason we led it, Tyler, is because of our technology work, our hydrogen work. And Chile is really looking to develop its technology economy and looking to be a clean economy, obviously, off the back of copper. And they see our progress and our lead in that space as being an important point. So we led the conversation. The points we made, I think, were all about mining in country. We pay tax in the country unlike many other sectors that have been subject to a lot of debate. I think that point was really well acknowledged. The second point is that taxes and with the improvement in earnings that we're generating, more tax flows will be coming. So that will continue to improve [indiscernible] and in fact, South Africa just made an announcement earlier this morning that the tax take in the first quarter was the best they've seen in 3 or 4 years, and it's the mining industry that's made a difference. So our messaging on what contributions we make in those countries and when we take into account wages and all the other contributions is unlike any other industry, that's the messaging. That's what we delivered last week. And it was a really constructive interaction. So if I was betting, I'd say, look, Chile is now in a sensible place in terms of its conversations. I think there will be no doubt pressure still on some type of adjustment given the constitutional [indiscernible]. But I'm now a lot more comfortable that it's a sensible conversation that we do have from time to time in these moments. Peru, Humala's first speech post election, again, much more balanced than we've seen. Our interactions with him have been pretty positive. He recognize, understand that Quellaveco represents 1% of the country's GDP. He made a specific point of saying in the speech that it's not his intention to impact growth and the important drivers of the economy. So that was good. He did talk about having a chat to the industry about stability agreements. Remember, we've got a 15-year stability agreement. But again, I think it was far more conciliatory and balanced than what we've previously seen. So I think we're getting to a more sensible set of conversations that may impact to some degree, but I don't think it will be crazy stuff that we saw maybe even 3 months ago.

Yes. One quick comment on that before I talk about inflation. And that is that just a reminder that the U.K. have done it, but they just do it in a red brief case on the doorsteps of Downing Street. And the U.S. have done it, and they do it passing through parliament. So it's not just something that's focused on emerging economies, all economies are thinking about how they're balancing their books. My encouragement is always, let's do it as simply as possible with established tax regimes and rules and calculation methodology on its broader base as possible. And I think that sets everyone up for a more sustainable certain future. On inflation, again, just a quick first-up comment. Remember, the impact of revenue and strong prices that we've had versus perhaps currency and commodity input costs, clearly, far weighted towards the $8 billion we had in terms of positive revenue impact. On sticky inflation, we're not seeing anything untoward at this point in time. A lot of our employment agreements to our major operations are partway through their current, say, 2-, 3- or 4-year sort of time frame. We have a number of them rolling into, I think, '20 -- maybe '22 or '23 at the earliest across our operations. The current period, it's been a little bit hard to react to the inflation inputs. So supply chains have been disrupted, they sort of had to pay and source what you could get, particularly if there was disruption, you were concerned about to secure material. It's been harder to react in terms of volumes. While we say we're operating around that 95% level, that's as a result of seriously hard work across the operations, let's say, to get us up from an otherwise 85% level by the great work the teams have done to minimize the impact in the operation front. So it's been a bit hard to respond beyond that to close that gap on a unit cost basis. So remember, these are unit costs we're talking about, which are impacted by volume. Again, I'd come back to the T&S and -- technology and innovation initiatives. Our ability, particularly through the first quarter of the year in some of the Southern Hemisphere, where you had COVID and rain and summer holidays, it was hard to get the momentum through that first quarter. I think we're back on track now through a lot of those automation, process control, some of the bulk ore orders, et cetera. Those projects are now progressing quite well. And so it's just been a little bit hard to respond in as quick a period as you would like. Remember, we weren't seeing it at the end of last year when we reported in February. And so yes, it has emerged. Some of it currency, some of it cost. We will respond in time, I think, appropriately. We've always said ourselves improvement targets well above that expected inflation for exactly this reason that we need to drive improvements in the underlying business.

Tyler, our first wave of cost improvement was portfolio operating model, which is really the industrial models, technology and its incremental work that Tony and the guys focused on with the operators. And obviously, the general improvements that we've made across the board, the technical reconfiguration of session, all those sorts of things. The second phase that we're just lining up to roll through in the next 3 or 4 years is the capital investments and growth in quality projects that all have better margins. So that 45% to 50% margin we talked about is based on those lower cost operations coming in and making a positive cost and margin contribution. And the technology work, bulk ore sorting, coarse particle flotation, all of that over the next 2 to 3 years start to impact the operations as well. So there's a real forward momentum, but it's sort of a flat spot. And then '22, '23, '24, you'll see a real push again down from where we've been, which is very similar to what we saw in '15, '16 and '17 in my view. So I think we're doing a lot of work to balance and try and negate those impacts. But in this sort of environment, you will have those input pressures, but that's there for us to manage.

Can I make a...

Yes [indiscernible].

Can I just make a quick comment, please. We're running up against time, unfortunately. So if I may, I'm going to take Ian and Myles as the last 2 questions, and then Sylvain, Richard and Luke, if we may, we'll take that in the roundtable that follows. So Bernie, can we take the next 2 questions, please?

The next one comes from the line of Ian Rossouw from Barclays.

Just to quickly follow up on Tim and Liam's questions on, I guess, it sounds like CapEx is not much pressure going up. And from a sort of dividend perspective, I mean if you get back to sort of pro forma dividend of $6 billion? I mean if you see continued strong cash generation in the second half, should we expect a similar return if your net debt ends up at $2 billion? And then second question maybe for Mark. You've delivered quite a strong message on operational excellence and safety. And in that context, it was quite disappointing reading the Queensland Board of Inquiry report and conclusions. I mean what do you think went wrong in the business? And how confident are you that there aren't any other similar issues in other parts of the portfolio?

Yes. Thanks,. And from our point of view, no one sits comfortably when you've had that type of incident. So you've got to really be introspective and try and understand -- or introspect and try and understand the issues. I think the management of gas and how we set the longwalls up needs to be adjusted from an industry perspective as well. There have been a number of gas emissions in the field. And so automation, elevating some of the technical work we do to make sure that we've got the right expertise in solving some of those problems is something that I think we've learned a few lessons on as well. And the designs that we think need to be taken into account, the ability to drop the power off if you get a waste for is also important. So there's quite a few things there, Ian, but I think there's quite a few things for the industry. And again, we've used it right across the board to try and take ourselves to another level on the safety front. So it's a journey. We recognize that we're not where we want to be. I mean compared to where we were 7 years ago in 2013, we had 15 fatal incidents. And so we've obviously made a lot of progress, but we're still not where we want to be, and we're the first to put our hand and look at ourselves and say there's still more work to be done. And I think the recommendation, we don't agree with some of the points, by the way, but because they have to give -- our guys couldn't give evidence, that will be covered in the formal evidence that's provided. But at the same time, if you have an incident, you've got to learn, and we're certainly doing, that's -- that's the important point. Sorry, Ian, what was the second part?

Capital allocation. I'm happy to take that.

Yes.

Ian, I'd like to think we're building a pretty good track record of complying with our capital allocation model. So in terms of capital discipline, the allocation, the commitment to a strong balance sheet and then if appropriate, additional returns. And our undertaking to the shareholders is that we will always work our way around that circle as appropriate every 6 months and consider what we have in front of us in terms of delivery and look forward, remembering my golden rule is we earn it first and we pay it out second. And so I think we've got a pretty good track record living with that now over an extended period of time, and I don't expect that to change.

Does that answer your question, Ian?

It's a known answer, Ian, but it's what we're going to leave by.

Your last question comes from the line of Myles Allsop from UBS.

Firstly, just thinking about simplification of the group. Obviously, you've done a huge amount of the portfolio over the last 5 years. But in terms of -- it's still a very complex portfolio, still got double minorities. You were talking earlier about stock trading at discount to peers. I mean would you consider taking action to take the next level of simplification, take out some of the minorities or spin out De Beers if you're getting fair value recognition for the time in consumer business? That's the first question.

Myles, simplification for simplification's sake doesn't do anything for us in terms of delivering returns. But I know that's not the point of your question. But De Beers, we think, has a significant improvement potential. We're seeing that track through the fact that we were able to stand behind De Beers. Last year was another example of the value that we add to the business in tough times. But to be fair, Bruce and the guys did a fantastic job managing and we ended up with a small negative cash flow, which was all about investing to make sure we had the product for the first site. So a great outcome, but it demonstrated how De Beers can take the long view because they've got us backing them. And I still think there's a lot more potential at De Beers. And if we're generating the cash flow, I think, ultimately, the value will come through the share price. Secondly, on minorities, we always look at those sorts of opportunities. And if I said that those things remain important opportunities for us, then the answer is yes, but it has to be done the right way. It has to be done at the right time, and I'm certainly not going to tell you before we do it.

Some of our -- if you want to call them complexity is a little more visible because some of our minorities are listed in listed vehicles. But a lot of mining groups have a lot of joint venture partners as to oil and gas companies. So we're not that different in that respect, except that we have the listed reference price for 2 of the high cash performing businesses at the moment.

So patients in unwinding that complexity, Myles, is the way we've adopted all the way. We thought about this. And we're shipping it away, as you know, the foreign exchange controls in South Africa have gone, all those sorts of things. We'll just keep working on those issues. Minorities, all those things are important to us. But we're patient and we'll just knock them off one at a time and keep demonstrating that there's a real value story that we think people haven't fully got yet. I think delivery helps hold complexity.

The desire there is to further simplify if the sort of time is right and such.

Always. Always. Always. And we understand and we understand the conversation on the other side. We're not meaning to be glib or smartass. We're there. But I think we've done a fair bit and I think people have recognized that to be fair. And we want to keep doing it and it's still on our agenda, and it's a good question, and I hope you see our answer as being respectful.

Okay, everybody. Thank you very much indeed for your time this morning. Really appreciate it. If you've got any further questions, then please come back to the IR team. For those that can join us on the roundtable, we'll start in about 7 or 8 minutes when everybody had a chance to get a cup of coffee. With that, thank you very much, indeed. All the very best. Stay safely.

Thank you very much.