Anglo American plc (AAL) Earnings Call Transcript & Summary

Good afternoon, ladies and gentlemen. Welcome, and thank you for joining us this afternoon. It is great to see so much interest in our first sustainability performance update of the year. During which, we will update you on our progress towards achieving our broad set of sustainability ambitions, which are integral to our strategy and decision-making. Now the order of play. Today is a Duncan and Anik duet. After talking about progress on our key sustainability metrics, Duncan will update you on our climate change work during 2022 and our priorities for this year. I will then take you through some of the work we are progressing in the social impact space. Before Duncan wraps things up by illustrating how we apply our integrated approach in delivering outcomes that support a more sustainable future. But fear not, -- we also have Stephen, our Finance Director; as well as our Technical Director, Matt Daley, both eagerly waiting in the wings ready to respond to all of your difficult questions. Duncan, over to you.

Thanks very much, Anik, and welcome, everybody. As always, good to speak to you again, and thanks for joining us this afternoon. So safety, as always, must come first, and it will do so in this presentation, too. And we strive every day to create a workplace where no one can get hurt. Now while we've seen some very happy and good progress in terms of the continued stabilization of the performance in our operations from both safety and a production perspective through the end of last year and on into the beginning of this year, we did tragically suffer a fatality at our Kumba operations in South Africa in February of this year. And I think this is a very much a stark reminder to all of us that unless we at all times remain unconditional about safety, then accidents are going to happen. And our response to this has embraced 3 large or broad aspects. And firstly, that started out last year again with an urgent reset and calls to action across the whole of our business. And we started and instigated those during the second half of last year. Secondly, also our work to improve the operational stability through our discipline of implementing and sticking to our operating model. And I believe that this is absolutely key not only to better and more effective production outcomes, but to safer outcomes in terms of the employees. And finally, a much broader approach, which seeks to alter the collective mindset of the people in our organization. And this is to do -- this is to ensure that people are much more confident and much more aware of the unsafe situations that they may be putting themselves or others in and therefore, feeling confident to be able to speak up in dealing with those situations. So we are focusing very much on increasing the ability for our leadership to spend time in the field, and that time will help build a more safe and a more inclusive culture. And where we can, of course, we will continue to apply technology and technological solutions to ensure that everybody can leave work in the same way they arrived at work in the morning, safe and ensure that they will maintain their health and their focus, not only at work but for their families, too. So now I'm going to move on and talk a little bit about our sustainable mining plan and how it integrates with our strategy. So you'll be very familiar now with our purpose and the strategic context in which we framed that purpose. And I'd like to reiterate the fact that our approach to sustainability here is very much at the heart of our business strategy. Our sustainable mining plan, we call SMP for short, is designed to deliver outcomes that are aligned with our purpose. This focus of reimagining mining to improve people's lives, and therefore, deliver enduring value in many different forms to a wide and a broad range of our stakeholders. And we're going to touch on a couple of those elements from different stakeholders' perspectives in our presentation today. The 3 pillars of our sustainable mining plan include goals that are aligned to 12 of the 17 UN sustainable development goals. Now these are the ones that we felt that we could more positively contribute to, and these goals are embedded into our business planning at a very granular level. So in the same way, we think about putting production plans and cost plans into our objectives and into our business plan. So do we think about putting our sustainability goals and targets into those plants in a very integrated sort of way. And we think that this is absolutely critical to turning the ambitions that we have of being a sustainable mining company and a leader in the space into real and tangible outcomes. We hold ourselves to account for this, too, by the way. So this is very much part of the leadership remuneration. 20% or so is weighted to ESG measures and our performance against these targets and goals that we set on our journey. Now finally, we continue to review these goals, and we want to be sure that they remain relevant because it's a very dynamic and fast-changing space. There's more and more transparency that's coming to this globally. And we want to be sure that we play our part in bringing that transparency to bear, but also at the same time, ensuring that what we are doing remains relevant to our employees, to our stakeholders, both our shareholders and our civil society stakeholders. Right now, we are broadly comfortable that the set of goals that we have ships that, and we will continue to involve them as needed over time. And of course, we'll provide more updates to this later on in the year. Now we've highlighted on the slide where we'd like to focus the presentation today, and I'm going to move on and talk a little bit about the healthy environment part of our sustainable development journey. Now our healthy environment goals are across many areas, but the ones to focus on are areas of emissions, water and biodiversity. And in all cases, the journey towards our goals is going to take a bit of time. And the improvements that we make in executing against these programs is clearly not going to be linear, as I'm going to point out to you in the next few slides, too, but we will continue to give regular and transparent updates on our progress, and in particular, on our performance against targets, emissions targets, in particular, even if there isn't a whole lot of new news to talk about at the time we give the updates. So moving on and having a look at the key components of our environmental performance. This slide clearly shows that progress isn't linear. And one example of that is on water usage, particularly in our water scarce regions, we can show that we are now currently 26 below -- 26% below our current -- our baseline that we described for ourselves or for water usage back in 2015. So halfway now to our target of a 50% reduction in water use and abstraction. However, you can see that these decreases in the past few years have sort of plateaued out, have become a little bit more gradual. Now the latest improvements in our performance were due to the significant increases in efficiency at both Amandelbult and Venetia mines. And these sites achieve this by improving the water reuse and recycling rates, and therefore, reducing their reliance on the abstraction of fresh water. This focus on efficiency is continuing at all of our operations throughout 2023. And I think we will continue to see improvements in this regard. And in fact, the latest count is probably slightly ahead of our own trajectory or our planned trajectory. Now reaching this target of a 50% reduction is clearly going to require a much bigger step that is embodied by efficiency improvements that I've been speaking about now. And I think I'd like to touch on that examples of what these big steps of improvement might be through a little bit of a case study later on in the presentation, when I talk about the Los Bronces integrated water security project that we've just instigated. Now looking at the greenhouse gas emissions and our energy usage, of course, these are 2 very interlinked elements. Since 2019, our Scope 1 and Scope 2 emissions have been on the downward trajectory. In 2022, our improvement reflected the transition from [Grass Tree to the less gassy] [ equilatem ] in our steelmaking coal business, and that served to reduce our Scope 1 methane emissions as well as our growing proportion of renewable electricity and the contracts that have come to bear across most of our South American operations kicking in, in stages over the last few years. But there is also a linkage, I have to say, to production volumes here. And we may see a slight lessening of the rate of improvement here over the next few years as production levels start to increase on -- in the short term. Now on energy consumption, This, of course, affects our Scope 2 emissions as well. In absolute terms, we saw a small improvement this year, and this was despite the fact that we brought Quellaveco on stream. It's largely a reflection of lower production in our PGM businesses to be fair. Also, importantly, our proportion of energy drawn from renewable sources continues to increase. So that keeps us at the forefront of this program. So currently, 52% of our electricity used and 25% of our total energy is now from renewable sources. Quellaveco renewable energy contracts kick in during this year, 2023, and that will take us all the way up to 100% renewables in South America. And from our Australian steelmaking coal operations, we will transition there to renewable energy contracts from 2025. So playing our part in helping to address climate change is clearly a central part of our strategy and our sustainability objectives. And as I've said before, this is not going to be a straight line in terms of progression, but we're going to continue updating you in terms of our progress and our pathway to meet our objectives. Our progress in the past year or so were centered on 3 core categories. Firstly, -- our renewable energy work principally addresses our Scope 2 emissions, which largely arise from our Southern African electrical supply as well as globally our reliance on diesel in the haulage of our product in and around the mines. So as planned, we entered into the Envusa Energy partnership with EDF Renewables and announced the first 600 megawatts of wind and solar projects as part of a larger 3- to 5 gigawatt program over the next decade. Now we've already agreed commercial terms for 2 wind sites of 140 megawatts each, 1 solar site of 200 megawatts in the Eastern K. And in addition to that, we have 2 behind the meter operations, both solar sites at our mine Sishen and Mogalakwena -- now at Sishen, that's a 70-megawatt photovoltaic installation is now undergoing already some work in terms of size stabilization and the predevelopment of construction activities. The plan is to close financially on this project in the next quarter or so and then launch full construction by quarter 4 of this year. Similarly to Mogalakwena, where we have 130 megawatts behind the meter is on the way to financial close, and we expect to start construction on that project in the fourth quarter of this year, too. So of course, we have a much larger portfolio of energy projects in the development pipeline, and that's going to follow this first wave. So next year, all being well. I'm hoping to show you a couple of pictures of some of these projects in construction that should be coming on in 2024 and 2025. Alongside these, as you know, we've also developed and are now testing the world's largest hydrogen-powered haul truck. And at the start of 2023, we combined nuGEN, which was our part of this venture with our partners on the project, First Mode. And the purpose of this was to accelerate the development of this technology and also commercialize this technology more rapidly than we would be able to do all on our own. The second category of our emissions that really bears a lot of attention is that of methane from our steelmaking coal operations. So this would very much with diesel and electricity in Southern Africa be the largest component of our Scope 1 emissions today. We now already capture around 60% of the methane from our steelmaking coal mines, and we actually use that methane to generate electricity for the local region. A total of about 100 megawatts of energy making capacity is available for use from this captured methane. The remaining 40%, which is much lower in concentration is the next focus area for us. And initial concept studies have already commenced and are starting to now identify the best approaches for this an abatement, so and then abatement as well as methane emissions reduction. We're working very closely with some new technology vendors and engineering partners to progress from pre-feasibility where we are now to feasibility study for VAM abatement project with the design and construction of an industrial unit here for Moranbah in Australia. So this will be the first type of first of its type, and it is intended then based on the back of the success of that to then roll out a template for further deployment for the rest of our underground operations in Australia. Finally, on scope 3, and I'm going to talk a little bit more about to go through later on in the -- Scope 3 later on in the presentation, is a wider approach. So we have established a pretty big ambition here. But note that this ambition is very much dependent on the decarbonization progress of the steel industry, given its emissions represent 2/3 of our Scope 3 footprint. So steel industry Scope 1 and 2 emissions or our Scope 3 emissions. And a lot of the change in the space must come from them as well as from us. And so for those elements that we have slightly closer to ourselves and under our control, some news here, of course, is that the first 2 of 10 LNG vessels have now entered service for us on the South Africa to Asia route, and we are expected to deliver here a 35% reduction of carbon dioxide compared to conventional marine fuel vessels. And just a couple of weeks ago, we signed a memorandum of understanding with H2 Green Steel. Now H2 Green Steel is a Swedish hydrogen and steel producer to work together with them on the advancement of low carbon steelmaking processes, using our premium quality iron ore products from both Kumba and from Minas-Rio. All right. So what does this journey look like for us in terms of Scope 1 and Scope 2. So this is our pathway in terms of reaching carbon neutrality by 2040. So our scope 1 and 2 emissions are now down 21% since the peak that we saw in 2019 and reflects, I think, the very important progress that we have made on our journey. Although still quite a significant amount of work needs to be done, as you can see, to deliver our 2030 target, which is 30% reduction against 2016 and full carbon neutrality for the whole of the portfolio that we currently have under management by 2040. Now we'll keep filling in the detail on this chart, and you can see our pathways is filled with a number of projects that we are either developing or have in execution, and we'll keep providing the information on how we're progressing on this journey. And we're now very pleasingly, have just completed the stand all agreements which will supply renewable energy to all of our Australian operations by 2025. I've spoken a little bit about the first solar and wind PV projects that will come on stream in South Africa in '24 and '25 too. So as I've mentioned a little bit earlier, we may see a small uptick on this journey, as we progress towards 2030, but as technology develops, I think we'll then start to see a rapid decline in the emissions as a result of the work that we are doing to either develop this technology ourselves, will work in partnership with those that are like-minded with us on our journey, and therefore, we'll see some progress in the next while, additional progress, I mean. So on the next slide, I think let's talk a bit more about Scope 3 and this massive ambitions of 50% reduction by 2040. So we've spoken a lot about this ambition. And we've spoken a lot about how we take this ambition and turn it into a set of pathways very much like I've just described to you for Scope 1 and Scope 2. And then we convert those pathways into actionable and executable plans for these Scope 3 emissions. In 2021, which is our most recent measurement, it takes quite a long time to compile and gather this data today. Our Scope 3 emissions were 99 million tonnes. And this was 14% lower than they were in 2020, in part driven by a greater proportion of our sales to low emissions customers, where as well as lower steel making core volumes, we spend quite a lot of time in ensuring that our solutions work for their solutions on the journey to carbon neutrality for their industry, too. So we'll continue to work on placing our product with those lower emitting customers who tend to be tend to more highly value the premium product mix that we supply. But of course, I want to be sure that we all understand that we are absolutely in the hands of our customers here, particularly as our steelmaking coal volumes start to increase in the next year or 2. Our latest [climate] report details the evolution of our Scope 3 ambition into this pathway and is underpinned by 4 core pillars that you see on the slide. The first of those is recognizing the importance of engagement and advocacy. And we will be taking a much more active role in shaping responsible policy and industry initiatives. So while Scope 3 is somebody else's Scope 1 and 2 problem, we are not standing back and waiting for that to happen and then working with whatever the consequence of that are. We are trying to play a role in shaping that up that it comes out with the right solutions much faster than perhaps otherwise would. Secondly, our product quality and customer strategy are very much aligned. So supporting our customers' decarbonization journeys by being able to tailor our own products, be that coming from our core assets or from our trading activities to their specifications and prioritizing production and sale of our high-quality materials to those who value at the most. And that's not just from a financial perspective. Thirdly, through our partnerships to drive decarbonization technology adoption, we are working quite hard with our customers to partner with them and pilot carbon reduction technologies in their businesses. So 20% of our iron ore customers are now covered by agreements similar to the that I mentioned a little bit earlier. So finally, we also have now commenced building green businesses or a green business building venture. And this includes funding of start-ups who are developing and commercializing novel decarbonization technologies through our decarbonization ventures fund. We also launched the pathways to steal decarbonization, innovation challenge. And we did that together with the European Institute of innovation and technology. So given the importance of the steel sector in our value chain, understanding that sector's likely pace of decarbonization is absolutely critical. But more than just understanding it, being able to influence it and work with them in driving it to an outcome that works effectively for all of us is the basis of our thinking. Our base case assumption is that the 2020s will be a decade of transition as far as steel production is concerned. And actual steel production will probably outpace during this decade, technologically driven reductions in greenhouse gas emissions until around about 2030. Against this backdrop, and given our own growth profile and our expectations, therefore, are that the sourcing of third-party materials product for ourselves and our customers. We would expect to see our Scope 3 emissions increased slightly between now and 2030. We estimate that these levers to reduce emissions intensity from our iron ore products from both Kumba and Minas-Rio and our steelmaking coal assets could reduce our Scope 3 emissions by as much as 40% to 50% from our 2020 baseline by 2014 and further reduction in Scope 3 for our other products could reduce our emissions by another 10% to 15%. But these are the pathways that we are now looking to populate with projects. Finally, before I hand over to Anik, our to-do list for this year as far as open and Scope 2 is concerned is to complete the transition to 100% renewables in our electricity projects in Peru, and we'll hopefully have that done by the middle of this year. It is also to commence construction on the first wave of these wind and solar projects in South Africa. So a lot of the commercial agreements are now already in place. The PPAs are in place moving very rapidly towards financial close and selection of the construction partners to get this developed, start breaking ground on that during the course of this year, continue also the concept phase work on nuGen Zero emissions haulage solutions for both Mogalakwena and Minas-Rio. And as I've mentioned before, start the Vent air methane feasibility study for the abatement at Moranbah, which then becomes the basis for the low concentration Vent air methane abatement in the rest of our coal business. So on Scope 3, we will continue to work with our partners, continuing to identify new partners in driving decarbonization across the steel value chain. And we expect delivery of the balance of our LNG fleet. So the remaining 8 of the 10 vessels that we've invested in over the next 2 years. And also on the logistics front, we continue to work very closely with the likes of the Global Maritime Forum and partners such as Tata Steel, Vuka Marine, ENGIE and the Port of Saldanha, where we hope to develop the first ever concept for a maritime green corridor for Zero emission shipping of iron ore between South Africa and Europe. This is the detail that we'll continue to populate in our program as we progress on our journey to carbon neutralization. And in summary, it's clear that there's quite a lot of work for us to do to bring more definition and more shape to these programs. But absolutely, the work that we have and the well-established team that we have in terms of driving solutions here is operating at 110%. And with that, I'm going to hand over now to Anik, who's going to take us through another dimension of our sustainable mining plan solutions and the social impact that we have in and around the operations where we operate. So over to you, Anik.

It had to happen. So thanks Duncan. I have to say that I'm very excited about our LNG shifts. In fact, on my upcoming trip to China, I will also be there to [Kristin] one of them. When we talk about social impact, we recognize the interdependencies between social performance broader socioeconomic impacts we have through our supply chains and our targeted initiatives and also our culture promoting inclusion and diversity. Our workforce, our communities and our regions are all part of an ecosystem that needs to work seamlessly. This is why we are driving performance in this area through some leading financing initiatives. You may remember last year we talked about a $100 million 10-year loan agreement with the IFC. This is linked to the delivery of sustainability goals that are integral to our sustainable mining plan, SMP. And in this case, in South Africa, supporting the partnership we have with government, to significantly increase attainment levels in host community schools and supporting 3 offsite jobs from every on-site job by 2025. Since then, we have also issued our first sustainability linked bond, including performance targets to reduce greenhouse gas emissions, freshwater abstractions and to support job creation in host communities. This was the first mining major to include in this type of socioeconomic metric. As this is about keeping you updated on our progress in key areas of sustainability, I'm going to channel my Finance Director, my Inter Finance Director and take you through a few graphs and charts. On social performance, we continue to make progress on the implementation of our Social Way 3.0 management system with 66% of foundational requirement implemented and externally assured. Attaining this level of performance represents a higher bar than any that has been said before in the industry. But let's remind ourselves why that is. It is because it is a whole of site approach to social performance and as community participation at its core. The program is a critical underpin to many of our ambitious 2030 SMP targets, demonstrating our commitment to partnering with our host communities and governments. Alongside this, I'm very proud of the significant economic contribution that we made. Stephen went through this in detail in February. But the message I want to highlight here is that by employing people Paying and collecting taxes in country and spending money with suppliers, we make a very significant positive contribution to both host communities and their regional and national economies. Most of these are in developing countries saw an even greater positive impact. And thanks to the multiplier effect, our total economic contribution extends far beyond the direct value we add. Part of this economic contribution is procurement in our host countries, which in 2022 was just under $14 billion, over 90% of our total procurement. We ensure that our business operations deliver economic value to communities through our policies on inclusive procurement, local recruitment and supporting local suppliers. By investing in local suppliers as far as possible, we increase the wealth of the people who live and work in the regions where we operate. We also have a major focus on supporting sustainable employment and economic diversification outside the mining value chain. For us, this is all part of being a sustainable business, creating value for a far wider range of our stakeholders. Our SMP stretch goals that Duncan mentioned relate to this and local procurement, in particular, is central to our livelihoods goal. By the end of 2022, we supported approximately 115,000 jobs through local procurement and socioeconomic development programs since the launch of our plan in 2018. 77,000 of these jobs are the result of Anglo American's local procurement activities. Our target is to support Five jobs off-site for every on-site job by 2030. And by the end of last year, I am proud to say we supported 1.8 off-site jobs for every on-site job in 2022. And including induced jobs, those created by the spending of our employees and our suppliers and employees, we support 6.5 off-site jobs for every on-site job. That is over 400,000 jobs. We continue to develop new and innovative approaches to supporting local employment and economic diversification. For example, we are catalyzing impact investment ecosystems in South Africa, in Southern Africa and South America in which we identify and capacitate entrepreneurs seeking funding and then introduce them to a curated set of impact investors active in those regions. Although this initiative is new, we have already enabled $12 million of investment in 2 businesses that expect to support over 10,000 jobs. So let me bring some other examples of this to life. For over 30 years, Zimele, our enterprise capacity building program in South Africa has been funding small, medium and micro enterprises to enable them to participate effectively in the economy. There are currently 813 participants on active programs across all Anglo American sites. Since 2018, Zimele has disbursed $25 million with an excellent 92% loan recovery rate. Our equivalent program in Chile and in Peru, called EMERGE, a collaboration between Anglo-American and TechnoServe that works to accelerate micro and small businesses in communities surrounding Anglo American operations. We have supported over 50,000 entrepreneurs and small to medium midsized businesses by providing tailored business mentoring one-on-one advisory support online training and access to finance. And we also have CRESCER supporting enterprise development in Brazil with some promising impacts on female progression and increasing income in the workforce. And finally, in Botswana and in Zimbabwe, we have Tokafala and Takura projects, respectively. Since 2014, the government of Botswana, De Beers Anglo-American have partnered to deliver the Tokafala enterprise and new development program, which is also implemented by TechnoServe. The current Tokafala program applies to targeted value chain approach with the aim of unlocking entrepreneurship in the country while focusing on the inclusion of women and use in economic activities. It is designed to support selected strategic sectors that are aligned to Botswana's national priorities: mining, manufacturing, including textile manufacturing agro processing and tourism and drive youth businesses into the target sectors as well. Since the beginning of the program, Tokafala has strengthened nearly 900 micro and small and medium-sized businesses and have supported over 9,300 jobs and strengthen the capacity of over 800 use of whom more than 300 have been placed into employment. Female participation has been 44% among participating enterprises and 69% among youth participating in the program. Participating enterprises has increased revenue significantly, ranging from 21% for medium-sized businesses, 46% for some small businesses and 150% for micro enterprises. In Zimbabwe, where we also partner with our delivery partner, TechnoServe, 600 farmers have been recruited and given training to adopt Climate Smart regenerative practices and commercialize their businesses and 55% of those farmers are women. And it's very apt that we now turn to inclusion and diversity. We continue to make further progress to reach our gender goal of 33% female representation by the end of 2023 at all management levels across the business. While female representation in our most senior management plateaued at the end of 2022 at 29%, it is now 30% as we stand today with great progress since 2018, and as Duncan mentioned earlier, progress is rarely linear. We are approaching this sustainably and appointing individuals with the right skills to do those roles, rather than solely based on gender. It is critical to look at the continued improvement in our female representation at all the management levels. As this is going to enable us to establish robust succession plans with strong and growing female representation. We have been recognized for this work through the Bloomberg Gender Equality Index as well as being listed as the top 50 employers of women by the Times in London. And of course, inclusion and diversity goes far beyond just gender. We have established an index based on our regular internal employee surveys, which is indicating a positive trend in broader aspects of inclusion and diversity. This reflects our status as 1 of the top 50 most inclusive companies in the U.K. In 2023, we will continue to build on our established strategic areas of focus and embed the policies and initiatives we put in place in 2022. One important area of focus will be our standup for everyone initiative, through which we will enhance our emphasis on the eradication of ruling harassment, victimization and domestic violence. Building a safe and inclusive culture is a constant focus for us, and we are going beyond physical safety by helping to create an environment of psychological safety. To complement all of the other work the organization has been doing since 2018, last November, we launched our living with Dignity Hub in South Africa. The Hub an independently managed facility that provides tendered victims of gender-based violence, bullying harassment and victimization whether in the world of work or a home in the form of domestic violence, an independent reporting channel as well as expert, psycho, social and legal support. At our steelmaking coal -- in our steel making core business in Australia, a similar facility provides an employee-centric trauma response for cases of boiling, harassment and victimization in the workplace, supported by investigators with very specific skills required for these cases. We recognize that building a safe and inclusive culture is constant work, and we are committed to listening to our people and other stakeholders that are close to our business every day. We are proud of the initial results that we have seen from the Hub, which handled 139 cases since opening and establishing itself as the place to get help when it is most needed. Anglo American has implemented the hub as a pilot concept, which we hope to implement more widely across the business. Thinking more broadly about an inclusive workplace for all, we are also committed to ensuring that every employee in Anglo American earns a fair wage, and I am proud to share that we have secured a living wage accreditation that formally recognizes Anglo American status as a committed global living wage employer. Anglo-American is the first mining company to reach this milestone. Beyond the mining sector, Anglo-American is the third company in the world to be living wage globally accredited by the fair wage network. This is a real and important progress and has such a bearing on the culture we are encouraging on the engagement of our workforce. Duncan, back to you.

Thank you, Anik. So look back to what I started speaking about a bit earlier in terms of the big integrated steps that we take in approaching sustainability. And in my wrap-up, I'd like to just bring to life an example of what we were speaking about at Los Bronces. Now you'll know that at Los Bronces, we currently rely on more than 6 external sources of water that served us or service us through the prolonged drought that we are experiencing in Central Chile. Now I think these are the sort of challenges that we can expect to see impact businesses for the foreseeable future. And our longer-term response here has embodied and embraced sort of 3 elements. The first of those and the second of those being things that we spoke about a little bit earlier, our focus on recycling and reduction in terms of the use of water. So at Los Bronces, we now currently recycle more than 85% of our water. And at the same time, we continue to work on new various initiatives and the application of new technologies, so things like course particle flotation and dry stack tailings, et cetera, to reduce the use of water. But most importantly, I think we're going to have to think more holistically about how we create value in the round. And both of these steps are very, very valuable for our regional stakeholders, I have to say. We continue to divert our use of freshwater for the beneficial use of communities and therefore, continue to increase their supply of water. In the long run, we came up with this concept with our partners of a 2-stage integrated water security project. And I think this is a great example of how we can deliver win-win outcomes if we approach these challenges more holistically. So the slide that you can see up today sort of shows the interim solution, the first of 2 stages of what this might look like. So we entered into an offtake agreement to source desalinated water with the necessary infrastructure that can then supply Los Bronces. And this will reduce our reliance on the use of freshwater consumption by more than 45%. And that also then allows us by the diversion in terms of the reapplication of this water to provide rural and potable water systems for our host communities into those pipelines that will benefit approximately 20,000 people from day 1. Now as we go into the second stage of this thing, we would aim to exchange that desalinated water for treated wastewater. So the idea here is we take 1 liter of the desalinated water, exchange it for 2 liters of gray water, which is basically treated water from the city of Santiago and the consequence of that would be the water we liberate from our own using application would benefit about 1 million people in that local region. So that is absolutely a long-term solution for Las Bronces. It allows us to secure the future production levels of that mine and contribute very significantly to our group's 2030 freshwater reduction targets at a much lower unit cost. So this is how it genuinely becomes win-win. Today, the water sourcing strategy that we have and the multiple sources that we have to rely on, which, by the way, are in and of themselves, not terribly reliable, cost us around about $0.30 a pound of copper. This solution when fully implemented, will only cost $0.10 a pound of copper. So not only do communities, 1 million more people get benefits of less use and application of freshwater to the mining process. But of course, the cost of providing security and benefit to the mine goes down quite significantly, too. So I think we do like to think beyond the mine gate and consider our role in catalyzing this positive change in our host communities and the broader ecosystems around us. This is what, I think, integrated sustainability really does look like. We believe that this is simply the right thing to do, but not least because of just improving the production situation and the water security around mine operations. but because it has the possibility of improving people's lives too. We're very proud of the work that the team has done, which leaves the industry down this path. And I believe that we can deliver more innovative solutions like this across a great range of opportunities in the business. So just moving to my last slide now. We prioritize all of these things that you've heard about today, not just because they are the right things to do, but they are absolutely vital. If our geographically diverse portfolio is going to be able to supply the metals and the minerals that are so desperately needed into the 2 major future demand trends that we think are becoming ever clearer. The first of those trends is decarbonization of our energy and transport solutions for the world. And that would then help us get to this cleaner green and a more sustainable world that we all want to live in. And secondly, to the broader drive to improving people's living standards and for a growing and urbanizing population. This means demand for everything from homes and electronics, the food and consumer goods. And in meeting this demand, I think it is absolutely incumbent on those of us to deliver these metals and minerals to do so sustainably as possible. We know that we need in the order of 60 more Quellaveco's to meet just simply copper demand to match the energy transition requirements. And this is going to need to be mined by whoever does it in a sustainable and responsible way. And while we are making good progress, we certainly do recognize the need to maintain our momentum and work very hard over the coming years to convert all of these pathways that we scoped up into actual projects that deliver the outcomes. And with that, I'd like to hand over to Paul, who will curate the questions for us. Thank you.

Thanks, Duncan. [Operator Instructions] With that, Jack, over to you to introduce the first question, if I may. We've got Duncan and Anik. As Anik said, joining us for the Q&A, we have Stephen and Matt as well. Jack?

[Operator Instructions] Danielle Chigumira with Credit Suisse.

So firstly, on methane emissions. So on your Slide 9, you have a slight increase in 2023 when Met coal guidance is for 17% year-on-year increase. But in 2024, you have flat methane emissions when the guidance for production is up 20% year-on-year. How can that make sense of those 2 dynamics of flat methane emissions has grown production?

So Daniel, thanks very much for the question. And I'll hand over to Matt for a bit of the detail on that. But really what it does do is reflect the work that's already in train as far as methane management in those businesses. So much of it is around draining the theme as early as possible. And the rest of it is then about capturing that gas and utilizing that gas rather than just emitting it. So we're capturing it is one thing. What you do is it is something else. And I think that the team has put a lot of processes in place, all the way from just simply flaring to the conversion of the use of that gas to electricity. So some of that is playing through into the rising production as it stands today. But Matt, do you want to provide a little bit more detail on the program of works for vent air methane emissions elimination, please?

Certainly, I can Duncan. So looking into the longer term, we've certainly chosen technology for vent air methane called RTO. It's a thermal optimization process, which is looking at converting methane into both carbon dioxide and water vapor, obviously, a much better product for global warming. In the near term, what we're seeing is much better and efficient capture of venting gases at the moment. So year-to-date, we're actually seeing a 30% reduction in our emissions even though we have higher production on the back of much better efficiency of capture around venting, and how we're using our flaring systems, this is leading to that reduction we're hoping to see, or we are going to see through '24 and into '25 when we have our Vent air methane projects come online.

That's useful color. Turning to the commodity mix. So on your Slide 20, you've got the new label is a bit broader, but does Anglo have long-term ambitions to grow in the minerals, which more directly aid decarbonization like copper and nickel, would you consider nonorganic options for this? And do you consider zinc, in particular, to be metal aligned with those future demand teams?

Sure, Danielle. I mean I've said before, and I'll reiterate it now, the future of this business and any of the projects that we consider all get captured by the same process and the same thinking in terms of how we allocate capital for value. So I mean, we're very fortunate to have a number of organic projects across the piece in those commodity suites that you see there. But that doesn't mean that we would be exclusively committed to these commodities at the extent of anything else that comes up. So we do absolutely look for inorganic opportunities and have done for several years. And you can see by the acquisition of the polyhalite and our crop nutrients business that we created. We will continue to think through what's available and where it fits and works for us. But the rules of the game stay absolutely the same in terms of how we would think about allocating capital to it. So specifically, would we or would we not consider zinc? I mean -- I think we, by and large, up until a couple of years ago, might have suggested that we will be completely commodity agnostic. But that's no longer true, right? So I mean, I don't think you're ever going to see us going back into thermal coal, for instance. And therefore, it would be a function of whether, one, we like the commodity in terms of the structure and nature of the market, but importantly, whether we were able to deliver something into that business that was unique and exceptional building on our own parent and operational capabilities to that business. So zinc would absolutely be within the in the suite of things that we might look at in the future. But there isn't anything like that on the books at the moment.

Sylvain Brunet with BNP Paribas.

First question, sticking with the coal and coking coal exposure on your side. Is there any change of heart in past said it would be more longer term, and I fully appreciate that there will be some decades probably before the steel industry could widely embrace hydrogen technologies. But at the time we're seeing more coal separations in the market, is that don't know re-kicking the thinking there would be my first question.

Yes. Sylvain, so we really haven't changed our views that we expressed in the last couple of years related to this a fundamentally the world is going to require steel, if it's going to effectively manage a transition in terms of this energy mix over time. And everything that we know about steelmaking capabilities and capacities in the world would suggest that the transition in that industry is more likely to be sort of 10 to 15 years away than immediate. So if the world is going to be able to manage this transition and it's still going to require coal and iron ore to be able to do that. And certainly, those products that are higher quality products, such as those that you find that at Sishen, Minas-Rio and through our steelmaking coal businesses and going to be very impactful in managing that journey to carbon neutrality over that period of time, sort of 10 to 15 years. So during that course, I mean, we sincerely believe that we are very good stewards of those assets. And that those assets have a very important role to play in the journey to carbon neutral for the world. So no change in heart or our philosophy as far as that is concerned at the moment.

Okay. And my second question, if I may, [focuses on] safety. I know these are continuing efforts but is there an equivalent to do list on your agenda on safety for 2023. A number of things you'd like to see completed before year-end.

Yes. Yes, there absolutely is, Sylvain. And again, I'll sort of turn to Matt to add some of the color to this. But we have a pretty comprehensive elimination of fatalities program that we are very well advanced on, which includes not only just the application of the operating model, which I think has to be fundamental basis for any safety performance in the business at all. And that really does rely on ensuring that we plan the work correctly and then execute the work against the plan. In so doing, you've got a lot more time to evaluate the risk and the work and therefore, prepare yourself to safely execute the work. And we've spoken a lot about the induced instability that exists in the business. Very pleased to say that we are starting to see much more stability in our outcomes because of the renewed focus on this planning post the COVID era. At the same time, there is -- there are a number of technologies that we are continuing to implement and accelerate the implementation of. So the idea that we would try and eradicate human to machine interfaces, whether they're static machines or no bile machines. The measures that we deploy in terms of fatigue management within the operations and so on. These are all technical solutions as well as automation of certain processes and trucks, drills, drill rigs, et cetera, have all been part of the process and are all getting to the point where they are coming up the maturity curve, which would be really helpful. And the biggest program that we have on the to do list this year, is working with our contract partners. So much of the workforce is or most of the work in the company is delivered by contractors and getting an aligned program of works and alignment in terms of operating model with these partners is very important and is a very big part of the program that Matt is driving during the course of this year on behalf of the group. Matt, is there anything else you'd like to add and color in on the to-do list for 2023 as far as elimination of fatalities is concerned?

Thanks, Duncan. I think you gave a really good summary. For us, we believe we've got the right program in place. It's all about staying the course now ensuring we've got the right focus on supervision and really empowering our workforce to fill up they can take the right decisions to look after themselves and the safety of their colleagues and work mates. So stay the course, double down, planning, the wide execution, big focus, as Duncan mentioned, around our contract management recognizing that they are 100% part of our workforce and empowering them in the same way we empower our own people. So yes, that's a really good summary. I think, Duncan.

Thanks, Matt.

[Operator Instructions] Myles Allsop with UBS.

3 quick questions. First of all, could you give us an update on the Debswana joint venture. Obviously, it's a very important stakeholder. And if present CC follows through some of these noises and clearly, there's a material risk to the value of Debswana. But maybe a quick update on when we should expect some clarity with the new tenure sales agreement and the mine license extensions.

Myles, thanks for the question. So as I mentioned in February, but Debswana remains a really, really important stakeholder to Anglo-American and De Beers in particular. As I think De Beers to Botswana. We are in a negotiation at this particular point in time, and that negotiation will be hard managed by both sides. I'm fine, absolutely fine, Pleased with the progress that Alan and the team are making in this regard. And we are absolutely focused on coming up with appropriate and the right solutions for both parties to win coming out of this thing. So it's going to take a bit of time to get there. We are targeting in and around the middle of the year. But the most important thing is to come up with the right agreement for both parties, and we remain very focused on that.

Okay. That's clear. And then maybe on the Los; Bronces water project. How much of this is actually locked in? And when will we see the benefit in terms of Los Bronces unit costs coming through? Is it -- and just to be clear, is it $0.50 down to $0.10 or $0.15, I forgot what you were saying earlier.

Yes, 30 down to $0.10. So Stephen will probably have the exact numbers on this thing. In terms of how much of it is locked in. So Phase 1 of it is absolutely locked in and that will start to be implemented from 2024 onwards. And Phase 2, which is currently in negotiation. So that's the swap of the desalinated water with the gray water. We are looking -- hopefully, all things going well with the agreements to complete by about '27 and around about in '27, I think you'll see that material reduction in the operating costs. Stephen, do you want to just clarify and color that in, please?

You have absolutely no [indiscernible] Duncan both on timing stages and reduction in the cost of water, $0.30 to $0.10 is correct.

Okay. Good. Maybe one last question for Steve. On the tax there's pressures all around the world, whether it's Queensland or Chile with tax rate going up. How are you thinking about sort of the effective tax rate over the next few years, how big a step-up are we likely to see and where are we with that sort of negotiation in Chile?

Yes. So I mean we have seen that trend generally, Myles, we're across a number of the jurisdictions that we're operating and obviously similar ones that we don't. So as countries and softer states try to rebalance the books particularly post-pandemic get a better balance in some of the social structures. Obviously, they approach industries that generate large tax contributions in their economies and in mining and developing countries. Obviously, that tends to fall to the mining industry. Much of the countries engaged very well in that process and Chile is a great example where they have engaged very well with the industry. I'd like to think we're getting closer to a [indiscernible] resolution in that space. So reasonably comfortable with how that's gone. In terms of then our effective tax rate, I mean, clearly, if tax rates go up, then our effective tax rate would rise, big factor in our effective tax rate in any given year is that mix of profits, where those profits are generated from which countries, which commodities, et cetera. But if I had to generalize, it's probably an overall increase of sort of 2% to 3% over the next year or 2 as some of those increases and step-up in rates take effect.

And we do have a follow-up question from Danielle Chigumira with Credit Suisse.

Just a question around the Scope 3 emissions. So could you give a bit more color in terms of why they reported with a lag, especially given -- we know there is another peer that has both iron ore and met coal operations. And just in terms of the detail, there's been a drastic reduction in the category use of sold products. What methodology changes have we seen there? And what would cope emissions look like without those methodology changes?

Danielle, I might turn to Anik to help me out on the second element of this, but the first element in terms of the time it takes to collect the data is just really a function of our systems being able to effectively pick up the data at source and therefore, without any scrubbing allow us to rely on it. But those systems are developing really rather rapidly. So we are getting better at this over time. So there's nothing too much to worry about there. I don't think that's just the maturity of how data is collected and managed. And we have a lot of work to do generally in terms of the management of nonfinancial data. In terms of the use in customers, I mean, I don't think this is a drastic using customers. I mean we -- our customers generally have a very aligned philosophy with that, right? I mean this is important to us because it's our Scope 3 emissions, but it's kind of existential for them depending on where they are because of their scope 1 and 2 emissions. And so we've always said that where it's possible, we would take our production and we're relatively advantaged because we have comparatively smaller amounts of the materials just based on the portfolio that we have and allocate that a little more effectively to those customers in those areas that are making the greatest progress. And we're finding that it is true that in those areas, these customers generally do value the material more because, as I said, the application of it to their journey is helpful from the total quantum of carbon emitted in the production of the ton of steel. I think the reality is this is hard. This is a tough space. As it is genuinely a very hard to bait industry, and I think everybody is kind of clear that the outcome here is a complete change in steelmaking productive capacity, right? And so you got to -- you've either got to apply carbon capture use and or sequestration to the current steelmaking process, which is glass furnace -- glass oxygen furnace or through a number of intermediate steps, you've got to kind of convert the steelmaking process to something like EAF production that uses in the main something other than metallurgical coal as a reductant and predominantly utilizes scrap steel as the primary feed to that steelmaking process. Now the reality is that as you look across the world, there is a variation in the availability of scrap steel as a supply into that process in the first instance. And secondly, the notion that various steelmakers are able to instantaneously without policy support in the form of carbon pricing or in the form of some subsidization, et cetera, et cetera, instantaneously invest the capital required to make the process changes just doesn't stack up, right? So this is why we think it's going to take sort of 10 to 15 years to get there. But the reality is that there are more people, particularly those in Europe and the U.S. that seem much more incentivized to take the type of products that we produce and then help them drive a journey that describes the process around these sorts of products or perhaps comes up with the wrap around technologies in terms of capture and sequestration. So look, I mean, I think what you're seeing is as we get firm and firmer and firmer on what these technologies are and what these outcomes are, and who our partners are going to be, you're seeing that sort of reflected in how we report over time. And that's what we promised you to be at least is transparent, right? I mean if there are no solutions then and these things don't have a place in our portfolio. But if you think about this in the round, there's a lot of time, a lot of water to flow into this bridge, a lot of money that's going into technology and technology development that ultimately does provide those solutions. And we are participating in both as a driver and the recipient of it. Anik, did you want to just add anything about the marketing elements of it, please?

Well, I think the question, the last part of the question was actually on the methodology. And whilst I'm not going to go into details on the updated methodology. And Danielle, very happy to set up a meeting with our subject matter experts. But in our 50% target is actually quite aligned to the updated methodology. So that is the key message. And a standard Scope 3 methodology for mining. I think a lot of people, stakeholders and investors alike are recognizing that this is quite challenging.

Okay. Sorry. Thanks, Anik. Sorry, Danielle. I might have gone off on a complete tangent there based on your question. Yes. So I mean, yes, there's the greenhouse gas protocol, that inform the technology, I mean, the measurement mechanism for this thing is very interpretable. And we spent a lot of time understanding how we have done it in the past, what is appropriate in the future, how others are doing it. And of course, there is a very big drive through the ICMM at the moment to get to a point where there is a standardized form of interpretation of these sorts of things for mining and therefore, a much more transparent reporting out of it. But we did provide a very, very detailed analysis of our interpretation of the greenhouse grass protocols, which form the measure of our Scope 3 emissions and the application of them to us as a business going forward. And where we did have changes, we provided sort of a balance sheet of what the old interpretation is versus a new interpretation. So you can see where that's been. So it really was because the space is developing so fast, and looking to standardize, we wanted to keep abreast of it and stay at pace with it all.

That's all useful. I just have 1 follow-up on Los Bronces. So even after -- if I understand correctly, and I'm sure you'll correct me if not. But even after the Phase 2 swap, that would give enough water for the current footprint of Los Bronces as in excluding the [LVIP], which was approved recently in [indiscernible] in terms of that environmental approval.

Yes. So just to confirm, that the -- on implementation of Phase 2, we would have enough water security for the development plans associated with the environmental approvals that we received overnight for Los Bronces. So the entire life of mine plan as we see it today, about 90-odd percent of that would be covered by independent supply of water, which is a really, really robust situation for any mine in that region.

We have question. Certainly, I'll turn the call over to Paul.

Duncan got 2 questions from Campbell Parry at Investec Wealth Management. First question, I'll give you both of them. First question, where are you on team's management, so an update there. And the second one, do you see a need to revise the carbon price you use to inform future strategies, brackets $10 to $60 a tonne?

Okay. Very good. Matt is going to tell you about where we are on the tailings management program, and Stephen is going to tell you about carbon price. Matt you first, then Stephen.

Thanks, Duncan, and thanks for the question. So an update on tailings. So both Anglo's high internal standards and the GISTM strive to achieve the goal of zero harm to people and the environment. It requires us to take responsibility through all phases of facilities life cycle, including closure and post closure. So current progress, where we've conducted a self-assessment against the 77 conformance requirements of the global industry standard on tailings management, GISTM. And now we're actively tracking progress against our defined actions to close any gaps. Now these measures have allowed us to identify areas of nonconformance and develop all those plans to address them through the remainder of this year. Just want to confirm that we'll be disclosing in line with the ICMM requirements in August this year and exactly where we're sitting against those 77 conformance protocols.

On the carbon price, I mean, clearly, we operate across a number of jurisdictions across the globe, both in developing and developed parts of the world. So the approach we take is that where there's legislated carbon price or path that has been set out in the country, we will use that to the extent it's applicable over time. Where it's not, then we form our own view, and we generally form that view differentially in the developed versus the developing world. And that gives us that range that we disclosed last year. But the simple answer is yes, absolutely. We will continue to revise our view of carbon price like we would do with commodity price assumptions or FX assumptions because the world will keep evolving in this space. And so we will evolve our view with it. We often do that on a 6-month and annual type basis when we sit down and have a look at that, and we're about to tell coming to that cycle as we speak. So that will inform our views of the carbon prices for use as we go forward.

Okay. I mean do I think that carbon price needs to adjust materially, I genuinely do at a global level. if we are to achieve the ambitions of Paris to be perfectly honest as you.

Yes, I think they are going in right direction.

Yes.

And we do have a follow-up from Myles Allsop with UBS.

So yes -- so listened to your presentation, it's always very impressive in terms of the progress you're making with operating model with a safety record and so on. But I suppose there's been a bit of a disconnect over the last 12 months with the actual operating performance and the disappointments that we've seen at Mogalakwena and Los Bronces in met coal and so on. Do you think that you've kind of got your arms around those issues, and we've seen the last of the disappointments? That will be the first question.

Myles, I certainly am not going to disagree with you around the disappointments. They certainly have been. I spent quite a lot of time dissecting what we thought the fundamental root causes of that were? And what we were doing about that in our December and our February presentation. So I'll just reiterate that. And hopefully, that does give comfort that we do indeed have our arms around it. And we have and we have a specific set of programs that we'll seek to ensure that the room for surprises is minimized significantly. But the reality is that coming out of COVID, there were many, many disruptions to work processes and procedures. And any operating model relies on you being able to plan your work and then execute against that plan. And if we weren't able to execute against our plan, then you end up with this induced instability and all sorts of reasons. So it plays out in things like you don't develop the mine in accordance with the plan at the rate that you plan to develop the mine at. It plays out in things like you don't maintain in the way that you plan to maintain the different sorts of maintenance impacts that emanate as a result of that. You don't have the equipment that you thought that you would need at the time is to do your maintenance planning and shut down because supply chains have changed in the way that they serve us in those sorts of respects. So absolutely, those are things that we had to work out whether, oh, is this our new normal? Or will we be able to get back to the way we thought we would be able to plan and run these operations. And the answer is there's a little bit of both. We've had to adapt to a new normal of supply chains. We've had to adapt to some of the instability in people availability, so workforce availability across the piece. But I think by far and away, we rarely -- we're very much impacted by some extraordinary climate change related in my view, weather events across the piece. And so that exacerbated this instability that I spoke about. And we're slightly more resilient to that at the beginning of this year, but not completely immune. Absolutely not. So -- and there remain a number of potential risks that exist around the globe, not only for us but for most mining companies depending on the jurisdiction in which and you operate in. So I do think we have our arms around it. we have the right people and the right processes in place, and we are minimizing the impact of these sorts of disruptions, be they weather-related, geopolitically related or self-induced in the way that I just described as far as operations and maintenance is concerned. We will come out of this. I mean we already showed towards the end of last year, much higher levels of stability in the operating performance, and that has moved forward into the first quarter of this year, too. So I hope that goes some way to answering your question, Myles.

Yes. That's helpful and good color. Maybe just a last question for me. Obviously, lot of incoming around Glencore Tech, obviously, a few questions toying with zinc and met coal at the beginning of the call. But one thing where you are directly kind of impacted is [QB2] and [Colas]. Do you see significant synergies that some of the other partners are talking about? And would you be keen to crystallize those if the opportunity is there?

Yes. So look, while absolutely, the one thing that we like about any sort of deal that we would contemplate would be the fact that there's a deep set of industrial logic and parameters that sits around that from a value perspective. And certainly, where you have adjacent assets, common infrastructure and common supply of services then absolutely, there is potential for industrial logic to drive those sorts of synergies. I do absolutely see there is value in some form of Quellaveco, [Blanca] approach. And I think whistle without whatever happens at tech. I mean, we don't comment on M&A at all, at least of all comments on other people's M&A. I think there's an opportunity there that we will all go after.

There are no further questions at this time. I would now like to turn the call back to Paul Galloway for parting remarks.

Okay, guys. Thank you very much, indeed, for all joining this afternoon. Very much appreciated. Our next update is in October of this year. We do this twice a year. We think it's that important. Next news flow from us is our Q1 production numbers come out next week as indeed is our AGM. So with that, go very safely. Thank you very much indeed, all the very best.

Thanks, all.