Glencore plc (GLEN) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Glencore Investor [indiscernible] Update call and Webcast. [Operator Instructions] Today's conference is being recorded. I would now like to hand the conference over to CEO, Gary Nagle.

Hi, good afternoon to all of those joining. And good morning, good evening where you are. I'm joined today by Peter Freyberg as well, our COO, who will present on our operational results and some forecast production numbers for this year and next year. And also by Steve Kalmin, our CFO, who will talk more balance sheet, distributions and some cost guidance. But we'll get to those later. Let's kick straight off into the presentation and move on to Slide 4. The business as it stands today is really multifunctional, multidimensional. If you look at Slide 4, you'll see a little graphic on the left-hand side, which is something you've probably seen before, and it really encompasses what we are as a business. We're a world-class industrial business producing the minerals needed for today and tomorrow as well as commodities needed to service today's energy needs. Associated with that is a world-class marketing business. And these 2 businesses, the Marketing business and the Industrial business really lever off each other. And then together the sum the parts is much greater. The marketing business is able to use the industrial business, it's units, it's tonnes, to grow, to create value for our customers and for our stakeholders. And the Industrial business uses the specific insight and knowledge of marketing business creates around the world to be able to leverage its position through qualities, through blending and through use of various infrastructure. Associated with these 2 businesses and interlinked with them is a carbon solution that we provide. Now this carbon solution is not only a carbon solution for our customers, but that's also a carbon solution for our own business. Inherently, we have carbon footprint ourselves and through our marketing business and our industrial businesses, carbon overlay allows us to maximize their position and create value for our business. And then lastly, a growing part of our business is a recycling business because the circular economy is critical towards a decarbonized future. And as we invest in our recycling business, and we produce more and more material out of it, it becomes integral in how we develop our mining operations and how we work in terms of our marketing business. So those 4 elements together really set us apart from all our peers in how we run this business. So taking a step back in where we stand in our business, the markets we operate in are really underinvested today. We see stock levels within the commodities that we market and we produce at record low levels. We see investments in new operations around the world also at very low levels and no material new tonnes coming on. But we see a huge growing demand for the materials that we produce both for today's energy needs and for tomorrow's decarbonization, and that's where the opportunity arises for us to be able to fill that gap and really maximize value for our stakeholders. Our business is really uniquely positioned. We produce, we recycle, we market, we distribute, we source. We're across the spectrum in everything that we do in all the commodities that we do and it allows us huge amounts of flexibility in our business to be able to adjust to the needs of what the world needs and what our customers need to maximize the value. Associated with that is also our pipeline of projects. Now this is something that's probably not that visible to the market, and it's something that we want to shed a bit of light on today, and we have a little bit of more information on it later in the presentation. But as the world grows and as we see a continued push towards decarbonization, our pipeline of projects, in particular in our copper department, will be able to fill part of the gap required to meet the growing demands of the world tomorrow. And as a stand-alone business, if we look at where we stand, we're an experienced management team that has a relentless focus on operating ethically, operating responsibly, operating safely and providing a high cash generation business for our stakeholders. Steve will dig a little bit more into the numbers, but our illustrative 2023 spot numbers, a free cash flow of over $14.5 billion. Moving on to Slide 6. This has been a theme that we've spoken about a little bit during the course of the end of last year and beginning of this year is how we've simplified our portfolio and we've aligned our portfolio around the goals where we're going in the group. As you'll see in the slide, we've noted our key assets and also noted a bunch of assets that we've disposed of during the course of the last 12 to 24 months. The process of this streamlining of the portfolio has allowed us to really focus on the key assets within the business. We've improved the ESG risk profile of the business significantly. The safety performance has improved. We still have some to go. And we've taken the money that we've realized out of the simplification process and reinvested it largely back within our business to help grow our industrial base into our core assets. The process of simplifying the business is virtually complete. There are 1 or 2 other assets that we're still having a look at. And these will be done opportunistically and ensuring the business remains fit for purpose for where we're going, and it's not just an end goal that we're trying to reach. So moving on to where we're going in the future. And I think the world spends a lot of time and commentators and industry experts, media spend a lot of time writing about the coming copper deficit in the world. But the world doesn't seem to get it. They all seem to think, for some reason, the world will provide the copper that's needed. It's happened before that whenever people thought there would be a deficit, mining company stepped in, they overproduced, prices fell, and there was always enough copper to meet the growing demand. We believe, however, this time, it is going to be a bit different. I don't think the world necessarily understands the deficit in copper. Now we read these studies and they're just numbers. So we've tried to relook at the deficit that's coming up in the copper market in a slightly different way. On the left-hand side of Slide 7, we've taken the IEA net zero scenario, and we've mapped that out in terms of the amount of copper demand required to meet that net zero scenario. So on the renewable energy side, whether it be wind, whether it be solar, whether it be battery storage or whatever it may be, the growth required in those various elements require significant amounts of copper. And if we look at the period 2022 to 2030 and just modeling what the IEA say will be needed to reach that net zero, over the next 8 years, the world will require an additional 100 million tonnes of copper just for those renewable energy sources. In addition to that, as we see the growing electric vehicle market, particularly in North America and Europe and then followed by Asia very quickly, we see huge growth in passenger and commercial vehicles. Those vehicles, along with charging stations, will add an additional 20 million tonnes of copper demand over the next 8 years. So the total transition copper demand is recorded in this analysis is an additional 120 million tonnes of copper over that 8-year period. Over and above that, we've obviously still got the existing copper demand, the day-to-day copper demand, whether it's in your refrigerator, your microwave oven, your household, whatever it may be and other existing overland cables of 235 million tonnes of copper. So over the next 8 years, the world is going to need over 350 million tonnes of copper. When we look at global copper supply, however, that barely reaches 300 million tonnes. That's a 50 million tonne shortfall of copper over the next 8 years. So maybe just let that sink in a little bit, 50 million tonnes over 8 years. That's the equivalent of having the entire world copper production shut down for 2 years. It's impossible. It's impossible. That would mean -- it would mean the world effectively stops or we cannot meet our net zero ambitions. So the fact is copper is hugely in short supply. There's a huge deficit coming in copper. And as much as people write about it, the price is not yet reflecting it. But the world believes the miners will invest in copper mines. They will invest in copper mines, and they will come and save the day. But here is the reason why I think that's a little shortsighted. In the middle block, you'll notice all the challenges we as miners have as we try to produce more copper around the world. And they're getting harder and harder. And I think all the various mining CEOs have spoken about this as well, whether it be ESG risks, whether it be fiscal stability that we see in countries around the world, whether it be relevant access issues around permitting with local stakeholders or land acquisition, whether it be normal disruptions around infrastructure, strikes, the normal issues of skill shortages, the ability for any miner to bring on a mine in a short period of time is very challenged in today's environment, and we don't expect that to get any easier over time. The second part of the equation comes into what people can bring on. And on the right-hand side, we can see the capital invested in expansionary CapEx for copper over the last 15 years plus the forecast over the next 5 years. And it's a clear trend which way it's going. Now it's going down for 2 reasons. Number one, we believe that most of our competitors do not have the kind of copper projects that could be brought on. So they actually do not have the projects to spend exploration capital and the expansion of capital on. We see that by the sort of M&A that they're doing and the kind of work that they're doing now. Whatever has been built or is planned to be built has been built. We've seen Anglo's project [indiscernible], we've seen TexQB2.We've seen Robert come over, these are projects that are coming on stream now, but there's nothing coming behind it and the capital program and the capital forecasts illustrate that there isn't much coming. So the fact is if they were there, our peers will be building them. But our peers don't have them. So they're not building them and they're not spending the money. So where does that leave us as a company? Because right now, as a world, we're going to be short 50 million tonnes of copper. And as a company, that presents us with a huge opportunity. So if we move on to Slide 8, we have a look at where we sit as a copper business within Glencore. Within Glencore, we have significant round field organic growth opportunities in the key producing regions around the world. Our current base business is a little over 1 million tonnes of copper and we have the ability to grow that over the coming period of time by over 60% using only our brownfield organic growth projects. These include expansions at Kolwezi and Topeka, Polymet, Mutanda and various other projects within our portfolio. That's over 600,000 tonnes of easily accessible brownfield projects. Now for us, we're not going to bring these on in a hurry. We want to see that deficit, that 50 million-tonne deficit that we forecast when we see that deficit is absolutely real. And we believe it is. But we'll only see a drill when we see the process real. When the process there, the world is screening for the copper that it needs, and we're a few dollars away from demand destruction, that is the time that we will bring on this copper to meet that demand. And to the extent that our brownfield projects don't meet that demand, we do have the long-term option of bringing on a greenfield project of El Pachon. So very large project in Argentina. It's something that we're derisking significantly now. And it's something that we may have to bring on if the world absolutely needs that copper. We ultimately believe the world will need the copper but that will be for us something that we bring on as the last capital to rank after we have extended our brownfield projects. The details of the projects are outlined on Slide 8, but it's clear as the world grows, Glencore has the ability to double its copper production. So we sit in a world where the world is transitioning from a fossil fuel-based energy source to a renewable-based energy world. We have a fossil fuel business, which will probably harvest production, which will harvest production between now and 2035. And in that time, we'll be able to use the cash flows from that fossil fuel business to help grow our copper business and double production in our copper business over that very same time. So a very neat entirely use of our fossil fuels, firstly, to provide the energy of today and also to provide the cash flow to build the energy infrastructure of tomorrow. Moving on to Slide 9. Even if we build everything we have and even if we build our greenfield projects and even if all our competitors do whatever they can do with the projects that they do or don't have, the world is likely still to be short of copper. So where else are we going to fill the copper? From recycling. To us, we believe in the circular economy, we believe that the only way to meet the growing demand is not only through prime resource and metal but also through the recycling business. And we've got a very strong and growing recycling business. During the course of 2021, our recycling business produced over 40,000 tonnes of copper. That's like having another cobalt within our own business that nobody's ever credited to that for. It produced over 1,500 tonnes of cobalt. That's the equivalent amount of cobalt that we currently produce out of metal. So this is a business that -- a small business that's been buried in Glencore and is growing significantly and already produces significant amounts of metal. During the course of this year, we've entered into a number of partnerships, strategic alliances and relationships with the likes of life cycle, a screen recycling, 10-year refined metals, which is our own operation, and we're now repurposing into a more developed recycling business and various other partnerships that we've entered into as we continue to grow the recycling business. But I think just to put into perspective for those who aren't clear on what we really do within the recycling business. And on the right-hand side, we've got a bit of a wagon wheel that explains a little bit where we operate. Historically, the mining companies have only operated on the top left-hand side in the dark blue in the mining and refining. After that, they've handed it over down to the battery manufacturers and the e-manufacturer, so to speak. But there's parts along this wagon wheel where we can now participate. We'll continue to run and we'll continue to refine, and we'll supply that into the precursor market and the precursor market then feeds that into cathode active material market. But as that CAM is fed into the battery production, there's a significant amount of manufacturing scrap. And that is already a large portion of what our recycling business includes, taking that battery scrap, reprocessing it, refeeding it, refunding it and reselling it back into the precursor markets. Beyond that, the batteries get produced. They then go for a second and midlife and second life until eventually end of life. And at the end of life, that's a game where we step in. We take the batteries, we recycle them, we refine them and we re-feed them back into the precursor and into the cathode active material market. So a very neat loop of recycling where we participate at various points around the cycle by ensuring the circular economy of reusing that material. And with our suite of assets, our smelting assets, our collection and distribution networks, our marketing business, our ability to access the materials, process the materials and redistribute the materials to our customers, is unique amongst our peers and something that really sets us apart. Before we move off to Slide 9, if you look down on the right -- if you're like me, you've probably miss QR codes all over the show. But if you look at the bottom of Slide 9, is this a little QR code. I would recom -- I mean we have to secure our codes throughout the presentation. But I would recommend on Slide 9, if you haven't looked at that one and scanned that with your phone at some stage and watch the 7-minute video clip, it will really explain a lot about what our recycling business is and gives you a perspective of the amount we do and the critical nature of recycling within both our business and for the world going forward. Of course, we can't forget about our coal business. It supplies the energy needs of today. It's critical in today's transition towards a decarbonized economy as the world continues to decarbonize and provide renewable solutions energy is required today, and that we do through our coal business. We understand the energy transition won't be linear through time or through geography. And we believe it's our responsibility with our coal business to help promote that transition and ensure that those areas of the world that require energy of today using fossil fuels still have the access to that. But we do it in a responsible manner, where we will run down our coal business and continue with our commitment to reduce our Scope 1, 2 and 3 emissions by 26% -- or sorry, about 15% by 2026, and by 50% by 2035 off our 2019 base year with a net zero ambition by 2050. Now the key area for us to point out is, this is a Scope 1, 2 and 3 emission reduction, something that in our peers are all struggling with. And so much so that if all our peers had the same reduction commitments, targets as we do. In other words, they were all going to reduce by 50% by 2035. And in fact, if it's not only our peers in our industry. But if in all industry reduced their scope 1, 2 and 3 targets by 50% by 2035. And if everybody had the same targets and has net zero ambition by 2050, climate change will be a done deal. And we could cancel COP28 because this is the part that leads us to a decarbonized future. Other than just sitting on our hands and saying we're going to run down our coal business responsibly, we're also investing in technology. We've talked a bit before about our CTSCo. We've presented on it. CTSCo is a -- is a project in Australia, where we are seeking to capture carbon emissions from the Millmerran Power Station and capture and sequestrate that carbon in the Surat Basin. We've identified an area for storage. It's well over 1 billion tonnes of storage. So it has significant potential for not only the Millmerran Power Station, but multiple projects within the region as we develop up and prove this technology both from an industrial and from a commercial scale. And it really is a technology that, with the right investments, can assist the world in its decarbonization draft. We've added another string to that bow in that we're now starting some prefeasibility work on a blue hydrogen project. Blue hydrogen can be produced from coal at one of our existing coal mines and our ongoing coal mine, where we will study the potential production of blue hydrogen at that operation. In converting it to blue hydrogen, we would capture the carbon and sequestrate that to the very safe place where we have the CTSCo capture site. So technology is a big part of the drive in Glencore, not only decarbonization but in everything we do, Peter spends a lot of time in technology in terms of how we mine, how we operate and a lot of technology time spent, in fact, on our decarbonization drive within our assets. So on that note, I'm going to hand over to Peter to talk a little bit about our production numbers and as well as some of the MACC initiatives that we have in terms of decarbonizing our business.

Thanks, Gary, and good afternoon, good morning to all of those that have joined us today. I need to start off, and I'd like to start off by talking about safety. We have a clear plan, which is addressing our historical safety record where we came from and making sure we get from where we are today to our goal of 0 fatalities. This plan is supported by strengthened teams and capability that we have implemented at every level in the organization. Our revised SafeWork 2 program is built on on the foundations of capable leadership and sound risk management. And the plan sees the continued rollout of our leadership development programs of fatal hazard protocols, our assurance processes and well-managed performance gap closures. We also have focused campaigns at those assets that need them. Over the last 3 years, we have halved our fatality incident rates and halved them again. Where we used to run at more than twice the average of our industry peers just 3 years ago, we are now better than average. Sadly, that hasn't been good enough, and the 4 fatal incidents we've had this year are a start reminder that the only goal can be 0 fatalities. We're doing the right work, the trends say we are getting safer, and the teams know that the zero fatal goal is our key priority. I'm going to really just talk through, and there are slides included in the appendix that detail some of this regarding our outlook. And with regard to copper in particular, I will discuss Katanga and how we go forward with that on the next slide. But for copper, we maintained production at just over 1 million tonnes over the period that we're reflecting here, which is '23 to '25, showing the 2022 level at around just over 1 million tonnes, having lost some production at Katanga this year, and I will go through that in a bit more detail. Our Cobalt outlook over the period and we primarily produce Cobalt from our DOC operations, although we still have another 6,000 tonnes that comes from Marine and our Canadian operations. But we see our Cobalt tonnages increasing from around 45,000 tonnes this year with a bit of a drop-off in 2023, which is driven by demand to some extent and then increasing over the period as we ramp up Mutanda and Katanga up towards a 60,000 tonne mark. Zinc, we see flat production over the next 3 years and then a slight decline into 2025. The production this year has been constrained at Zhairem is expected to ramp up in the second half of next year towards the long-term average of around 170,000 tonnes per annum. As we ramp up Zhairem, we do lose tonnes at the likes of Lady Loretta and some other production in our North American assets. So that gives us a flat outcome over the period. Nickel this year was impacted quite significantly by the strike in Raglan, which took 15 weeks. Koniambo this year is having a better year than previous year, albeit not achieving what it should in terms of its ramp up, but we are continuing to step up and improve there in expected tonnes soon to get towards a 30,000-tonne mark next year and grow beyond that. Over the period, we see the decline from the existing nickel and ferros operations ahead of the ramp-up of the Onaping Depth project, which was first hit ORE in 2024 and then stabilize around 2026. The ferrochrome number you see there really is about hitting the sweet spot from a value point of view. We are constrained there with power costs and power availability and seasonality and we've obviously considered market factors and logistics in setting that number where it is. Coal over the next few years is expected to be flat. Obviously, we don't expect the same level of interruptions such as those caused this year by the extreme weather events in New South Wales and the blockades that we had in Colombia. However, the recovery that we expect to see in the coming years is offset through closures such as Newlands, Integra and, Liddell which happens over this forecast period. Looking at Katanga. It's been a challenging year at Katanga and disappointing in terms of output, but a lot of excellent work has been done to address the issues that did impact us. That work puts us in a far stronger position going forward. On the geotechnical side, which we've discussed previously and which arose early in the year, we detected some movements in the slopes and identified structures that represented a risk and managing cautiously. We obviously stepped back from the mining and lost some production. These issues have been addressed through design depressurization work, implementing enhanced monitoring systems, including satellite, upgraded radars and in-ground arrays, which help us understand how the materials move. And we've improved the control to a point where we have materially reduced the risk associated with mining the current mining block. We've also commenced mining in the next major block and our increasing total volumes there next year to expedite the opening up of the ore in this area. From an ore quality point of view, over the last few years, we've encountered and learn to deal with high GAC acid consuming materials. And you'll see that the slide refers to high GAC materials such that we have a short-term plan that manages through selective processing, and we've also advanced process design and flow sheet work so that we can modify the plant, so it is able to process and ramp back up in 2025. Lastly, the business has been bedeviled by electrical interruptions relating to transmission issues in the DSC. These have been partially addressed through the commissioning of the cogen plants, which is linked to our asset plant there and are likely to be more fully resolved in the next 2 to 3 years through the use of battery systems and some on-site generation to bridge any power gaps that may arise in the future. I think excellent work has been done there. There's a bit of a reset to the baseline for the next 2 years around 205,000 tonnes of copper per annum level, then ramping up to 240,000 to 270,000 tonnes per annum of copper thereafter. We're going to talk about how we manage our carbon footprint and decarbonization. And as was mentioned, Glencore has set itself the goal of achieving net zero emissions by 2050, and that is, as Gary discussed, across Scope 1, 2 and 3 emissions. We are targeting this with interim steps of 50% reduction by 2035. And before that, a 15% reduction by 2026. There are a number of unique features in our approach and in the situation that we find ourselves in. One of these is that the bulk of our Scope 3 emissions are associated with our coal business, and through its managed decline, which is Anglo's supporting today's engines whilst funding our growth into the future facing metals, we are actually able to reduce these emissions without having to rely on yet to be developed technologies. And I think as Gary said, we are different to our peers in that regard. So there is certainty around this in terms of how we get there. At the same time, we're actively working on reducing our Scope 1 and 2 emissions across our entire portfolio of assets over and above what results from the decline of the coal assets. We do this by identifying a significant range of opportunities, including operating efficiencies, fuel switching, use of renewables and technology options, which we then evaluate cost, rank and map on a group marginal abatement cost curve. This allows us to pursue the most cost-effective reductions possible, hopefully staying one step ahead of any carbon price and therefore, doing this value accretively or at no cost. It is worth noting the scale and position of renewables on our MAC. This leads us to another important feature, which is that our key assets and you saw the list of key assets earlier on tend to be geographically well positioned for sourcing renewables. That largely applies in South America. It applies in the DRC. It applies to South Africa, Australia, Europe as well as in Kazakhstan. These assets mostly have grid access to renewable energy sources, which means the switch does not have to be capital intensive. We are able to and actively pursuing scope to emission reductions across our portfolio. So overall, we have a healthy portfolio of opportunities identified totaling half our baseline of Scope 1 and 2 and a very significant number of these should be very accretive in the short term and the balance of which will likely become value accretive as we see carbon prices increase. This slide really evidences the very significant work that is being done across the business to address Scope 1 and 2 emissions. All the commodity units are doing work across all of the categories, whether it be efficiency, fuel switching, renewables or process improvement. Just looking vertically through the group, starting with copper. We have a number of PPAs already locked in, in South America, but also advancing process efficiencies -- as of the [indiscernible] for example, work on coarse particle flotation. There's also an active fleet electrification project in another Latin American mine. And these are all -- this type of work is all being done to enable us to roll it out to other sites into our new projects and into the other commodity units once proven. Coal, as we keep saying not just managing the decline but addressing its Scope 1 and 2 emissions along the way. As you might be aware of the past decade, we have abated 28 million tonnes of carbon dioxide equivalent by faring waste gas or we're using it for generation. And we continue to spend around $60 million a year on gas management. We're working on on-site solar PV as well as virtual power purchase agreements. Work is being done in that department on energy storage and with a number of pitch with significant depth and capacity pump storage is an option that is being considered. And obviously, with large diesel fleets involved in open cut mining, we're looking at options to reduce diesel usage, including electrification where possible. Looking at our ferroalloys business and ferroalloys is a very big emit principally because it's very significant -- it is a very significant power consumer. We are very advanced with work on off-site PPAs looking at making well over 1 million tonnes of carbon dioxide through offside PPAs as well as on-site solar projects, which would target somewhere around 300,000 tonnes of CO2 per annum. Other work is happening. There's obviously hitting tens of processes, the smelters and where we can capture waste heat and use it for generation new [indiscernible]. Looking at our nickel business, we have a range of initiatives including renewals as pricing gas or diesel and in some -- we're also doing some very interesting work to address emissions arising from solution neutralization at Murrin. Beyond this, I think it is worth saying that -- so I'm just talking about our zinc business, we're also looking at a range of efficiency opportunities there and particularly across our European smelters where we have high power consumption and high power volts where European power prices have been, all of the efficiencies or any new integration that we can do there will add tremendous value. Beyond that, what's not shown here, for example, even within our oil refinery, we are taking major steps to improve efficiencies, reduce own oil usage and so forth. So there is across all departments, all the industrial assets, there are projects addressing Scope 1 and 2 and that was reflected in the MAC on the previous slide that shows the scale of the opportunities relative to our baseline, which is very significant. Thank you.

Thanks, Peter. Martin, if you can move to the capital allocation slide. On 19, you'll be familiar with most of these themes, and there's nothing particularly new here, and we'll cover off all the points later on the slide covering both capital structure, reinvestment and our shareholder distribution policy. So with that, maybe let's jump straight onto Slide 20. This was the financing of our capital structure and distribution flow sheet that we developed at this time last year as part of our investor update, where we set the $10 billion optimal cap where we'll run our business, generate cash flow beyond that $10 billion, have a base predictable cash flow distribution that's linked to the cash flows in respect to the previous year. There's a policy set around $1 billion flat in respect of marketing, which will be a certain payout ratio depending on the performance of that business, and we'll pay out also 25% of equity industrial cash flows in respect of the of the previous year. That's been applied as we report in February each year in respect to the previous year. We'll declare the base distribution, it's payable in the 2 installments. And then as we progressively move through the year as we generate cash below that $10 billion, we'll look to top up the business back towards the $10 billion via a mix of buybacks and additional cash distributions as we see fit. If you look at the graph on the right-hand side, you can see the huge progress that's been made in the business cash flow generation, debt reduction since December 2020. We're at $15.8 billion of net debt. By June '21, we were down to $10.6 billion. And by December '21, we were at $6 billion that allowed for the $4 billion to be paid out earlier in the year. We then reported net debt a few months ago of $2.3 billion and that allowed a top-up of $4.5 billion at that particular point, taking account of installments and some of the investigation payments that we made in the second half of the year. So in total, you can see under the 10 number over there, you can see $8.5 billion of shareholder returns that we've announced in 2022. Most of it would have been expensed and cash off the remaining $3 billion buyback, which we announced in August this year, we would have completed $2 billion of that by the end of this year, with $1 billion remaining to be executed during January and February. So just as you're looking for debt cash flow cutoff potentially at the end of the year, $2 billion of that is expected delivered around that time. We are both the policy and the application of how we're looking at maintaining conservative financial leverage, generating the cash and not paying dividends, if you like, in anticipation of cash -- generating the cash and ultimately returning it back as and when opportunities arise, the application of this more conservative financial profile has been sufficiently and conservatively mentioned and warranted by S&P and Moody's as being both potentially consistent with an upgrade, a credit upgrade into A. We've got positive outlooks recently from both Moody's and S&P, which I think is strong validation of both the sustainability and the balance within our capital structure in terms of leverage, discipline and rewarding shareholders as and when cash is ultimately generated. In terms of net debt leverage, net debt adjusted EBITDA, as we brought our debt down to negligible levels, it's almost a 0 position. But just pro forma-wise, EBITDA, you'll see later on around $28 billion at Spark with the net debt even if we're at the cap of $10 billion, that would translate into a leverage ratio of net debt to EBITDA of 0.35, which is very conservative as we manage the business. If we look on to the next slide, in terms of CapEx, this is some new information clearly and would be of interest. And the way that I like to think of our CapEx at the moment. This year, we will -- we would have spent arguably lower than people would have expected. We've guided a number of $5.3 billion at the beginning of this year. We'll finish with lagging in terms of cash expenses, some of its projects, some of it's also not chasing CapEx in a hyperinflationary very tight consumer market as we have. We'll finish around $4.9 billion, in fact, under the $5.3 billion and we've effectively pushed out the timing of CapEx from 2022 after 2023, '24 of around $800 million combined. So from a timing perspective, that all have been expensed this year and had been deployed into the balance sheet. We would have had closer to $5.7 billion, which would have just been an inflationary movement up from the 5.3 that we announced at the beginning of this year. If you look at the periods, it's better to look at cumulative periods, and I'll explain the variances between where we were last year and where we are now in terms of CapEx. The cumulative of the average CapEx that we now have across '22 million to '24 is $5.5 billion. You can see on the graph on the bottom right. In the prior year, over those same periods, just looking at the white bars and the blue bars, the prior year was $4.8 billion. That's a $700 million increase per annum or $2.1 billion cumulative over that 3-year period. In terms of what's moved between last year and this year, inflation has had a big impact, not just on the OpEx environment but also across the CapEx spend. We pointed out some OEM and contractual price escalation, but also quite a significant part of our CapEx, particularly in the deferred stripping within our big open cut operations is really just capitalized OpEx. It is labor, it is diesel. It is explosive. All of these factors have gone up generally labor, circa 10% explosives, 50% increases we've seen in some of those prices. Year-on-year, diesel's up more than 50% across those particular periods. So cumulatively, if we start with the GAAP or the difference of $2.1 billion against prior year, the base spend across 3 years was $14 billion. That was the $4.8 billion over 3 years. We've seen roughly a 10% just inflationary impact as a step-up. We're assuming moderation in inflation going forward. So we haven't necessarily built in much as we roll now from '22 to '23, '24 and beyond. But there's a one-off step-up of circa 10% across all the different categories. That's $1.4 billion of that $2.1 billion. Whereas we increased since last year, we've seen the introduction of a new project that didn't exist last year. We've highlighted that in expansionary CapEx. In addition to copper, still occupies the largest expansion of CapEx across its desalination fourth line and fifth mill of $1.1 billion or so cumulatively across '23 to '25. But we've got the introduction of the new the horn emissions reduction project, as we've called it, that's a big operation, a smelter that we have in Canada. It's supported by the refining operation, CCR. There was quite a bit of news coverage during the year around the need to and being on track and around working with governments and agreements going forward to bring that over a multiyear period to almost a zero emission operation has been working within its regulatory environment. But we're looking at significantly expanding it in terms of back hours and the various emission captures and bringing that to below a 3% emission factor as that moves through the various years. That's cumulatively around $300 million of additional CapEx that wasn't within our December 2021 plan. We do expect a return. It's not just a, if you like, yes, it's sustaining CapEx around in operation, but it will significantly improve the capacity of the operation, the ability to treat a complex array of inputs. It's a key part of our recycling business going forward, as Gary has said. Currently, it's in fact, one of the main cornerstones of what we have in recycling, particularly in the scrap inputs and that business will only be enhanced as we spend this CapEx and set it up for the next wave of the recycling expansion that we have as well. We've also added -- although it doesn't contribute meaningfully volumes, as Peter went through the volume growth earlier on. We have positioned Mutanda for sulfides project. The CapEx of that, we're positioned to start spending towards the end of this period, so that will only come in 2025 and beyond. There is an additional $100 million of that $400 million project that Gary mentioned as one of our brownfield expansions earlier on. There was $100 million in 2025. And also referring to various projects that Peter said, we are positioned within our CapEx around $200 million cumulatively over this period in respect of decarbonization and technology initiatives. Multi projects are on the go, particularly in the copper business. Many down in Latin America. Peter had mentioned those in [indiscernible] space as well and some spend that we're positioning potentially in South Africa, but there's 200 combined across those various business as well. We do believe that they'll get a return. That's one part of the MAC initiative. We haven't necessarily built those returns into our cost profiles going forward, but we have positioned around $200 million cumulatively in CapEx. So overall, $5.5 billion over '22 to '24 or $5.6 billion over '23 to '25, and the increase has been fully explained by those various factors as well. We also have quite extensive exploration campaigns that we are bringing into the budget period, particularly in Kazakhstan, Canada around Reglan as well as areas, Australia around the ISA region. And there's also some Antamina life extension work within the latter part of this budget period. If we move on to our very familiar and regular updates of our illustrative spot free cash flow, we're now rolling in our various to '23 physicals into the equation. We've got some more detailed slides on Pages 30 to 34, which is useful to consider in conjunction with this particular slide. Peter has been through the production pathway in '23 and beyond. That was on Slide 14, which is broadly a flat production profile in those various years prior to the potential expansions, particularly in copper where we have some of those inorganic -- I mean some of the organic brownfield expansion. We've also used the pricing and the FX assumptions on Page 35, particularly for the purpose of byproduct cost structures, and that's very relevant for our metals divisions as we see. If we look at copper, we're expecting a fairly flat cost structure at $0.92 into '23 having revised up our midyear, full year '22 guidance up to 93%. That's elevated relative to recent periods. Some of the lower Katanga copper production is certainly a factor in 2022 and '23 before we start seeing the recovery out in the '24, '25 period, as Peter spoke about later on. We're also going through a period of weak cobalt prices. That's both in the metal price, but equally the payabilities for the adroxide material that we are producing. For '23, we're also expecting a dip in cobalt production before we see recovery from both Katanga and Mutanda from the 2024, '25 period. So a couple of big factor to watch in '23, both in terms of volume and prices. We've set the -- we've set these costs up as we see the market at the moment basis those prices and volumes, but we will see that fluctuate up or down depending on the development of that market, particularly during 2023. The other byproduct pricing is generally showing strength at the moment, and we do generate some gold, some silver and some zinc particularly in that business as well. The zinc business, but just with copper, we'll see on the illustrative cash flow and EBITDA later on. That's generating $5.3 billion of EBITDA at spot price today. That's up from the midyear update of $5.1 billion. In terms of zinc, we will see an increase, a slight increase up to $0.35 net of gold and other byproducts in that particular business as well. We are being impacted by macro factors, particularly in Europe on energy costs, where we have a smelting business, some of that production has been taken offline. We've got higher TCs, which is be longer on mining over smelting that will affect the overall volumes and cost structure within that business, and we're seeing reduced byproduct revenue somewhat temporarily in '23, particularly in, We've got periods of lower lead and silver. That's impacting through to $0.35. On nickel, we're looking at an increase, again, somewhat temporarily while we wait for the new mine expansions and life extensions, particularly in Canada. We've got Onaping Depth and the Reglan 2 expansions starting progressively through '24, 25 and '26. We then have the legacy mines in Canada. We do see lower nickel. We've got lower byproducts in terms of copper as well as the significant inflationary impacts from energy and consumable impacts that have primarily impacted Nickelburk as well as Murrin, which consumes large amounts of reagents and sulfur and likes, and we produce cobalt as a byproduct from Murrin, which is a student our copper business. has also translated into higher costs within that business. So there is a period of higher cost within the nickel business. In aggregate, it's generating $1.5 billion. We need to be patient in that business as it works through its major expansion project, particularly in Canada and we get more stable and steady production out of and that should see that business then towards the back end of the period, increase its contribution cash flow to the Glencore business. Coal, on the -- on the right-hand side, you can see a cost of $77 million against a midyear update of $79 million for this year, slight declines as with mark-to-market diesel prices. And we've got somewhat lower forward price projections through the spot illustrative period, which does then translate into lower royalties that are linked to those prices, particularly in Colombia and in Australia. So the coal business, we'll see later on, doing $16.7 billion. At the June update, it was doing $20.1 billion. You can see we've got a lower realization later on also because we've seen larger discounts between the Newcastle price, which a decent proportion of our coal is selling into that. But equally, we do have coal from various operations, which is going into different quality markets, different geographic markets, of which that discount to the new castle has continued to widen, just showing and demonstrating that no 2 coals are the same in this business as well, and we'll run through and show what that means from illustrative spot as well. If we then look into the details on Slide 23, with some of the details on Slide 28, they're probably worth having side by side. But you can see the EBITDA of $28.7 billion made up of the copper at $5.3 billion to 904,000 relevant tonnes of sales at a 2.65 margin. All the prices were cut as of first of December. For the most part, they've picked up as of now. So some upside across all the businesses in respect of macros. Copper was 8,200 when we cut this, it's now 8,400, so we're up about 2.5%. Zinc at 1.6 billion again, prices on zinc up 4% and nickel prices are up 8%. So all those on a spot basis would be slightly higher. Coal, $16.7 billion, of course, the largest number here. That's using an average forward Newcastle prices we took it off of the screens at a particular point in time. We're running 340. Of course, it's quite backward dated, so much stronger in the early months and then leveling off 12 months down the curve. We were $340. We took a portfolio mix adjustment of 113, given net realization of $228 across $110. That reflects all our various qualities. It reflects coking coal effectively as a byproduct also within that business. If we look at what that looked like at June, we were actually slightly higher on Newcastle with 352 and lower on portfolio. So we were realizing $2.45 a tonne back in June, and now we're realizing $2.28. So we've seen at $17 per tonne contraction purely to do with the mix and the larger discounts with some of the lower quality coals on the non-Newcastle cost of coals or otherwise realizing within the market. So it is still a tight in some areas, not necessarily as tight in other areas of that -- of those particular markets. So $28.7 billion EBITDA, that's assuming marketing midpoint. Of course, it's performed much stronger this year, and we've given guidance in addition to the $3.7 billion in '22 for the first half. We expect second half even above the top end, but certainly more muted compared to the first half of the year. So that should exceed $1.6 billion in the second half on marketing. And be an EBIT in excess of $5.3 billion for the full year. We're looking at just for illustrative purpose that we go back to the middle of the range, $2.7 billion plus $400 million EBITDA. So we're at $27 billion. Our cash taxes and interest is $8 billion, that's $6.5 billion taxes, around a 30% effective rate net interest of $1.5 billion assuming both current rates across our debt as well as further rate tightenings of 75 basis points across interest. And CapEx has risen up to $6.1 billion, that's $6 billion on the industrial, $100 million on the marketing. That's somewhat punitive to an illustrative period because it's a CapEx for '23, but then it comes down into the 5s as we move forward to $14.6 billion illustrative across the business at this point in time, providing a nice cash flow tailwind clearly, as we move into 2023. And with that, I'll hand back to -- to Gary to close it up.

Thanks, Steve. Just a couple of starts then to finish up before we move to Q&A. On Slide 25, we just outlined some of our priorities for 2023. Our first and foremost priority and that's not a 2023 priority, it's a priority full stop, is safety. It is an unrelenting drive within this business to have a business that causes 0 harm. It is everybody's single most important focus every single day that they come to work. We have seen some improvements Unfortunately, not good enough as we've seen a number of fatalities this year. However, we are seeing improvements in our lagging indicators in many of our leading indicators as well, and we continue on this unrelenting drive to have a 0 harm business. A second priority for us and a key priority clearly is climate. Peter has spoken a lot about the MAC opportunities. And as we progress through the year, we'll continue to invest in those opportunities, expand those opportunities and implement those opportunities. In most cases, in virtually all these cases, in fact, as Peter showed in his slides, these MAC projects not only reduce carbon, but they are NPV positive for our business anyway. So they're good for the environment. They're good for our business. They're value accretive and these are projects we'll be doing regardless. So we continue to invest in those and ensure that they add value to our business, something critical in how we run this business. Along as similar theme is our Scope 3 emissions and our responsible rundown of our coal business. We've outlined a bit more detail in this presentation and that by 2035, the 50% reduction in our Scope 1, 2 and 3 emissions is encompassing the closure of 12 coal mines between when we started this in 2019 and by 2035, we'll have closed 12 coal mines within our portfolio. These will be responsively shot with a proper just transition and proper environmental management and closure plans associated with those mines that are required to be closed. We'll prioritize our CapEx towards our future-facing metals. Clearly, that's where the business is going and our priority of capital towards these projects, which will be substantially derisked -- significantly derisked before we invest any funds into growing our into growing these future-facing mineral projects. We talked a little bit about abatements. It's a project that we'll continue to work on our CTSCo, along with our blue hydrogen project in Australia, definitely something for the future and something that we shouldn't ignore. And obviously, our recycling business and the circularity of the economy and our resources is something we'll continue to focus on and grow that. On the operational side, our absolute focus on operational discipline and excellence. Peter has his focus assets, and he continues to ensure that they meet the various thresholds and targets that we set for them. We've got the Xyrem ramp-up, which we're looking forward to hitting nameplate capacity towards the second half of next year and Mutanda ramp-up, which is going nicely, and the recovery of Katanga, given the current constraints we have in that business will be a key focus for Peter and his team during the year. On the financial side, Peter spoke about our balance sheet commitment and our strong BBB/Baa credit rating through the cycle and potentially even for an upgrade, depends how things go. But certainly, we will keep our balance sheet very strong and maximize free cash flow. Steve has illustrated over $14.5 billion free cash flow at spot prices for 2023. And of course, as a cash unit of business, what does that come with? That comes out with predictable shareholder returns by way of cash dividends and buybacks for our shareholders. So looking beyond 2023 and where we're going and who we are. We certainly have the right strategy. We have a sector-leading climate ambition to be net zero by 2050, and we have practical steps in place that takes us there through our rundown of our coal business and need to be down 15% by 2026 and 50% down by 2035. Our business, as we've gone through in a bit more detail earlier, is unique. We produce, we source, we market we distribute and we recycle. Something that none of our competitors can say they do or plan that they can do. We do it all. We're a one-stop solution, and we provide everything we need for our customers. We provide the portfolio of minerals required for the decarbonization, but we also provide the energy needed for today. So we provide that transition into tomorrow's decarbonized world. And we've got the right business model to do that. We are a very flexible business that moves with what the world needs and what the world requires and how it develops and progresses towards a decarbonized world. And the one key element about our business, which perhaps has not been evident to the market is that, in fact, we are a growth business. We are not businesses that just stay still. Historically, we've always looked at M&A opportunities, and that remains something on the table for us. We value -- we see value for us and where it makes sense for us. Of course, any M&A opportunity has to compete with other internal uses of capital such as buying back our own stock. However, M&A opportunities are available to us. But even without M&A, we have our own growth business. We're a growth stock, where as we've illustrated we can double our coal -- excuse me, double our copper business over the coming period from about 1 million tonnes a year to 2 million tonnes of copper a year. We have a very much -- or a very strong recycling business. The growth of that business is exponential. Already we produced over 40,000 tonnes of copper a year and over 1,500 tonnes of cobalt out of that business and the growth potential of that business is enormous. We also have other areas of growth in our business. As our copper business grows, so would our cobalt business, our zinc business has growth options and our nickel business has growth options. So as a growth stock, we are the mining stock to go to, to be able to fund that growth and price that growth in the market. And as we do that, we will ensure we do it responsibly and ethically. And we do that in every part of our business wherever we operate. We've got a large -- we've got a population or a portfolio of large-scale, long life and low carbon assets, which will provide the backbone for the decarbonization of the world. And that provides a highly cash generative business with very strong free cash flows going into the future. And with that, we'll turn it over to Q&A.

[Operator Instructions] And our first question comes from the line of Krishan Agarwal with Citi.

I have 2 questions, first on the M&A ceiling of $16 billion. I mean you laid out a vision where your portfolio volumes are broadly staying flat, while there are only [indiscernible] in copper. Would you mind discussing what are the other preferred commodities for you to look at for this M&A optionality moving forward?

M&A will -- we will certainly focus on the future-facing minerals and metals. So it will certainly be in the areas that we know. It will be in copper. It will be in nickel, it will be in zinc, it will be in cobalt and probably in aluminum. Those are the key minerals and metals for the decarbonization driver of the world. Now these kind of M&A opportunities aren't going to be sort of the traditional takeover premium type 1s that we see. These will be ones that are strategic for Glencore, where Glencore has some sort of strategic advantage, whether it be because we are -- have existing shareholding, whether we have existing partnerships with the current owners, whether we have existing infrastructure nearby or associated with them, the current partners or owners. So these will be very strategic M&A opportunities and not to simple highest bid wins.

Got it. And the second thing on the copper growth volumes, I mean, the guidance for until 2025 is forecasting a flat volumes, but then the potential is 1 million tonnes. So what kind of a realistic time line between '25 to '30, you're targeting for these copper volumes? And more importantly, when the market should expect the CapEx approval for these volumes to actually come through?

Christian, it's a bit of a chicken and egg. I mean we are derisking these projects as we speak right now. We're doing all the types of things that one needs to be doing. We're buying land. We're consulting with communities. We're doing environmental permitting. We're doing feasibility studies and the likes. But when we actually decide to bring those tonnes on to the market, will simply -- will be dependent on the market. We anticipate that demand will be there. However, we are not the kind of company that will bring on tonnes into a market where we anticipate the demand will be there. When we see the actual and real demand is physically there, in the market absolutely needs those tonnes, that's when we bring the tonnes into the market. So it's not about trying to not be clear on when we bring the tonnes into the market. But we don't want to promise tonnes into a market that perhaps for the time we bring those tonnes into market for whatever reason it is, the market isn't there to support it. So we are not prepared to bring tonnes into a market that's not absolutely screaming for that extra additional volume. But what we've outlined in this presentation is we have real brownfield projects and a potential and a greenfield project that are real, that are executable and can and will be brought on when the market needs those tonnes.

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

Just wanted to talk a little bit specifically about the copper growth in Argentina. So El Pachon, greenfield project, not usually Glencore's thing. You're saying 350,000 tonnes of copper equivalent, $5.6 billion. I'm just wondering how up to date is that number? It does seem to be have been on the light side for a project of that size these days. And I'm just wondering, how do you think about developing a project like that, Gary? Is this something you do yourself? Or would you look to bring in a partner with deep pockets?

Jason, I mean, maybe Peter can talk on the $5.6 billion. On developing it ourselves look, we aren't going to go into a project like this with our chat. There's a lot of work to be done to derisk it significantly. Is it possible that we bring someone in as a partner? Yes. Possibly. Anglo did it quite successfully in [indiscernible], we could do it here as well. So that is an option. It doesn't mean we will. We could look at doing it ourselves. But before we do anything, the amount of derisking of that project would be substantial. So I think we're a long way off and the market shouldn't get too excited that we're putting a trigger on a greenfield project anytime soon. We've got a number of brownfield projects that we will execute before that anyway. And in the interim, we'll be massively derisking the El Pachon projects.

Just to -- hi, Jason, Peter here. Just to touch on what the projects all of that is that we have very significant resources there, 1.5 billion tonnes of measured and indicated of which 1/3 is measured and relatively good grades, also very low strip ratios. So from a mining perspective, very straightforward. From a processing perspective, again, because you've got decent grades, it's -- the concentrator, we don't think is overly complex. And then looking at the social aspects and where the mine is situated, the expenditure around community-type issues relative to others -- other projects that we see in the South America not too high. In terms of product transport, fairly straightforward truck to rail and then rail to report to consider the Argentinian option. So 30 straightforward projects. So although greenfield, we consider relatively low risk. And I think the number is for where we are in our decision-making reasonably okay at this point in time. Obviously, it's still going to go through more detailed phases, but we're not uncomfortable with where the numbers at the moment.

Okay. Could I just follow up with another one. Just in terms of the ag marketing, there was a bit of discussion around a potential IPO. Any update there?

Not at this stage, Jason. We're obviously in the process or the is in the process of bedding down the Gavilon acquisition. It's been a very successful acquisition. Things are looking very good there. They're integrating, synergies are looking, in fact, bigger than we thought they would be. So no progress yet on -- or no progress on by therapy on that.

And our next question comes from the line of Sylvain Brunet with Exane BNP.

Just to follow up on El Pachon on the capital intensity. I know it's early days, but with transport. Anything that would explain why you'd be more so on the sort of high end of the capital intensity of projects of similar size. My 2 other questions are first on coal after that. And if you could give us a bit more color behind the 10-million tonne downward revision in coal production going into '23. And my last question is on Koniambo. How should we think about the end game for these assets, please?

Okay. On capital intensity, I mean we're looking at a fit-for-purpose project here with the required IRRs for our business. Now if the capital intensity is higher or lower than different projects, that is what it is. At the end of the day, we chase the IRR on that project basis, the right returns for our business, the right risk profiling and risk-adjusted capital profile that we need for the business. If it lands up being a higher capital cost on an intensity basis, but IRRs are significant for our business, that's fine. We want to ensure that the capital that we provide is, in fact, correct. And we don't see what others have seen, which is low out of capital and your budget, which you believe is a low capital intensity landing a high capital intensity post the event. Koniambo is still work in progress. We had a very good month last month. The month before that wasn't as good. So it's an up and down operation in that sense. We've seen some strong nickel prices. Ferronickel doesn't necessarily get the full benefits of the strong nickel prices. But we continue to work closely with our partners on that asset to continue in a continual improvement process. And then so what is the question on coal?

Coal, just guidance, volume guidance used to be 120, [indiscernible] billion.

So then, what we've done is given the year we've had, we've just sort of reset some sort of probabilities, outcomes and factors around situations that we faced across all 3 our origins. So we've had -- obviously, if you think Australia, you've had much -- seasonally much, much wet weather across all of the East Coast, that doesn't look like it's statistically going to end anytime soon. So we've sort of downgraded weather-related disruptions there that have had an impact in ultimate production. In Colombia, we have experienced incidences of -- higher incidence of blockades and other interruptions as well there. So we've sort of reset operating environment and days around that, reflecting that. South Africa itself has had capacity and constraints around particularly through and Transnet performance. That's across all those 3 that we've effectively had a reset around reality against what, in theory, had, had a normal -- more normal operating environment and more normal performance in these geographies of say, 3 to 5 years ago.

And is that also included now in your target to reduce coal production by 35% -- sorry, by 40% by 2035. I mean is that -- was that on this new normal 110 now or the previous number?

Well, it just means that we've had a faster acceleration downward [indiscernible]. Ultimately, the end game by 35% and the zero as per it was, but we've had a steeper step down to being around the 110s, whereas we might have thought 120s or 118 or something and then ultimately getting it down. These anomalies or these factors that I've described are not necessarily expected to be there forever. These are shorter-term considerations. We'll have to look at disruption days and actual events within the next year or 2 and reassess what sort of allowances that we do make that this is not a -- this is not a longer-term impact around 35% and 0. This is the next 2 to 3 years' production guidance.

And our next question comes from the line of Liam Fitzpatrick with Deutsche Bank.

2 or 3 questions. The first one on growth in CapEx. So your peer group is taking to guiding CapEx in the future years to like a channel capturing planned but unapproved projects. So once you start on some of these brownfield projects that you're outlining here, what is the realistic level of CapEx that we should be thinking about for Glencore? Is it up to 6 billion? Is it up to 8 billion? Any kind of steer on that would be helpful. And then Gary, just your comment on when the market is screening for the copper. I mean realistically, given the permitting challenges, construction periods and so on, how do you think about timing of these projects over the next 3 to 5 years? And then just one on the Terra, I take your previous comments in terms of no no update for now. But is the longer-term strategy to ultimately exit this business? Or do you still see this as a potentially core part of [indiscernible]?

All right. Let me go first and I'll talk on the timing of the projects at Vatera and then Steve can talk on the CapEx. On the timing of the projects, I mean, you're right, I mean, you don't always get it spot on right. But at the end of the day, we'd rather be late and early to the party. Because at the end of the day, if we do see the Goldmans x $15,000 copper, and I certainly believe we will see that. We'd rather be coming into the market when $15,000 and missed some $12,000 copper. That's not the end of the world. So what do we do in the meantime? We completely derisk our projects to the extent that we can. We go out and we permit to the extent that we can. We do the environmental studies, we get the environmental licenses, we consulted communities. We acquire land, we do feasibility studies. We do front-end engineering. We do all these sorts of things. We work on logistical solutions. We do all the type of things that one would do but we don't yet build and bring on the tonnes. That's the secret. And if we then bring on the tonnes, we'll bring on the tonnes when we see the market higher. And if we're a bit late to the party, no problem because if that party starts, it's not going to end build our tonnes. So we want to bring the -- we want to bring the tonnes into the party when the party is going, and we don't want to be the guys to come early and spoil the party. With respect to Vatera, look, is a terrific business. It's now with the part of it is a real world-class business covering all the major geographies. The frustration we've always had is that on a sum of the parts basis, we don't believe that we're getting the true value for Vitera on a sum of parts basis when you look at how our share price performs. So we've got a number of options around that. And who knows which one we go to. Look, one option is we can keep the investments and there are some synergies between Glencore and Vatera in terms of the shipping markets and the like. We could keep it and as it starts generating a huge amount of cash flows, we believe it will generate. Ultimately, the market won't be able to ignore the fact that it is so cash generative we'll see -- we'll be able to see that value within our share price. But with that said, we are looking at all other alternatives to see what the best way to maximize value for our shareholders is.

And then, Liam, I think in terms of CapEx, on Slide 21, we obviously show sort of '23, '24 then tapering down to $5 billion by 2025. That reflects today's production profile, that reflects today's cost environment as well, which has been inflated by at least 10% relative to 12 months ago. If we look at Gary's slides earlier on, where it's looking at the brownfields, Kolwezi, Antapacay, Mutanda and the likes, leaving Elkashnaside for now. I can't see a scenario in which our CapEx would then go on sustainably above, say, $6 billion. Then provides $1 billion per annum up from 2025 from sort of 5 to 6, within which to accommodate budgets bearing in mind that many of these projects are obviously multiyear projects. You're not spending it all in 1 year. You're spreading it out over 3, 4, 5 years. Some are staggered, some are phased. And that easily should be able to accommodate it within that $5 billion to $6 billion range would obviously need to bring the compensating tonnes and potential portfolio cost reductions that, that CapEx was to ultimately deliver. Now El Pachon is in a category of its own to some extent. And as Gary said, it may be something we run ourselves. It certainly would be an asset that could lend itself to some risk sharing and some potential partnership that you may get some upfront disposal proceeds and then some CapEx sharing. But even if we take it at the sort of the 100% level and assume those sort of CapEx numbers, this would be something that potentially trail some of the brownfields. There's some work to be done, but we are doing a lot of work and some good progress being made. But again, that might be something that would be, again, staggered over 3 to 5 years' worth of CapEx. So that temporarily, if we were able to do that 100% and all these assets were to be sanctioned broadly at the same time. That would be the one that may tip us sort of above in the 6 to 7 range for a period of time, depending on what we're doing on the others. But so El Pachon aside, I would have thought we wouldn't be increasing 6% and we need to bring those corresponding tonnes, and we'll need to see how and what and bring you the sort of assumptions that you need to think about El Pachon at the appropriate time.

And our next question comes from the line of Alain Gabriel with Morgan Stanley.

Two questions from my side. Firstly, Gary, the marketing business appears to have become more capital intensive over the last 12 months although we've also seen a very good profit uplift. How do you see the competitive landscape evolving from here onwards given higher commodity price volatility and higher interest rates? And how long do you plan to wait before revisiting your long-term EBIT targets? That's my first question.

The marketing business certainly is more capital intensive, and it's become really much a big boys' game. The initial margining, your variation margins, they're far bigger because of the -- as you rightly point out, the higher flat prices that we're dealing with, the larger volatility and moves in the markets. But it's been a very strong performer for us. And I guess you've seen a lot of the banks fall out of the market previously because of or other reasons. You've also seen some of the smaller players, perhaps not being able to play in this market anymore. So the marketing business is really for the big end of town. We've had a very good year this year. We expect another good year next year if the volatility remains. Interest rates are not a big factor in our marketing business. It's a pass on cost that we provide that goes to our customer. So that doesn't really impact our marketing business per se. Of course, it impacts general global trends and growth. And if global growth is lower because of higher interest rates, that could have an impact on our business generally, but it doesn't have a direct impact on our marketing business.

And I...

I mean it's obviously a question that comes up frequently, and this will be our third year in a row. I think we were above even the top end of that range. And I've always said I'd like to see that business again being sort of tested or being exposed to a more normal environment. We just haven't seen that both in energy and in volatility and in geopolitics for the last 2 or 3 years, which provides generally arbitrage opportunities. So for now, when I go back to our businesses and maybe they're conservative, and I say, what are your budgets? What are your plans going forward? They all come back within the middle of the range. Their performance seems to be above it, but they all sort of recall the days when this business was performing even in the lower end. It wasn't there. We were at 2 2s and 2 3s and 2 4s for a while. I mean hopefully, we have rebates, but that's as you guys potentially to take a call and we're sort of still middle of the range for now.

Very good. And Steve, I have a second question for you as I might have missed your comment on the presentation. But on working capital, are we still on mark for the $2 billion release that you have talked about for the second half of this year? And what are the remaining moving parts for you to beat or miss this figure?

There are so many moving parts in the working capital that from one day to the next, which obviously, commodity prices are certainly the main factor and the volatility thereof. So we're now in obviously early stages of winter, particularly on the energy side. So we've seen the sort of generations in March, April. We saw the generations in in sort of August. So these were some of the main impacts which from the sort of -- from a standing start, you can have quite material movements. So we're sitting here on 7th -- 6th of December, it's very hard to know exactly where this is going to land exactly at 31st of December. So it's -- it could be -- it certainly hasn't materially changed from where it was at June. So certainly, we can see a small unwind. We can see a small increase, but we'll need to see over the next month that.

And our next question comes from the line of Ian Rossouw with Barclays.

Just a follow-up on Sylvain's question on the coal guidance. You obviously mentioned you've incorporated some of the probability and outcome factors, but just keen to understand how the Glendale life extension sort of rejection of that by the New South Wales government impacts the sort of volumes over the medium term.

I mean, we look at things, Ian, as a portfolio approach. The Glendale extension was one of many different extensions and options that we have within our portfolio. So it doesn't have a material impact. It's -- we'll keep with whatever is ruled by RPC and it doesn't have a material impact. Of course, in perhaps some of the shorter years or the earlier years, it may have a few million tonnes here or there. But remember, that extension was never going to be big volume. We're only a 62.5% shareholder in that operation. We weren't 100% shareholder, and it wasn't a big talent producer in terms of the extension of Glendale.

Okay. And then do you -- do you expect to offset that from other projects down the line? I mean, what your thinking on some of these [indiscernible]

In our portfolio approach -- yes, sorry, in a portfolio approach, one can move a lot of levers and things change all the time. There's not a direct settle for that project for somewhere else. But we do obviously flex production and move things within the portfolio approach, depending on the market and depending on the infrastructure constraints and depending on equipment and various other issues, whether it be weather or the like. So it's not a like-for-like, we would say, well, we didn't get that, so we'll do something else. But we do move within the portfolio.

Okay. And maybe just one follow-up on El Pachon. Just on the sort of Glacier, I mean there were some articles obviously, over the years around some of the changes in glacier laws. And just if you can give some details on that. I mean I know you've mentioned it's something you will derisk over time, and that's probably something you'll attest as well, but just keen to get your take on that.

And Peter here, there are a couple of factors to consider on glaciers. One is what constitutes glaciers and those definitions and work done both in San Juan and within Argentina. With regards to glaciers, per glaciers and the like, and there's an inventory, and we are actually seeing across the country, glaciers come in and out of that register depending on the science that's behind them. Number 2 is that we've got a very extensive resource. The drilling we've upped the drilling over the last couple of years. That's not just confirmed the resource but extends the resource as well. So there's opportunities around that. So right now, that's something that does need to be derisk and it's work in progress, but not something that I think that will necessarily hold the project up.

And our next question comes from the line of Chris LaFemina with Jefferies.

Just a question on the copper market. So you're kind of outlining this very bullish copper outlook for the next decade. And it was perplexing, I guess, is the fact that the market well, maybe it's heading into deficit, but it appears to be in deficit already, which in light of the weakness of the Chinese economy, I guess, is somewhat surprising. So my first question is, do you think that there's been some strategic piling of copper happening in China this year? Because if we're talking about a market that is in deficit already when the Chinese economy is basically imploded and China might be coming back to life in 2023. Does that mean that we are heading into an extremely tight scenario very soon? Or is this something that you think plays out over multiple years?

Good question, Chris. And I mean that's the question everybody is asking. I mean the real reason going into this year, everybody thought would be a massive surplus probably 1 million tonnes, if not more, whatever it may be. But why are we so balanced, why are stock so low? Why are people saying the surplus is small or even a marginal deficit as you say. It's not -- I don't think it's it's anything other than supply shortfall. Everybody has missed their numbers. You've seen our numbers here, we missed out, but we're in good company. Everybody else from Anglo to Southern Copper to [indiscernible] to Freeport, you name it. Everybody has missed their production forecast. So whatever the world was expecting in terms of copper growth wasn't there. And that's what's landed up being leading the copper market in such a balanced position or far less oversupplied than the world than expected. Now going forward, as you say, China waking up, there's potential for continued growth in China, but it's not only a Chinese growth story. As decarbonization kicks in everywhere in the world, copper is the backbone for that. So we expect to see copper to be the growth story ex China, not only internally in China. So that's good on the demand side. On the supply side, what happens going forward due to the big miners continue to miss some of their production forecast, possibly because times are getting tougher. Governments are being stricter in terms of licensing. Communities are asking for more, they're blockading roads, permitting becomes more difficult, et cetera, et cetera. And we've seen it across the board. But we do know there is new supply coming on. QB2 is ramping up, Quebrada ramping up, [indiscernible] ramping up. So all those tonnes are ramping up. We know they're coming. Everybody knows they're there. Even Mongolia would eventually ramp up a bit further. So in terms of coming into the market. So how those projects meet their production numbers versus the demand and that will be the test of whether in the short term, the market is oversupplied in a slight deficit balance. But there's no question that longer term out after these 3 projects or 4 projects, there's not much more on the drawing board other than the projects that we've outlined today. So that's why we're not in a rational set to bring on our projects. We want to see how the market plays out. So the next little while as these projects come on and deliver tonnes into the market, do they manage the growing demand in the market. That's -- once they -- the demand has outstripped that growing supply, that's the time for us to bring on our projects.

Our next question comes from the line of Myles Allsop with UBS.

Great. Maybe first of all, could you talk a little bit about coal prices and why we've got such a huge difference between the Newcastle 6000 benchmark and API 2 and some of the other benchmarks, what's driving that big differential in the high CV market?

Not just our CV market, Myles. It's specific for the Newcastle spec. It's a very specific spec. There's a limited volume of it. It's certain boilers, certain utilities can only buy and use Newcastle spec some -- it also is critical in blending into certain markets where certain markets perhaps need a 5, 7 material and there's an abundance of 5-5 material around, but they can't take a 5-5. So they have to pay premiums for a 6,000 to be able to bend down to 5-7. So as to say, when he ran the coal department, there's markets within markets, and there's markets. And that's very true in the coal market today, whether you're looking at a high-quality Newcastle, whether you're looking at that versus the API2 delivered into Northwest Europe versus the 5-5 material, those sort of things. So the markets that really -- you've got to look at markets in markets and Newcastle itself is really the premier market where the quality is terrific and is a very sought after coal because, A, for blending; but b, because certain boilers absolutely need that material.

And they're relatively small market in the overall percentage as well.

Yes. And maybe sort of another couple of questions. It'd be great to get a sense as to how big you think the recycling business could be in 5 years, 10 years, say, by 2030 in terms of EBITDA. And then a question for Steve on free cash flow, the $15 billion of free cash flow at spot. Should we work on the assumption that all of that returns to shareholders? And should we be thinking dividends over buybacks given where the share price is? And what about M&A? How does that squeeze into it?

So how big could the recycling business be? We're not sitting here and saying it's going to be X or Y times bigger than it is. But today, it's really a significant business. I mean on an EBITDA basis, we probably have $200 million, $250 million already. Perhaps even more. And it's some work internally where we'll be stripping that out a bit more in the future to be able show some of those numbers. But when you can see that the recycling business growth will be exponential is simply 2 points. Number one is the world needs the metal and the metal is not there, and it will not be there from traditional sources. That is clear. The numbers are clear, the studies are clear. Everybody can see it. And if you don't have recycling, you're not going to have enough metal to feed the world economy. The second part about goes to the earlier question around ability to develop projects in ESG. The world will demand a circular economy. The world will demand that we recycle minerals and metals. We can't just run around the world digging holes in the world and only providing primary metal. We need the circular economy, and we need to recycle. And we have a terrific business that's been doing this for many years where the infrastructure, the networks, the partnerships, the relationships. So will it be bigger than it is today? Absolutely. Will it be multiple times bigger than it is today? Absolutely. How much bigger? That's very difficult to say, Myles. But I mean, there's certainly a lot of potential for this business.

And Myles, I think it was your question that you might have asked earlier on and you posed a number and said, does it will come back to shareholders, subject to plus/minuses and working capital. And yes, it does all under it's a pretty clear straightforward allocation across cash generation and then there's a base cash distribution, which will be 25%. I mean, this is the' '23 cash flow that we're talking about on illustrative certainly relevant in '24 or halfway through '23 as we generate some of it into the first half '23. So there will be a base cash amount in February in respect of this year's cash flows, which will be a material amount and a material step up, clearly where we're in '22. At the moment, we've shown you've seen our allocation back in August, where we had some top-up amounts, which was favored I think 2/3 or so at the time buyback over over cash. We were happy to have bought. Prices have stepped up of it. We're still buying. We're still happy to be buying at these sort of levels. At some level, I don't know where that level is. We may pivot to more cash over -- of buyback and let investors make their decisions on cyclical calls as opposed to some other valuation anomalies, assumptions, discounts sort and the likes that we would otherwise sort of consider. Historically, we've said we favor cash over buybacks, there's sort of tax issues across the 2 that we would obviously consider as we work our way through. But at the moment, we're still in a favoring buyback over cash proposition for the surplus capital, but it's all going to come back.

And on the M&A side, that was a Gary talked about earlier, are we thinking these are -- it sounds like they're very specific kind of opportunities? Are they relatively small? Are they kind of quite close to fruition? Or is there something that's kind of more of a conceptual kind of stage?

No, I mean. We can't comment too much on M&A opportunities, but these are not prime sky, the things that we dream up. These are real opportunities that if the opportunity arises, we would execute on.

Relatively small or?

Well, it depends on the business. So I mean we don't want to speculate and get the hairs running on, on things that perhaps may not turn out or not be real, but certainly Steve won't be sweating over being able to fund anything.

Anything is going to compete with the buyback, of course. That's the benchmark and at least a hurdle rate from which everything would need to compete and justify its position.

And our next question comes from the line of Danielle Chigumira with Credit Suisse.

A couple from my side. Firstly, thinking about the marketing business. So I've already mentioned that it's more capital intensive and to comment on potentially how much higher you'll perform than the long-term guidance. Could you come back to the RMI number? Historically, you've talked about the $20 billion ceiling. Obviously, we're above that. How much high or above that do you think we could stay in the current market environment? That's the first question.

I mean we're running -- we're about $24 billion or so at the moment in the current price environment or the prices as where we were in June. The $20 billion ceiling has been somewhat superseded. So we're sort of -- the net debt cap now is a number and just being mindful that RMI cannot expand in some uncontrollable fashion that it would otherwise not be considered as too high at some point. So we need to be cautious as to what is a sensible amount of RMI, $24 billion is the amount that's deployed today. It is working well within the business. You can see the returns that are clearly being generated there. But we've spoken about copper, we're in an energy world as well. It's not inconceivable that prices could move materially higher. And this price effect, you could see that RMI move higher. If we sit where we are at the moment, I think 24 is probably reasonable cruising speed for now. We're not sitting with excessive inventories that are deployed in contango structures. There's no -- there's very little inventory you've been giving to paid to carry today. So it's all working within a normal cycle of procuring, shipping, holding and ultimately selling and some distributing. So I'd say, volume-wise, we're not holding excessive inventories by any means, and the pricing today reflects. And the expanded business lines that's also something relative to 3, 4, 5 years ago, where we're bigger in iron ore, we're bigger in the energy spectrum. If you think about gas and LNG, cobalt is obviously a bigger market today in which we participate. So we have expanded the definite breadth of the business and 24 in today's price environment is, I would say, normal.

That's very useful. Just to clarify, so you wouldn't think about a reasonable RMI number as restricting you from being able to take advantage of the opportunities you see for the marketing side?

We have no constraints today to opportunities and have never frankly had marketing constraints for a business that makes sense and generates good returns within that particular business. It's working capital intensive as opposed to classic equity capital intensive. The fact that we ourselves have repositioned the business so strongly in a more comfortable lower leverage, stronger balance sheet position is also something that even affords us greater flexibility, cost of capital, cost of financing advantage is also relative to peers. So we're not constraining the business. We're not targeting areas of ROI if the business comes with opportunities as they seek every day and sort of transacts, then it's all facilitated at the moment. There's no discussions within the business to say we need to step it up or there's something we're not otherwise doing today that we're missing a trick or anything.

That's very useful. I'm changing track slightly, on coal. So you mentioned some of the factors around the furnace downgrades were temporary, but you've got flat to 110 up to 2025. Why doesn't that allow you to increase the targeted reduction for emissions for '26 for 15%?

Our 15% reduction was off our 2019 base year. Which was, if I remember correctly, just under 140 million tonnes. So that's the base year that we're reducing. So if you do the math of that, that's about, what, 20 million tonnes of about 20 million tonnes of that 15% is about 20 million tonnes of that. So we're already below the 15% at current numbers, and we believe we'll meet that by 2026. Remember, we said at 15% is a minimum for us by 2020. We may, in fact, exceed that, but that's where our base year is set, and that's how we're planning to responsibly run down that coal business.

Maybe I wasn't clear. So absent today's guidance, one would have assumed that you'd be around 120 million tonne level in 2026. Currently, you'll be around 110. So that means that you just got more of a scope to beat the 15% targeted reduction. Is that fair takeaway.

That's a fair assumption. Yes, good summary.

Great. And finally for me, just on fatalities. So it is an area in which still perform worse than your large peers. Could you give us an idea as to why is there an issue converting lessons from HPI or HPI is not being recorded? And how should we think about the dynamics there?

I'm happy to talk to that, if that's okay. There's a tremendous amount of work going on. We -- if we look at where the fatalities are happening, they tend to be in areas that historically have been less mature, large businesses with large number of employees. So it requires a training management and employees at the same time and taking them through what is quite a complex journey. So whether we got -- whether this year, we look at the fact that we've had a couple of incidents in Kazakhstan that were extremely disappointing. We have special campaigns, and I mentioned earlier on that certain assets get special focus. We have tremendous efforts going on there in terms of leadership development, understand the risk associated with all the tasks putting in the procedures for that and taking people through the necessary work so that they can avoid these incidents in the future. I think it's quite pertinent that you just asked around APRI reporting. We've seen very good reporting out of that region. I think that's a good first step for that business is realizing what the hazards in and what's going wrong and allowing us to get some early lessons and perhaps learn from those before something happens to a person that we don't want to happen. So we are working on those geographies and we will improve them and we will get to 0.

And I think maybe just to add to that, when you compare us to some of our peers, I mean, you're comparing, in many cases, to companies that operate in Canada and Australia and big open pit mines. We operate in 35 countries around the world. We operate in underground mines. We're in places like Kazakhstan. We're in Peru. We're in Colombia. We're in sort of some difficult within the DRC, we're in some difficult countries, and we don't shy away from a safety obligation. In fact, we bring world's best practice, world's best standards, and we're on a continual improvement drive. Clearly, we're not there yet. But it's not a fair comparison to say against some of our peers. I mean it's quite easy to sell some of those very difficult assets and say we have no fatalities. That's not our nature. We want to set our fatalities. We want to set our safety. We will ensure that we continue to double down on our efforts, on our processes, on our systems and our controls to keep our people safe wherever they are in the world. And that is where we bring value to our business beyond just everyday money.

And our next question comes from the line of Tyler Broda with RBC Capital Markets.

Great. You kind of touched on it a few times already. Just in terms of the marketing business, there's a big differentiator for Glencore. Obviously, you're saying that we've seen a big change in the overall structure of it. Is that something that can potentially be as we get to more commodity intensive world with these new constraints, I mean, is it something that could become a structural growth area for Glencore as well? And then just secondly, on the copper growth. Obviously, the whole industry is struggling already with having enough skilled labor. How do you feel about Glencore's current ability to be able to develop these projects or multiple projects to be at the same time? And is there a risk by waiting that it becomes a bit procyclical, it will be even harder at that point?

Okay. On the marketing business and I mean growth or structural growth in the marketing business. I mean, as the world grows and there's more volumes, we can continue growing in the marketing business within the commodities that we continue to produce end markets. With the kind of copper the world is going to need, the core box is going to need with all the commodities it's going to need, the ability for structured growth in our marketing business is there.

Likings of growth there.

Yes. Exactly. So there's a few growth engines within our marketing business. Recycling is one, which adds significant volume in the flow, both in the sourcing of black mass and eat waste as well as the actual product and the marketing of those products. And you've seen some of the offtake arrangements and marketing arrangements we've announced recently around our recycling business. Other areas associated with our existing business that we will start -- that we continue to grow in. For example, we don't produce lithium, and we have no ambitions to produce lithium, but we do get lithium through our recycling business. So all of a sudden, we set up a small lithium trading desk for 2 or 3 guys because we do have a base of lithium that comes through the business. And we've been able to structurally grow that business on a very low risk base without investing in industrial assets. So there is a potential for growth. The other area for growth is areas around energy and the nonconventional energy other than, say, oil, gas and the likes, we're now growing our carbon desk and our power desk. These are desks that are closely associated with our existing energy desks and have potential to grow and will grow, particularly the carbon side substantially as the world seeks carbon solutions. So the ability to continue growing our marketing business is certainly there. On the copper growth side and skills, yes, skills are challenged. We see skills challenges around the world. And that part of derisking our projects is ensuring that we bring on the right talent, the right skills. And as we said, we are derisking these projects, and we won't be going ahead of projects unless we're adequately skilled within Glencore.

And our next question comes from the line of Richard Hatch with Berenberg.

Much appreciated. Just a couple of smaller questions. Firstly, just on zinc, is the reduction in your guidance on zinc coming down to Xyrem and some of the other conservatism that you kind of talked around about dialing back some of the coal business? So just asking a little bit about what's going on with that zinc number? And then, Gary, you talked a lot about the market wanting to be hungry for copper before you bring it on. What kind of price level are we kind of talking what kind of volume deficits are you thinking about to really see the market be encouraged to bring on long-term mine supply?

Richard, look, I mean, certainly, at current levels, we're not bringing on copper. At $8,500, $8,400 copper, we don't see a need to bring more copper into this market. But we need to see substantially higher prices, number one. And number two, we also need to be feeding a growing demand. We don't want to bring copper into a high-priced market and a result of the copper that we bring on or the terms that we bring on market prices for. So it's a carefully balanced game of ensuring that we feed the demand without impacting pricing. And that's part of what we do, and that's the benefit that we have through our marketing business and our network of information that we have around the world that we ensure that we bring these projects on at the right time and to the right market at the right speed.

I mean in terms of the zinc production guidance and the profile of '23 to '25, it's not the coal, it's not the bulk sort of movable country operations that we have in coal. It's asset by asset specific on the zinc side. We do see the ramp-up of Xyrem in Kazakhstan, particularly coming through H2 next year and then reaching steady state from '24. That holds a high level, but you do have some offsets, particularly in '24 Antamina out of South America goes through a low zinc grade period, ultimately recover staff, but '24 is constrained by Antamina. And then in '25, we do see some end of life in some smaller zinc operations that we have as well. We've got the loss of our Canadian mines as mine there, is currently scheduled around that '24, '25. And Lady Loretta in Australia is also a satellite operation of the big Mount Isa operation. It's been producing for a while, but it also reaches end of life towards the end of '24, and you see some tonnes tail off in '25.

And our last question comes from the line of Bob Brackett with Bernstein.

If I tie the comments around M&A opportunities, especially nickel and aluminum, both of which can be fairly emissions-intensive to your emissions target of, say, 317 million tonnes by 2026. Does that emissions target preclude high emission M&A? Or would you grow into that? Or how should I think about that?

It's certainly, Bob, considered in any M&A activity that we do. And certainly, it doesn't change our commitments under our Scope 1, 2 and 3 targets of 15% by 2026 and 50% by 2035. So it is a big consideration in M&A.

And with that, I'll now hand the call back over to CEO, Gary Nagle, for any closing remarks.

I just want to thank everybody for dialing in for the call and for the Q&A. As always, we're available after the call at other times to answer any further questions you have. Otherwise, thanks very much, and have a good afternoon.

Ladies and gentlemen, this concludes today's conference call and webcast. Thank you for participating, and you may now disconnect.