Glencore Plc Unsp/Adr

Good morning and welcome to Glencore's 2021 financial results. Presenting today will be Gary Nagel, CEO, and Stephen Kalman, CFO. Gary, would you like to join us, please?

Thanks, Martin. Morning. Morning to everybody who's come in person and all those who are attending online on the WebEx. Great to once again be able to do this in person. And we'll kick off on a... Summary of highlights of 2021 results. 2021 was a terrific year for the company. We've printed a record adjusted EBITDA of $21.3 billion, a record marketing performance in our marketing and trading business, an EBIT of $3.7 billion, and an industrial business, a $17.1 billion adjusted EBITDA. All of those records across our business. As a result of the terrific results that we have, Our net debt is now significantly below our cap of $10 billion, down to $6 billion. And as a result, we've been able to announce a $4 billion distribution back to shareholders. That will be made up of cash of $3.45 billion and a buyback of $550 million. So what's driven these terrific results? Well, on the industrial side, we've really seen strong demand across the world as we've seen countries emerge from COVID-19. and we've seen a constrained supply environment, partly COVID-driven, partly regulatory-driven, partly geopolitically-driven. And on top of that, we have very low inventories across the world and across all commodities. So it's really resulted in very strong margins across our business. And when we look at our business and our competitiveness in terms of our cost base, the margins are incredibly strong and have provided terrific results for us. On the marketing side, As I said, 2022 is a record result for our business, and the strong trading performance is, in fact, continuing into 2022. The market conditions remain favorable. We see dislocations in the market. We see arbitrage opportunities. And going forward, we continue to see those opportunities. And fortunately for 2021, a terrific result and hopefully a good one in 2022 as well. On the ESG side, just turning to our scorecard, we have a sector-leading climate change strategy. During the course of 2021, we, in fact, improved on that strategy. Going into the year, we never had a short-term target for Scope 1, 2 and 3 emission reductions. We've now introduced that into our climate change strategy. So we've said now by 2026, we will be down 15% across Scope 1, 2 and 3 emissions. We've also increased our targets for our medium-term target of 2035, where we've now increased it from what used to be a 40% reduction, now a 50% reduction of our 2019 base year, and our net zero ambition for 2050 remains. On our social side, and unfortunately it's very difficult to report, but we have had four fatalities in our business during 2021, and that is four too many. We continue to work very hard day and night. Peter and his team putting significant effort into our SafeWork program. We've revised our SafeWork program, SafeWork 2. It's being rolled out. We are seeing some excellent results, but so far not good enough. We are not there. We do believe in zero harm in our business, and we do believe we can get there. Diversity and inclusion and our strategy around that was launched during the year. and continues on previous efforts done around our business on diversity and inclusion. And it's a key theme for me as CEO and for the management team. And, in fact, we have a task force set up of which I lead to ensure we drive that through our business. On the governance side, and I've spoken about this before, we have a best-in-class ethics and compliance program. I truly believe it is. And it's not something that is just a standing still product. We continue to work at it day in, day out to continue to improve our business and ensure we're a responsible and ethical operator. As announced this morning, we also expect to resolve the US, UK and Brazilian investigations during the course of 2022. And we've recorded a provision for these costs in our accounts. I'll now hand over to Steve on the financial details.

Good morning, everyone here. Physically, it's nice to join you again after a couple of years doing these things virtually. I think by now some of our slides and presentation and the flow is very familiar to many. We obviously had our investor update in early December. And from a financial perspective, I think this is clearly in terms of record territory, but also just clean, good performances across the board, both in the P&L, the balance sheet, the cash flow application, and the financial statements more broadly. I know Gary's covered many of these highlight points. Of course, EBITDA up 84% to 21.3%. We'll show the components in later slides. Translating into equity-free cash flow, $13 billion. That's the key number, ultimately, within any business. That's what drives your debt reduction, your capacity to make distributions and payouts to one's shareholders and is testament to whatever return on equity that can be generated in these businesses. And that's flowed through down to net debt getting through to six, below the 10 that we spoke about at the investor day in December, and facilitates both the base distribution that would have been paid regardless But once the base distribution is covered, we show the formulas of how we've calculated that later on, the billion plus 25% that leaves that surplus to determine what additional distributions that we may look to make. If we look on the industrial side today, clearly the biggest part of the business, not to diminish the huge contribution to the marketing, clearly done as well, but across both metals and energy, we've seen a performance up 118% to 17.1%. The real kicker from H1 into H2 was in the coal business. We'll show some metrics later on. You can see in the energy products just on the coal itself went from 0.9 in the first half, 4.3 billion in the second half to give a full year result of 5.2, and annualising at obviously high levels at the moment, even on a conservative forward Newcastle coal deck that we give as well. So 17.1 billion, good contributions across the board. Of course, commodity prices we'll see there. We'll see the industrial bridge on the next slide as well. You can see we've just shown the split. H1, H2 was 6.6, 10.5 in H2, and just the industrials annualizing conservative assumptions in terms of at least revenue on the coal side at 23.5 billion. So as we pick up into 2022, we've got sort of a higher 12% annualized tailwind even going into 2022 at current macros. If we do look at what the industrial bridge looks like, obviously the main bar is the price by 11.1 billion. Broad-based contribution across metals was 6.2 of that, with the copper business 3.7, both copper and cobalt contributing meaningfully there. Zinc was 1.1, our business there, and 0.7 each from the nickel and the ferro business. Ferro itself is almost into a podium position. They had a that a great result from our South African business during the year, both in production and margins. And the energy business was 4.9, coal 4.5. What gets lost often in the numbers, and it is a smaller part of our business, but you did see a meaningful turnaround just in the oil industrial business as well, where we have some upstream and some of the refining capacity of business we have done in South Africa. There was a meaningful turnaround also from 2020 to 2021. We've highlighted some of the price increases, average year-on-year on coal, 125 on Newcastle, cobalt, copper, zinc, nickel, ferrochrome and Brent oil averaging towards sort of 30s and 50%. From a volume side, not much to speak of, 2020 to 2021. At point three, we've commented on the challenges in South African coal and the constraints on the export line. Kazinx going through a transition generally in terms of zinc production as phasing out of the old before Jaram gets ramped up. Murren went through a large major maintenance shut, which happens every three to four years. We'll see a pickup in 2022. And Antipakai in terms of grades. So we would hope on the volume side to turn a sort of an orange bar into green or blue as we look into 2022. With Murren coming back, we've got some extra cobalt production out of Africa. And, of course, Cerahon on some pro forma basis would clearly come in 2022. The cost side, I'm sure we're going to get some questions on that later on. It has obviously dwarfed by the 11.1 on the price side, but we did see 0.9 of negative cost variances. At least 50% of that was in the pure energy, direct or potentially indirect. But calling out a few examples there on the zinc side of the business, particularly our European smelting business, was massively impacted by the surge in gas prices and challenges that came in, particularly in Q4 2020. If you look at the specific results on the European smelting, EBITDA for the year was 71 against a prior year period of 327. So we've seen 256 reduction just in that business. That mathematically recalculates back in what our sort of business zinc cost is, where we normally give a credit through the mining side. So that is where We have seen some particular pressure. We'll show some of the spot analysis as we do come through. So roughly a $200 million just year-on-year impact just on the zinc smelting business. Nickel-con-amber had its challenges early in the year. It closed much stronger in production with a 7,000 Q4 performance, but there was sort of $100 million there. And generally inflation and energy, which is the balance of the $600, roughly energy $300 and just other 300. Particular countries have started seeing higher levels of inflation towards the end of 2021. Kazakhstan was running about 7% to 8%. South Africa, about 4% to 5%. The others started to catch up, and that's more of a pressing issue today as we move forward. We'll talk a bit about that later on. Currency was a bit of a headwind of about 0.5%. It's turned into, depending on which day of the week, bubbles up and down, but we're probably slightly positive as we go into 2022 on the currency side. If we then look at a few scorecards specifically on copper, what's the highest contributor? $7.9 billion, EBITDA 2001 contributing 37%. Good increases across the board in copper. You can see the same smelting impact. More concentrated in South America, Canada, and Asia in those businesses that weren't as affected on the energy situation. But whether it's Africa, whether it's Kaloasi, Antamina, All their contributions at 7.9. A good cost performance down to 66.8 on the calculated. And if we look across to 222 on the guidance, we're down to 41 cents a pound across that business at the moment, even a bit down from the 45 cents which we updated in early December. And that's much a function of the continued improvements in some of the byproduct pricing, particularly on cobalt. And we'll show that spot analysis later on in pages, I think, 19 and 27. Production, 22. We went through all the production guidance. Nothing's changed since we were in early December. It's effectively Ernst Henry as we go 21 to 22, falling off the charts. And high margins at obviously 63% within the copper business. If we look in sync, really calling out again that surge in European power prices, it did result in suspending some production, particularly that in Italy, just to manage both the the sort of situation, the margin, the general access of power prices as well. So we're in good company across the board. There are, of course, energy, higher prices, higher gas. Negative impacting this in the business, it doesn't mean it's net-net overall bad for Glencoe. This is where we obviously felt some pain. But, of course, across marketing, across the general energy and prices and those things, it has, to a large extent, been compensated elsewhere. So the zinc business, 2.5 billion, 12%. and as we go into the 2022 spot analysis, we see costs coming down again with high prices, again, byproducts in copper, in lead and the likes, and we see EBITDA moving more to about $3 billion or so. That's on the zinc side. Still very healthy margins across our overall business where we have assets in South America, KaZinc, and obviously Australia. In terms of the nickel business... Smaller part of the business today. This is one, a lot of focus on nickel generally, battery technology, good commodity for the future. Some of a lot of our growth capital is going into this particular business, particularly revitalizing, extending lives of the Canadian business. A little bit jammed tomorrow, some big projects. We start seeing those tons and expanses. You're going to see a little bit of dipping both in grade and nickel over the next two or three years, at least on the Canadian side. Then you've got Raglan, Honoping Depth come obviously. Shorter term, we'll see a pickup in 2022. As I said, Murren went through a major maintenance shut, and you can see we were at 122,000 tonnes of nickel in 2021. We're holding still 115 this year, plus minus 5,000, 6,000 or 7,000 of that is Murren coming back. And we're certainly positioning for Connie Amber moving comfortably into the 20s. That, of course, all pushes our cash cost across the nickel business from 454 down to 411. And hopefully we can see a near doubling in this particular business from 868 on a spot basis. You can see 1.7 billion off to the right. Financially speaking, the star of the show on the industrial side, Teddy Cole, in the second half of 2021, 5.2 billion. You'd recall in early December we said 5355 is where we saw it coming for the full year. We did note in our production report a few weeks ago that we saw slippage of 1.5 million tonnes out of Australia. So production was fine, it was just the sales volume, which would otherwise have delivered in that 5355 range. Those sales are going to come through this year and at higher prices. So it was actually a fortuitous slip in terms of the developing of these things. It will delay in 2021, we'll pick it up in 2022, and that's looking quite good. A lot of people like looking at... at sort of composition in overall business, notwithstanding its strong EBITDA as coal, thermal coal share of group revenue last year was 4.2% within the overall pie and 3.8% in 2020. In terms of looking forward for a 222 guidance, again, we'll look at those numbers later on, but we see spot EBITDA a little over $10 billion. That's using a $175 billion. Newcastle number, which it's massively backwardated. We know obviously spot prices as well into the 200s. That's what we are reporting. So although it's spot, it's an annualised 12-month period. We're not guiding 2022 necessarily because we've obviously banked five weeks of profits already in coal within January, February. And of course, we're annualising well ahead of these numbers in those things. But looking at 175 applying over 121 million tonnes, but with a pickup in costs, and I'll go for those reasons later on. The higher you drive Newcastle at $175, there's a lot of royalties particularly that are linked to the price, as well as the energy. So we're up $6, and I'll show some of the numbers later on in terms of coal. On the marketing performance, up 11%, as Gary said, to $3.7 billion. Very broad-based, strong performance throughout all the all departments contributing meaningfully. The big gain really in 2020 to 21 was in the metal side, 1.7 up to 2.5, solid contributions throughout. Energy, still very respectable, 1.4, with a reduction just reflecting the exceptional results from the oil business in 2020, and coal performing very strongly over 21. So 3.7 billion the second year, of course, that we've been above, that ranges. I'm sure there'll be a question later on as to whether the range is still appropriate, but we have delivered good performance there. But if you look back on the bottom right, we've seen that sort of holding within that range quite well. We've had two obviously solid years above. With also Viterra at the bottom left, you can see contributing meaningfully in that number, $473 million. That's our net of their income up from $211 million. We put a slide later on on page 30 just to give a few highlights on what that business does on a 100% basis. So it was well over $2 billion of EBITDA. Net income was around $1 billion, which is our pickup. And in H2, we got $150 million of dividends. That was the portion to Glencore, so that would have paid out $300. And mechanically now, that just flows straight through to shareholders because you generate that cash, we're below the $10 billion. We were obviously $150 better off our debt because of that. And that's absolutely one for one is now mechanically calculated in additional shale returns. And that will continue to be the case with that particular operation as we go forward. A few repeated slides from our December updates. So no reason to spend time on this, but it was just echoing and repeating the net debt managing around that 10 billion cap. with distributions periodically returned. The key for us is to generate the cash, not pay out in expectation of cash, generate the cash, and then continuously at six-monthly cycles, reload back up towards that 10. So we are at that $6 billion now, and culminating in obviously the $4 billion. As we get through to the August, we'll generate cash flow clearly over the six months of the year. The base distribution is covered, so all of it then, To the extent is surplus, one can be flexible, again, around the portion that would be additional special cash and or buybacks to continue those at that particular point in time. Cash coverage ratios, of course, down to the lowest levels I think this company's ever had at 0.29 of net debt EBITDA. And then, again, a follow-through of the slide we had back in December. Mechanically, we just run through the base, the billion plus 2.4 billion details on page 25 that you can see there. And then we've topped that clearly back up with a 550 buyback, meaningful opportunities coming in, obviously, in the second half. And we've just run through the flow chart logic in the green that Martin's put down, and I think it's all fairly clear and understood as we do the thought process there. From a CapEx perspective, nothing really to add since December. We're holding numbers as well. We actually – We're 100 million shy. We're 4.5 billion in December. We came 4.4. We've just rolled that 100 timing-wise into 2022, into 5.4 as opposed to 5.3. So no change cumulatively across all those periods. Maybe just cash flow. We were at less net cap expend than some of you might have had because of 0.3 billion sale of PPE. You can see on the bar on the left. That was, if you recall, we sold the Royalty, the Red Chris Royalty, royalty streamed to a third party in about August, September. They announced it. There was 160, sort of 160, 50 million or so. That was sale of PPE. And we also had some old surplus land from a refinery in Texas, the Corpus Christi. We sold that to a company that's looking to do energy exports out of the U.S. There was about $80 million of sale of some surplus land that came through in the second half of Well, that helped the cash flow, helped the debt reduction in the business as well. If we look through the cost trajectory feeding into the 2022 illustrative, copper continues to sort of move down the curve, 41 cents a pound down from 66, continued both in a volume and pricing impact, particularly cobalt, but all the byproducts, which it does enjoy, and zinc as well. The zinc business, from having... reduced somewhat its cost to still minus four, which is pretty good in anyone's mathematical calculators. Energy, European smelting clearly having an impact there. That's not necessarily going away anytime soon. We're just getting better by product credits and volumes and prices the way they were freshened up to at the end of January to minus eight cents. Nickel improves with production coming back in Murren, and we're clearly hoping for and planning for an improved Connie Amber performance as well as we look through 2022 up to the 125,000 tonnes. And coal, that's where you've got the big jump from 52 cost up to 59 that's up about $6 at the 175. It's always got to be anchored around what's your price assumption because a lot of variability in royalties against that price. So just that 53 up to 59, $6, $3 is purely royalties using 175. If we were using 137, which was the average in 2021, that $3 would, of course, come back. But so would billions of EBITDA. So we're happy with that extra royalties to the various state and governments. Energy is $2 of that. That's permanent, clearly now with the pricing that we see in oil and gas. And there's another $1 a tonne across the coal business, which is sort of $150 million or so as well. So what does that all mean? $26.5 billion of EBITDA. $14.1 billion. Everything is contemporized for spot flat, like we do on the metal side. Coal, we consistently take a forward average, $175 on Newcastle there as well. Marketing, we've taken midpoints. Obviously, the last few years, we've come ahead of this in some actual sense. So that runs it at the $2.7 midpoint of the range and then runs tax and interest based on... flow through tax and these things. We do have some tax losses in different jurisdictions that the actual tax spend may be lower than what's implied by the illustrative sense. And then with that good picture, I'll hand back to Gary to give some closing remarks. Thank you very much.

Thanks, Steve. I mean, after that set of results, I think just to sum up our business in a picture, an industrial business which has the leading commodities we need in the decarbonized world. As we progress down the decarbonization journey, we have the right commodities, particularly copper, nickel, cobalt, along with our zinc business. As we run down also our coal business as a transition fuel towards a green economy. On the other side of our business, we have a best-in-class marketing business that has outperformed two years in a row and continues to outperform across the commodities, across the market, the market intelligence, the arbitrage opportunities, and that's a real value-add asset within our business. An area of growth within our business, and we've seen over the last few months a few announcements you would have seen around recycling, we're a firm believer in the future of recycling. the circular economy, the way the world is going, the requirement to not only use virgin metal, but to use recycled metal, not only from a legislation perspective, but from a responsibility perspective. This is an area of growth. It's an area we want to be in, and it's an area that can become quite big within our business over the short, medium, and long term. And added to that, we also provide carbon solutions. We have a carbon desk right here in London. It's something that provides the ability to provide synthetic and actual clean carbon-free products, whether it ranges from green aluminum or carbon-free freight haulage or whatever it may be. This is a value add that we provide to our customers and really adds value to our business. So if we look at our 2022 priorities, as I said earlier, first and foremost is always safety. Our ambition is to be fatality-free and harm-free, and we will continue working at that every single day. We've relaunched our SafeWork program. We have seen benefits. As I said earlier, we had four fatalities. We've halved those from the previous year, and I think it's the lowest number of fatalities we've had in the history of this business since we've been public. However, it's not good enough. So we continue to work at it, and we continue to see improvements. On the climate side, a lot of work going on across the board, particularly from Peter and his team. We've identified a number of value-creative projects in our map curve, which both reduces carbon in our business and adds value to the business. Our Scope 3 emissions, or in fact our Scope 1, 2, and 3 emissions, are sector-leading the way we're running down our coal business, the decline in our coal business, as a result of material improvement or decline of Scope 3 emissions into the world. We prioritize CAPEX. We're investing more than 80% of our capex in 2021 into transition metals, into the green metals. We're on our supply chains, working very closely with our suppliers to ensure that what we take into our supply chain is carbon-free or low carbon. We're also looking at all technologies. As you know, in Australia, we have a pilot project at the Milmeran Power Station, trialing a carbon capture plant. And that's something that hopefully with time, can prove to be commercially viable. And as we do that, we really take a transparent approach. It's important that we report back to not only shareholders but all stakeholders on the journey that we take into a decarbonized future. And lastly, efficiency and discipline. Operational. It's an area that Peter's also spending a lot of time on where we have some challenges. We've mentioned Connie Ambo before. We've seen an improved performance in Connie Ambo in the last quarter of last year from significant work and time that Pete and his team have spent on that operation and, in fact, a good start in January. However, Connie Ambo still requires more work, and there's a lot of work to be done, and that is, let's call it, in intensive care right now, and we'll see how that asset goes over the next 6 to 12 months. Jirem, the ramp-up of Jirem, we've had some challenges. We've spoken about those challenges before. And again, a lot of work's been put into that and we hope to see some improvements over the course of this year. And the other challenge or the other opportunity for us during the course of 2022 on the operational side is the Mutanda ramp up. As you know, we're bringing that business back into operation. We've already been processing some of the stockpiles and work is going on at the moment in terms of bringing back the mine. On our portfolio simplification, we've already disposed of nine assets during the course of the last six to 12 months. We have 14 sale processes underway and 13 additional assets under consideration. Now, of those last two categories, the 27 various assets, certainly they're not going to all necessarily lead to a transaction or a sale, but each one will be focused on and we will make sure we do the right transaction for this company if we have that opportunity. On the financial side... Leading from those results, we have a strong commitment to a BBB credit rating through the cycle. Our focus right now is to maximize cash flow. You've seen the numbers that Steve's presented earlier, $14.1 billion at spot illustrative prices, which results in great returns for our shareholders. So with that, we'll open up to questions.

I have two questions. First one is on the looming settlement with the DOJ. Does this looming settlement unshackle you to change your capital allocation strategy going forward or perhaps increase your risk tolerance along acquisition lines, for instance? That's the first question.

They're not related. Our capital allocation framework is very strict. It's remained in place for a period of time and will remain in place. We will make smart capital allocation when we have the opportunity, and we will make sure it's accretive for our business and it's unrelated to any regulatory settlement.

Thanks. And the second question is for Steve. For the purposes of capital returns calculations, do you still make the adjustment for your net debt for marketing leases?

At the current level of marketing leases, no. But we would need to leave the scope that if marketing leases for some reason was to materially increase, that under normal scenarios this is just OPEX dressed up as CAPEX. So if there was, Alex is over here on the oil side, if we had to embark on bigger leases around the LNG business, which is some storage or some shipping these things, and the number was not $1 billion, which is where it is at the moment, which in the scheme of things is not particularly material. But let's say that number was $3 billion. maybe that would be appropriate to rethink again and to pull back up. So at the moment, that's why I'm not giving you a – but at the moment, it's small enough that I'm not sort of making adjustments for it, but I think it's appropriate if it was to get bigger that you should make adjustments for it.

Thank you. Liam.

Good morning. Liam Fitzpatrick from Deutsche Bank. Firstly on the settlement, some sub-questions, I guess. First of all, how much confidence is there in the $1.5 billion figure – Secondly, can you clarify which investigations are not included in this? And finally, in terms of what you know about the terms, will there be any impact on the trading business moving forward in terms of how you operate and so on? And second question, just on Agri, is that included within that set of 14 assets which are up for sale? And can you outline some of the options that you're thinking about for that business? Thank you.

So the 1.5 liam is our best estimate right now. and it includes our best estimate for the U.S., all the investigations in the U.S., the U.K., and Brazil. It excludes the Dutch and the Swiss investigations. Will it impact our trading business? Our trading business hasn't really been impacted by this anyway, by the investigation so far, and I don't see why it should. Once we settle this, we want to put a line under this investigation. move forward and continue to do good business like we have been doing. With respect to Vatera, I'm not going to comment on whether it's included in those 13 or 14 assets, but what I can say is that we don't believe Vatera is accurately reflected in the value of the Glencore share price. So we are looking at ideas around Vatera to be able to provide that see-through value in our share price for our shareholders.

Danielle.

Thanks. Danielle Chigumira from Credit Suisse. Firstly, on the Blue Bell suggestions of a coal spinoff, it seems to inherently accept that you are the best operators of the assets, so you should maintain governance of those assets and run them down over time. Are you seeing that opinion being reflected in the broader investor base, as in an involving acceptance that selling coal assets doesn't do anything for sustainability? That's the first question.

Hi, Daniel. Yes. I mean, Larry Fink himself says that in his letter that he sent out three or four weeks ago. So absolutely. And we've had a number of shareholders call us and express their support for our strategy. And it's reflected in our strategy that we put to the shareholders to our vote at the AGM last year where we got close to 95% approval. And the continual engagement with our shareholders certainly supports that strategy.

Thanks. That's very clear. And in terms of growing the recycling business, do you have a target or an ambition for how much of the marketing business or industrial business that should represent over time in the long term?

No, we don't have a target. We just believe it's an opportunity to grow. We see legislation coming in Europe and potentially in the U.S. where they will legislate how much recycled material needs to go into manufacturing within those territories. And we believe it's a great opportunity, particularly given our footprint within those, A, our industrial footprint with the smelters and the likes that we have in Europe, the relationships we have, the ability to supply from our operations the right materials. So it's not a target, but we believe it's an area that we can grow in in this business and it's the right area to grow into.

Thank you. Ian.

Hi, it's Ian Rousseau from Barclays. Just a Question on the operational side, maybe for Peter or Gary can start. Could you maybe just give some details on Xyrem there? I know you've mentioned there's been challenges on the ramp up. Maybe just give an indication of your confidence in meeting the guidance for zinc for this year. And then maybe Connie Amber as well. You said it's an ICU. What's the sort of thinking around timing there for ramp up or other decisions or alternative options?

Yeah, on Jyrem, I mean, we've given our guidance. We're standing by our guidance. It is a project. It's a terrific project, but it has some challenges within some of the state of the material, a lot more fine than we thought it would be. We did have some challenges in terms of the ramp-up. As you know, we had a fire at the plant and we had some significant COVID restrictions. We've been able to get back on the ground. We have engineers at the plant. We're reworking parts of the construct and parts of the engineering design. So Peter believes that, of course, it's achievable what we've put out there, but there are some challenges still ahead, but we do see improvements coming every day. On Connie Ambo, Connie Ambo, as I said, has had a good fourth quarter there. of last year, and in fact had a very good January as well. It started raining there in February, so this month perhaps not as good, but that's expected with a rainy season. But it hasn't performed over time, as you know. And having one quarter of good performance or four months of good performance is not good enough for us. We want a steady, stable operation that provides sustained cash flow positive returns for us. And if it doesn't, we will look at other options. So at the same time as working on that asset and ensuring we improve it and get it to a steady state, we are looking at other options for it.

Thanks. And then just a second question maybe for Steve. On the $1.5 billion provision, you were saying you expect to settle sometime this year. Would that then therefore impact your thinking around cash returns? Will you make an adjustment for that expected settlement for the second half?

Obviously, depending on timing, when and how, it would be something we would have to ultimately come out of the coffers, and that will eat into the equity cash flow the business generates. So it will clearly come at the expense of that exact amount of distributions that would otherwise afloat. So whether the timing impacts in August or towards the end of the year, we will have to be obviously mindful of it at some point. But ultimately, it's going to be whatever the cycle is that will come at the expense of whatever distributions might otherwise have been payable.

Okay. You won't preempt that. You will then maybe rather impact if it's in the second half, after August, it might impact the February number instead of August.

Obviously, we'll know more in August than what we know now, and we'll see. We'll do what's appropriate.

Okay. Thanks.

Patrick. Patrick.

Hi, good morning. It's Patrick Mann from Bank of America. I'll take the bait, Steve. Is 2.2 to 3.2 still the right number to think about for the marketing business and what's driven the outperformance these past couple of years?

Thanks. I think it is the right range still. I think we need to let's get through, let's see what it potential tightening cycles. Let's see what impacts that may have on sort of economic activity and the likes as we sort of go through. We've had to, I don't think in terms of volatilities, in terms of geopolitics, in terms of trade flows, I don't think we've seen anything in the last two years that can compare historically over sort of the previous six, eight, nine years. And our business is growing. That's the other point, that we are adding elements. Cobalt's bigger as some of the diversification in the energy side, LNG, power, carbon, various things that Gary obviously mentioned. So I think it's probably let's see through another year, let's see sort of 22 and see if it's appropriate. But it's nice to be, I mean, all the questions over the last 10 years was when are you going to be at the top end of the range because we're bouncing around the middle and two twos and two fours. It's nice to be able to be there and even exceed that and be thinking about the range being a bit conservative. It's a nice position to be in. I think let's just keep the range for now and go from there.

Operator, can we please take some calls from the line, please?

The first question is from Christian George from Societe General. Please go ahead.

Thank you. Just a general take on the market. You've seen that semi-ban on Indonesian exports on coal, and obviously China is trying to dig a bit more. What's your take on it? Do you think we're going to see some ongoing shortages on the coal side, especially in China?

Well, certainly you see it already. I mean, Newcastle coal prices are close to $300. And, you know, the Chinese economy seems to be coming back. Let's see what happens after the Olympics. But generally across Asia, you're seeing significant demand for power as economies recover from the COVID impacts. And with that, you know, the competing fuels is LNG, which is also pricing at significant premiums to the equivalent of coal. So the demand for coal remains strong. The supply side has been impacted from not only the Indonesian ban, but we see nobody building new coal mines because of the difficulty to raise funding and to get approvals for coal mines. We ourselves are closing our coal mines, responsibly running it down. So there's a supply side constraints which continue, whether it's the short-term things like the Indonesian ban or longer-term non-investment in coal mines or new coal mines. And demand looks strong both in China and the rest of the Asian region.

Thanks. And on the same line, these energy issues that you're facing or all are facing in Europe in terms of costs or potential shortages in China, do you think this will continue to interfere with production of smelters in the next quarter?

Most likely, yes. I mean, power prices are very strong. They're volatile. We won't run operations which are cash negative. It makes no sense. We've been forced to curtail the operation of our smelters in Europe as a result. And with continued high power prices, we'll continue to do that.

So you've got no visibility yet on when you may be able to accelerate production again?

You know, we watch it very carefully. Of course, we have a power desk here that provides us their views on where they see the power market going. But at this stage, we've got no plans to bring back that production.

Thank you.

Next caller, please.

Thank you for your question.

The next question from Chris Lefamina from Jefferies. Please go ahead. Hey, thanks for taking my question. Just to follow up on the $1.5 billion provision. So you didn't mention in the – at least I didn't see in the release – commentary regarding the potential for the DOJ to require a corporate monitor. At Glencore, I think last October, the DOJ changed its guidance regarding corporate monitors, and I'm wondering if we should expect there to be a corporate monitor installed at Glencore, and if that's the case, to the question regarding how it might impact your marketing business, what might change if there is a monitor installed at Glencore, and is that something that is negotiable between you and the DOJ? Thanks.

We can't speculate on that. All we can say is we've put our best foot forward in terms of what we expect the provision to be, and we've advised that we expect to complete those three investigation geographies during the course of 2022, but we can't speculate on anything further than that.

Okay, thank you.

Next caller, please.

Thank you for the question. The next question falls. Dominic Hockane from J.P. Morgan. Please go ahead. Your line is open.

Thanks for taking my question. I've got three short questions all sort of quite linked. So Gary, with 27 assets under review, could you maybe just talk to us a little bit how you see the long term industrial strategy, specifically how you want to grow this business over the next five to 10 years? Secondly, on Viterra, you mentioned that Viterra, in the context of growing the business broadly, would you consider increasing your stake in Viterra here? And then final question, as you mentioned Viterra being undervalued, we could probably make the same argument for coal, specifically given where coal prices are. Is there any reason why Glencore wouldn't undertake a settlement this year, a benchmark settlement with utilities? And could you maybe remind us the contract mix by the percentage you sell in the contract versus spot?

Okay. On the sales processes, as I said, we're not going to give running commentary on each sales process, but where we're going as a business and on the industrial side, these assets that are up for sale or potential sale or being reviewed, These are assets which are subscale. They don't really move the needle significantly within Glencore. They take up management time. They bring certain risks that don't come with the kind of reward that we want. So it's just a simplification of the portfolio. It doesn't really change what we are as a business or who we are as a business. It just helps management focus and management attention on the right assets at the right time. So we shouldn't get caught up in sort of the detail of what these potential 27 assets may be or what they would do to the business because they would not fundamentally change the business. What we will continue to do is invest in our own business. As we said before, more than 80% of our capex in 2021 went into our metals business, our decarbonization business, so as to speak. and we'll continue to do that. We have significant amounts of brownfield opportunities within the key industrial assets or the key industrial minerals required for decarbonization. We have great brownfield projects in copper. We have nickel brownfield projects. We have cobalt brownfield projects. And those are the areas that we're going to focus on to grow the business. We'll only bring on those projects and those additional TANs when the market needs those TANs. We certainly don't want to bring them on too early. We don't want to be the result of a market correcting as a result of our TANs. So we do have those projects, and that's certainly where we can grow organically within our business. As I spoke earlier, recycling is also an area that we can grow in, and we're looking to grow in. We've become more than just a miner. We've become a bit of an urban miner because there we're able to harness our marketing network, harness our existing infrastructure through smelters, our supply contracts that we have in place, and use that to build a recycling business over time. Now, how big that is over time, who knows, but it is an area of growth for us and an area of responsible growth. Your second question was on Vatera. Would we go beyond our current holding in Vatera? I don't think so. We would not. We got very happy with our partners. We work very well with them. We're very comfortable. Vatera is an independently managed business, and we're quite happy with our stake as it is. What was the third question, Steve? Coal prices. Coal prices. The contract. Yeah. Do you know the exact split of contract versus spot? I mean, the negotiation with the Japanese utility is, as you know, it's a Japanese financial year contract, so it runs April through March. Negotiations haven't yet started, but obviously we will be talking to our partners in Japan to set that benchmark. We have two sets of pricing. There's the biggest set that comes now and then the smallest set that happens in October. I don't have the exact tonnage. We can come back to you on that. I don't know if you know them off the top of your head, Steve.

Certainly not as material as it once was. I think certainly the rolling spot and indexes are much more relevant than necessarily. I mean, of course, last year's sort of was a little over $100. It's looking... looking a bargain and stuff like that. So that's a lag even on current coal earnings. Of course, when that rolls forward in whatever tons that that means, you'll reset that at high levels, of course, as we go forward. But it's not as material as it once was. Everyone used to hang on to what that big sort of settlement was that used to come through. It's just not as material, and I don't think giving those numbers the exact mix is also not an exact science. It depends what supply and demand is at the time.

Okay, thanks. Next caller, please.

The next question is from Sylvain Brunet from . Please go ahead. Your line is open.

Good morning, gentlemen, and congrats on the numbers. Two questions for me, please. The first one is in Chile, given the new government soon in place. Could you remind us perhaps of your tax stability agreements and also whether any of the uncertainty at the moment has already delayed any of the decisions, investment decisions. I'm thinking Koyawati, or if it was still early days anyway. And my second question is on marketing. When you talk about growth, interested to get a sense of the underlying growth you're still able to achieve in the business and whether that is like – some geographies or some particular commodities where you still see potential to grow and if you could quantify that versus GDP growth or something. Thank you.

All yours. What's that? The tax stability. Do you want to talk about the tax stability?

I mean, all of our operations have varying degrees of stability still in place. Obviously, Kalawasi is the big one. I think it's Peter, you may three to four years still. But irrespective, I mean, obviously there's sort of stability or not stability in the country. It's sort of moving through its phase now to work out how to sort of chart the course going forward between government, between industry, and that's obviously still going to take a lot of time. I don't I mean, we were not ready today to pull trigger on any massive Chilean expansion. There's a lot of technical work that's going on at Kaloasi and other operations. Ultimately, it will be a factor in terms of what economically did make sense in terms of that particular regime and what projects and how you scope it up and scale it up. So that will be relevant across the whole industry, whether it's ourselves and anyone else, as to what the what the investment landscape looked like and what sort of returns and where to spend one's marginal dollar. So that needs clarity clearly at some point because the world needs more copper and there is clearly deposits there in varying degrees of grades. So we'll see how that all plays out. In terms of marketing growth, we have fairly mature businesses in many of our commodities. I mean, I would say it probably is in the sort of natural gas, power, carbon areas. I know within the historically more the liquid side of the oil business. You'll see certainly a mix change over many, many years, just as a function of market mix as well as country. So that business for us has good growth potential, clearly, in some of those other areas.

Yeah, I would say LNG is an area that we're going to certainly grow in. We've already grown in it. You've seen us announce a number of projects or a number of partnerships. So that's an area of growth within our marketing business. And obviously we're not going to grow for the sake of growth. We're going to grow to make margin. And clearly with the demand for battery metals, we certainly see growth in our nickel marketing business, in our copper marketing business, in our cobalt marketing business, and to an extent also zinc. Aluminium becoming a lot more interesting these days. Obviously price is very good, but you know, a significant amount of aluminium being used in the automotive industry because of the light nature of the metal and the heavy batteries. So another area for growth. So all of those, which are the commodities that we're strong in, that we're already marketing, we see potential for good growth.

Okay, back in the room, Jack. Great, thank you.

Hi, thank you. It's Jack O'Brien from Goldman Sachs. First question is, You've talked quite a lot about various commodities being in deficits at the moment. Your own capex steer includes fairly limited growth capex. Can you just confirm, sort of looking forward, that you won't be tempted to invest in new greenfield? I know you've talked about various brownfield opportunities, but from your perspective, should we sort of be rolling out that larger growth capex on top?

Yes. We are not bringing on any tons into this market, whether brownfield, greenfield, or otherwise, unless the market really needs it. And we need to see sustained periods, and that's not six months. We need to see sustained periods of market deficits and good prices that incentivize responsibly bringing tons into the market that don't erode margins but supply into a growing demand. So don't expect big capex on greenfield projects, wherever it may be, for some time.

That's very clear. Thank you. And the second... You talked obviously a lot about portfolio simplification. M&A spec is starting to do the rounds in the market again. How would you think about sort of opportunistically adding to your portfolio given some of the interesting growth opportunities in various commodities?

We've got a very strict capital allocation framework and policy, and we follow that. We are opportunistic when it comes to things, as you mentioned. and our focus is on our core portfolio and what we know and where we want to grow. Of course, commodity prices are good, and we've got to make sure we don't get ahead of ourselves and start spending money at prices which may not be sustainable for long periods of time. But we are open to M&A, and we would look at opportunities if the right opportunity came up and we were of the view that was value-creative and strategically right for our business.

And just one final point of clarification – as the business throws off more free cash during the first half and you get to the interims and there should be another distribution, how are you thinking about that balance between the buyback and the special at this juncture?

I think that's also something that we would – I mean, you go and talk with 100 investors, you'll get 175 different answers on this. So it's another opportunity in the next three weeks to – when we do engage much more and seek varying views. I think a combination is always sort of sensible. You tend to sort of just thread it sort of down the middle in terms of those things. Of course, we'd look at what market outlook was. We'd look at our own views on value. We would ordinarily have had a bias, and we've spoken about that, of just paying out the cash. and let our shareholders decide what they wanted to do to reinvest. They can treat it as a quasi-buyback by just putting their money back, and it has the same economic impact ultimately on the equity story. But we'll need to obviously come back in August and think about it. We were limited now in what we could do buyback. You saw if we were at $5 billion, we might have done another $1.5 billion or something in terms of buyback. That was getting up to $10. We don't want to immediately, within two months of setting that policy, stray from it, I think it makes sense. So I think it's going to be another balance. If our share price was nine pounds in August, I might not be chasing that with Vibex. So let's see where we're at. Let's see where we're at in August. Efrem, please.

Three questions. Firstly, on coal, can you disaggregate that $8 per ton increase in cost into how much of it is royalties linked to the price versus a mix effect with, obviously, your consolidatings are on 100%. How much of that is contributing to that big increase? Because I'm trying to get a sense as to what your normalized cold costs should be once the price is normalized on the other side. Second question on, this is a bit of counting the chickens before they hatch, but The recycling business, would that more fit under marketing or under industrial? Because I assume there will be a lot of collecting batteries from the customers and then kind of supplying metals back. So it's a closed loop. So in a sense, it fits in more with the marketing side rather than the industrial side, I would have thought. But again, just wanted your thoughts on how you think about that business. And thirdly, on the comment that you made on Viterra, the cash distributions going straight back to shareholders, just want to clarify that's assuming net debt is below $10 billion. It's not that any cash from Viterra goes straight back into shareholders, irrespective of the net debt level.

Your last one's easiest, assumption correct. It's below $10. So once you're below $10, any cash sort of mechanically comes back. It's not just a dividend from Viterra. It's the sale of any of these – some of these processes, clearly, that are going on as well. The increase in the coal, I think I went through those numbers, it was more closer to $6 was the increase, $21, three of which was the royalty linked. Two was the energy resetting to where we are at the moment in terms of diesel and prices generally. And $1 was just general inflation across the coal portfolio. So obviously these things go in waves. But three of that six would revert back to other levels if prices were to – say, averaged last year's prices in Newcastle, which is $137. Hopefully they stay $175 and above, and it's fantastic having $60. The Sarahon impact was worked into the numbers from last year at the sort of 53-odd number, so we've already brought that in. We'll just obviously have the full-year Sarahon impact. That will come in in August and just obviously look at that number. I think recycling...

I mean, I think I'll take that one. The recycling business is, you know, when we report our businesses and we report, you know, sort of distinct business profit centers in terms of industrial and marketing, that's not how we operate in practice. Marketing works hand-in-hand with industrial and likewise. So that is a continuation, or that's always been the model of our business, and it will continue into how we build a recycling business. You're absolutely right. Marketing will have a key part in terms of sourcing the recycled material, collecting the recycled material, redistributing and selling the product. But in terms of processing it potentially through like we do now in our horn smelter, in Sudbury, in Nickelback, and potentially repurposing other assets that we have that will be done by industrial. But that's not two people who don't talk to each other. These are two people who sit right next to each other in the office and work hand in hand. That's the model that we have and that's how we can grow this business using the expertise on both sides. Thanks. And Miles, please.

Yeah, thanks. Maybe first question on Katanga. Obviously, it had a softer fourth quarter, the weakest we've seen in a couple of years because of power issues. Is this something we need to worry about that may be more occurring, or is it sort of one-off and we'll be back to the 300 million tonne sort of run rate?

I'm not sure we're in 300 million tonnes.

1,000 tonnes.

Yeah. Yeah. Problem solved. We might have a few more tonnes, but the price would drop. No, we did have some power issues. It wasn't the only issue. We did have a number of other issues, and you do see intermittent power issues in the DRC. We're working closely with the power provider and the government to ensure that we do have stable supply. Yes, power does go and we do have issues, but we're working to stabilise that issue.

But it's not going to be like the bad old days for Katanga, where power was massively impacting production each quarter.

I don't believe it will be.

Maybe just on Sarahon as well, now you've got full control of the asset, do you see operational synergies, marketing synergies? How should we think about Sarahon production over the next two, three years?

Sarahon production will remain flat. We've said as part of our climate change commitment, buying out the partners, we will not increase the production at Sarahon. That was the risk statement. of allowing our former partners to send it to other parties. They would have wanted to increase production. They wanted to extend the life of Cerrojon. So we certainly won't be increasing production at Cerrojon. We'll remain flat and then run that business down until the end of the lease life, which is in the early 2030s, and then we'll hand it back to the government. So certainly don't expect any increases in production. In terms of synergies, or so to speak, well, we do believe there are improvements in terms of mining. where we can save costs, where we can do things slightly better and improve the margins within the business. And on the marketing side, we certainly believe that we can add additional value on the marketing side, given the portfolio approach that we have in our business, given the ability to arbitrage, move cargoes around the world within our marketing business. Having the additional Serahontans in our book does give us an opportunity to create additional margin for ourselves.

And then maybe just finally on Viterra again and the Gavilon transaction. Can you give us a sense of what multiple that is, what multiple you think a sort of trading, sort of agri-trading business should be trading at and how much hidden value there is there? Is this the transformational deal that gives Viterra kind of a life of its own potentially on the markets?

I mean, Steve can talk on the multiple, but this is certainly transformational for Viterra. It is a terrific business. It has global reach, a global network, and was clearly missing one one piece in the puzzle, which was the North American, particularly the U.S. market. And Gavilan certainly fills that. Now it does punch above its weight. It's certainly up there with the ABCDs, and we see it as a real player within that agri-market, so a critical transaction for that business, and it is a transformational deal for Viterra.

And I think rather than multiples, I'd approach it, we expect to get some good IRRs in that business. Post some synergies. Obviously, you've got to get in there and you've got to rewire the sort of flows in the business and also look at what you want to keep and maybe what's non-core also within that that you would need to do. So in terms of overall return standalone good, what it does to the overall business itself in terms of its ultimate multiples, that it would be able to achieve in whatever scenario that that would be improved by the combination with this business in terms of geographic coverage, diversification, scale, all those factors that you would sort of attribute in that business. So it's clearly transformationally important and sort of financially relevant, of course.

One very last question, which is kind of going back to what Danielle was asking earlier on Colt. Now, if you look at your spot numbers, coal EBITDA is going to be over 30% of the group. Do you think that could be an issue with shareholders, or potential shareholders, that now it's a victim of its own success that suddenly it is a lot more material?

What's your long-term coal prices, Miles?

Too low.

No, I don't think it will be, because our strategy isn't around percentage of profit. Our strategy is to responsibly run down this coal business, and that's what shareholders want to see. They want to see that medium to long term, and short term for that matter, you are being a responsible operator. We are putting our money where our mouth is, which is saying, yes, we will run down this business. We are shutting three mines in the next three years. We are not keeping those mines open because prices are good. We are shutting them down, and we'll continue to do that. So whatever percentage of the earnings it is doesn't really matter to shareholders. They want to see that we're committing to our ESG commitments, our climate commitment, and that's what we're doing. And then what do we do? Great, the markets are good. We can make a lot of cash flow out of it. We're taking that cash flow, and we're either going to give it back to shareholders or invest it in recycling businesses, copper businesses, nickel businesses, which are the backbone for the decarbonization of the world. So, in fact, the more money we make out of it, the better it is long term because that will bring on more copper, it will bring on more cobalt, it will bring on more nickel, and it will grow a recycling business, which is going to be critical for the decarbonized world.

Whereas a standalone coal business would invest those cash flows in coal, growing coal, as you'll see in other companies.

Okay, and with that, I'll hand back over to Gary to close out.

Not much more to add to that other than to say we are committed to a very good 2022. We've started the year well. We committed to a safe operation, a fatality-free operation. We've made our climate change commitment. It's set in stone. We will keep to that commitment, and we look forward to a safe, responsible, and successful 2022. Thank you all for joining us.