Anglo American plc

Mark Cutifani - Chief Executive Stephen Pearce - Finance Director Tony O’Neill - Technical Director

Ian Rossouw - Barclays Capital Menno Sanderse - Morgan Stanley Tyler Broda - RBC Capital Markets Matthew Hasson - Numis Securities Tom O'Hara - Exane BNP Paribas Cedar Ekblom - Bank of America Merrill Lynch Sergey Donskoy - Société Générale Myles Allsop - UBS Fraser Jamieson - JP Morgan Cazenove Hunter Hillcoat - Investec Securities

Thanks, Mark. I will keep you posted on the football team front.

So, listen, thanks, Mark. And it's a real pleasure to present my first set of Anglo American results.

So, thanks for having me. There is a couple of themes that I want to touch on through today's presentation.

So, firstly, clearly, a good set of operating and financial results. Reflects strongly in the numbers.

The strength of the underlying cash flows, yes, driven by price, but also from the cost-out and the efficiency delivery and from project delivery as well. Clearly, a continued focus on the balance sheet and continuing to drive net debt down as we have reset and strengthened our financial position.

Ongoing discipline around capital allocation, and that will continue. And, pleasingly, restoration of the dividend.

But there is one overriding theme that I want to leave you as we talk through the slides, and that is that we have still got work to do. I think both on the balance sheet front and on the cost-out front.

As I work through these slides, I'll expand on some of the numbers, but I'll also try to just give you sort of a flavor of my thinking, both on the numbers and how we will take things forward across the different areas. So, let's look at the numbers.

EBITDA of $4.1 billion. As Mark said, up 68% on the prior period, resulting in an EPS of $1.19 per share.

I'll touch on CapEx in more detail a little bit later, but, clearly, lower in the first half. I'll talk through the first half, second half split.

And we have lowered our guidance for the full year, down from $2.5 billion down to $2.3 billion. Attributable free cash flow, $2.7 billion.

All of that meant we reduced our debt down to $6.2 billion. So, down $2.3 billion in the half, significantly below the $7 billion target we had set ourselves for the end of this calendar year.

So, self-help. Obviously, the self-help continued in terms of EBITDA improvement through the half and brings the total gains over the last – about since 2013 to $3.7 billion, so across the last four or five years.

In the current half, you can see we did have the benefit of higher prices, offset a little bit by inflation and exchange rates. From a price point of view, the standout clearly was met coal.

So, realized about $194, $195 per tonne across the half, offset a little bit by currencies, in particular the strengthening of the rand. Great news is, we are on track to meet the $1 billion target.

So, another – so $600 million realized in the first half, $400 million to go in the second half. Most of you are aware, I've spent the first couple of months when I joined Anglo getting out and about across quite a number of the operations and close to the teams.

They welcomed me and were willing to spend a lot of time with me. But one of my big impressions, though, is that there is still a huge opportunity in this business to continue to drive efficiency gains, get better at what we do, and it's going to be, I think, exciting as we take on that challenge in the years ahead.

So, let's look at the $600 million that we delivered and the $1 billion challenge. So, $600 million in the first half, a great start.

A couple of points to note. Obviously, De Beers and Los Bronces did well in terms of cost position and sort of setting themselves up also for the second half of the year.

Sishen was probably the standout. As Mark mentioned in terms of adopting the operating model over a period of time, adapting to the new mine plan, you saw that reflected in their announcement earlier in the week.

So, really, really great – really great driver of improvement. I think the exciting thing there is a lot of that happened towards the end of the first half.

And again, I think there is a great journey ahead for that operation. We still have got work to do.

If it was easy, we would have already done it. And it's one of those things where you keep delivering cost out and efficiency improvements.

The expectation is that it will just carry on and that is an easy thing to deliver. But I can assure you the team is working exceptionally hard to try to hit that $1 billion target.

As we look beyond 2017, we will come back to you towards the end of this calendar year in terms of how we are going to set the targets again for 2018 as we continue that journey. So, the improvement in EBITDA, obviously, and earnings clearly shows the benefit, as Mark mentioned, from the work done over the last couple of years in terms of portfolio, marketing margins and cost efficiency improvements One thing I would just like to touch on is effective tax rate for the year.

So, for those of you trying to balance your balance sheets and get the numbers right when you hit the bottom line, guidance for the full year at 28% to 30% across the full year. So, if you can plug that one in.

So, let's then have a quick look at CapEx. So, CapEx of $800 million for the first half reflects a couple of things.

Obviously, capital discipline about how and when we are spending money. When we do spend it, we are starting to see some of the same benefits that you are seeing from the operating side of the business flow into the capital side and capital spend.

And that should be no surprise because a lot of our capital spend in the half has been around staying in business and stripping capital. And in a lot of cases, it's some of the same fleet and the same setup that's doing that work.

So, you are starting to see some of that flow through into the capital spend numbers as well. In terms of the first half and second half split, every mining company I have had the pleasure of working with has exactly the same issue in terms of first half and second half.

It's probably a little more exaggerated this time around for a couple of reasons. One is, we had a lot of wet weather in South Africa through the first quarter.

We also then had some geotech issues at Grosvenor and then Cyclone Debbie, which also impacted on our ability to spend some of the capital that we were planning in the first half. So, the second half will be higher.

$1.5 billion is what we are guiding on top of the $0.8 billion. And that would bring us in at $2.3 billion.

As I say, some $200 million below our original guidance. As we look forward to 2018, we have guided to $2.5 billion.

I'd ask for your patience a little bit. We are sort of dusting off both how we are allocating capital, how we evaluate capital spend, and we are, obviously, at the start of planning for 2018.

So, we will come back and give you some updated guidance there. But there is two things that I'm really looking at as we start to set the capital budgets for 2018.

Obviously, are we spending what we spend well? And that's got to really drive through every single capital dollar that we do spend.

The second one, I'll ask my Anglo colleagues to put their head over their ears, if they can, and you may be surprised at this, but are we spending enough, particularly in terms of the projects that are going to deliver that next round of innovation and change and efficiency in the business? And so, we need to challenge ourselves both not to spend money, but to make sure when we spend it, we spend it in the right path.

This is clearly one of Mr. Cutifani's absolute favorite slides.

So, you know he loves to talk about return on capital employed. And return on capital employed, 18% versus the 8% this time last year.

Clearly, shows the work that the team has done and delivered over the last couple of years. Attributable free cash flow of $2.7 billion.

Again, remember, this is the half. We delivered $2.5 billion of free cash flow for the whole year last year.

So, we are significantly stepped up. And, yes, it is partly priced, but it's also partly self-help as we have shown.

So, let's look at the balance sheet. A key focus for the group over the last two years has been getting the balance sheet back into shape.

And the journey clearly has continued this half. So, net debt, down to $6.2 billion.

Again, well ahead of our year-end target. But we still have work to do, and particularly in respect of our debt portfolio.

So, our debt portfolio is relatively short in its average life compared to our long-life quality assets that we have in our portfolio. So, similar to what we did back in March, you should expect us to just gradually work on that over time as we extend out the maturity profile.

In terms of ratios, our net debt-to-EBITDA at 0.8 times, below our longer-term guidance of 1 to 1.5 times through the cycle. Gearing, 19%.

Again, strongly supports and works with the net debt-to-EBITDA ratio and certainly puts us well in positioning in terms of our peers through the industry as well. We will be running a more conservative balance sheet than what you've seen the company run in the past, and that's particularly to cope with volatility in metal prices as well and learn the lessons from the past.

We have and are still coming off a period of higher-than-average long-term bulk prices, particularly in iron ore and coal. So, what you should expect to see – and what you have seen – is that we will take the balance sheet to a much lower level than what does long term through the cycle targets imply.

And I've got absolutely no qualms at all in continuing to take the debt lower over the next 18 months. And I think with prices where they are, we have a fantastic opportunity to continue to do that.

So, dividends. Obviously, it's a real pleasure in your first results presentation to reinstate the dividend.

And while I can't take full credit for the dividend, one of the first things I did when I joined the company was make sure I got my name on the authorized signatory list for the bank accounts, so that when the checks go out, it can be my name on it and not René's. So, watch out for that in the mail.

Clearly, we have exceeded our targets, whether it be balance sheet, cash flow, ratios, et cetera, and that's really set us up to make for what was a fairly straightforward discussion at the board. So, for the half, a 40% payout ratio on the half.

That's $0.48 per share, $600 million back to shareholders. So, a really great start as we have come back into this period.

As we look forward in terms of policy, again, a 40% payout ratio based on underlying earnings will be paid on that basis each half. We will consider additional return to shareholders, and I'll touch on that in terms of how we are thinking about cash and allocation.

But, right now, we have got other priorities in terms of continuing the balance sheet journey in particular. So, it will be a nice problem to have when we get there.

Right now, we will continue the balance sheet journey. So, just to wrap up before I hand back to Mark.

Just a couple of thoughts on how we are thinking about cash flow and capital allocation. A couple of smiles in the audience.

Obviously, a number of companies have similar sort of slides. Left-hand side, the theory.

Right-hand side, the actual numbers for the half. And we will sort of continue to report on this basis as we go forward.

So, again, great cash flow generation in the half. And you'll be used to seeing the $2.7 billion, but we have adjusted that prior – to make it prior to discretionary capital.

So, $2.8 billion prior to that discretionary capital. How have we spent that money?

Obviously, nearly all of it was allocated to reduction in debt in terms of that balance sheet priority. And that's consistent with our commitment that Anglo American made in terms of getting the balance sheet right, then obviously with the dividend, reinstating the dividend before we consider spending money and allocating capital to other things.

So, you can see in there, the $2.3 billion is the reduction in debt, a few other balance sheet bits and bobs. And, obviously, the dividend that we have declared now, that $600 million will drop into that red sort of category into the second half of the full year.

Again, you can see very limited allocation to discretionary capital studies, exploration, et cetera. And again, to me, that sits really well in terms of where our priorities were for the half and where they will be for the remainder – for the balance of this year.

So, again, just to leave you on one thought, I think we do have quite a lot of compelling opportunities within the portfolio and a lot of compelling projects within the portfolio. And we will consider those in time as we allocate that cash.

But it does – it is important to realize, those projects have to compete with additional returns to shareholders. And we will clearly consider that as we think about our cash flow allocation.

Mark, back to you.

Thanks, Steve. Okay.

So, in terms of where we started, I guess, a one-slide recap. Firstly, with all the work that is being done, it is a more efficient business.

It has required a lot of work, probably coming off a lower base than any of us would have liked. But today, 46% less assets; numbers of people, similarly reduced.

About half of that change, as I said, is portfolio and half the actual restructuring, downsizing and efficiency work to be done. That, obviously, has improved our competitive position, but still a long way to go, in our view.

But at the same time, with all of that change and all of those changes occurring and the portfolio reductions, our production is actually up 6%. So, the generating more cash and higher returns has been about fundamental change across the business, a $4.4 billion turnaround in the cash flow and, obviously, an improvement in return, which, for us, is an important number.

And if I can say it this way, the focus on ROCE is absolutely critical because the way you get that cash flow, you know is all about how you allocate capital to make sure you are delivering efficiency. It changes the mindset in the organization.

And I think the most important thing that I can say about what we have done from this perspective has been focused on changing mindsets, and I will make a point at the end of the presentation that driving that cultural strength has to be around the numbers you tell people are important. And I think we are making good progress, but still a long way to go.

In terms of the portfolio, you've seen this slide before. I won't dwell too much on the slide before.

From us, a lot of the hard work was done in 2014 and 2015, but we have continued to work on improving the portfolio and making sure that the assets we have today, when you look forward, are assets that can be competitive, that can generate cash, can generate returns and continue to improve the underlying performance of the business. And that's where we have been coming from.

Again, in making the point on margins, this is where we were back in 2015 compared to our three major peers. Again, we are showing the comparison not to make any comment about others – I think everyone is doing hard work and doing good work – but more to make a comment about what we have tried to do in the business.

26% to 34% from 2015 to 2016 was achieved with a lower price deck in 2016. That was about self-help.

And I think that's an important point to make. And for 2017, the first half, we are at 40%.

Again, we know there is a lot more to be done, but that focus on margin, which is why the marketing side is so important – it's not simply about costs, it's about efficiency, it's about making sure the assets are working to their potential. And from our point of view, marketing's contribution has been important in terms of that process.

So, that's what we focus on because that's what drives cash flow and returns in terms of the capital that we have deployed across the business. Again, just to reinforce the strategic approach and the conversations that we had, it's about assets.

It's about the quality of the assets. And so, when I show revenue by product in terms of commodities, it's not about deliberately positioning in one commodity over another.

None of us have been terribly successful in forecasting commodity prices, certainly in the short term and even in the longer term. It's a bit of a [indiscernible].

What we are focused on is the quality of the assets we have. And as a consequence, we have got a quite nicely diversified portfolio in terms of the assets we have and the positions we have.

From a geographic point of view, same story. The geographic diversity we have in the portfolio is a function of where we have quality assets.

And, yes, partly, still a work in progress, but the portfolio, as a consequence of the decisions we have made on selling assets and in where we have allocated our capital in building new projects is, as a consequence, rebalancing the portfolio as you can see there today. And with South Africa at about 25% of their capital employed, the balance is starting to look quite sensible.

In the end, it will be a function of the quality of the assets. So, it will change over time as a natural consequence of focusing our capital where we think we can deliver the best returns.

On South Africa itself, from our point of view, we remain, I think, committed to the assets that we think can deliver the long-term returns in the business. If I talk about Mining Charter 3, I think the important point to make is that, for Mining Charters 1 and 2, we have delivered all the requirements, plus some, in terms of transformation and all of the other objective measures that are used to judge whether you have actually transformed the business.

And as an aside, Anglo American has been the most transformative company in the last 24 years in South Africa. We represented 61% of the JSE back in 1987.

Today, we are about 6% to 7%. That 90% change in our configuration in relation to the JSE has been about the companies that have been de-merged or spun off in South Africa that represents massive transformation on a scale no one else has matched across the country.

Today, in the assets that we operate in South Africa, approximately 40% of the ownership of those assets in direct South African hands. And when we take South African ownership, mostly pension funds and others who own Anglo American, their ownership is 62%.

We are committed to transformation and making sure that we have got the balance right for both South Africa and our shareholders. Today, the document that we have that has been presented is an unworkable document.

Without saying anything else, I think it's important that we come together with the government and work through and find a solution that works for everyone. There is no point shrinking the pie to zero.

We have to create a larger pie and make sure that all benefit. But from our point of view, that's where the focus needs to be and, certainly, we are part – and part of the industry and making sure that conversation goes forward the right way.

From our point of view, we have been doing a lot of work on restructuring, the corporate structure simplification, overheads, improving the business as we will continue to focus on the efficiencies of the operations, and certainly, from our point of view, making sure that we are delivering the best performance we can in terms of the assets that we operate in the country. For us, over time, clearly, in terms of capital allocation, we have a number of opportunities, many of them outside South Africa.

So, that's where the capital will go. And as a consequence, you will continue to see an adjustment of the relative capital employed across the business.

But it's a function of the assets and where the opportunities are. For us, wherever we allocate capital, it's about value, value for shareholders and for us.

That's where the focus will remain and that is how we will consider how we position ourselves in any jurisdiction across the globe. More specifically, across the commodity positions we have, clearly, in copper and De Beers, we have very good positions.

I think the prognosis in terms of market dynamics are very strong. We have got great assets.

We are certainly well positioned to take advantage of those markets with very good assets that we have. And so, a very strong and very much gets the green light in terms of allocating capital carefully into those areas where we think returns are certainly available to us.

In PGMs, I see our buffalo restless [ph] here from South Africa. Hi, Chris.

Chris and the guys have done a fantastic job in restructuring the business, focusing the portfolio on those assets that we believe can deliver returns through any price scenario in the market. There is still a lot more work to be done.

And Chris, I know, has spent quite a bit of time talking about the cost reduction strategy for Amandelbult and the ongoing improvements he wants to deliver in Mogalakwena. And you also have to remember that we have got very good margins in our processing operations, delivering reasonable capital returns.

He wants to do better. But in terms of the portfolio, the best portfolio in the industry.

And certainly, from our point of view, on these prices, we want to make sure that portfolio can deliver better than a 15% return. And that's what Chris and the guys are working on.

And they have come long way. In iron ore and coal, Seamus has done a great job with the bulks team right across the board.

We have been absolutely thrilled with the progress that has been made. We have had to think very carefully about the market positions we take.

High-quality assets, very good cost structures in coal, and mid to mid-third quartile costs in iron ore, but with a great quality product. So, how do we think about maximizing our margins in the markets in which we operate?

And so, a lot of thought has gone into us positioning to make sure we can maintain the margins and improve our returns. And I think we are well on the way to showing how far we go.

And we still think we have got a lot of improvement to go. And I think, all credit to Seamus and the guys, a few challenges in the first half at Grosvenor.

They have continued to improve. And certainly, in the last month, it has been very encouraging.

But with that asset, another leg that I think will make a material contribution to the business. I'm very excited with the potential we see, particularly in the last month.

So, a lot of work to be done, thinking very careful about our capital allocation. And it will all be about making sure we can generate cash flow and returns.

So, finally, just making – or taking all of those pieces and summarizing the key points. Again, from a portfolio perspective, it's about the quality of the assets.

The portfolio upgrading to support sustainable cash flow and returns is the mantra that we work to within the business. It's about cash flow and returns.

And those assets are the assets we see the best potential today, tomorrow and into the future. And everything is focused on improving those positions and making sure those positions are sustainable.

We see a lot of smaller scale – small scale capital opportunities to improve the business. Stephen's point about making sure that we get the expenditures right.

We have been tough. The guys have done a great job in managing and improving the efficiencies of the capital.

We have got to continue that focus. But at the same time, make sure that we are seeing the best opportunities to actually grow the performance of the business.

And we have also got larger scale opportunities that will be very carefully considered in terms of the way we allocate capital, and I will pick up that in my last bullet point. In terms of capability, you can't make money in this business if you don't have the engine running to its potential.

We have made significant improvements, but we are still not near the potential the assets have. That's the challenge to the team.

There is a lot of work done on the cultural change across the organization. The focus on capital efficiencies is key.

We acknowledge – or I acknowledge the team for the performance improvement they've delivered, but we are also the first to say we have still got a long way to go. Innovation then becomes a second phase for us in terms of improvement.

We still see more from an operations point of view, but the technical stuff that Tony and the team have been working on on energy, water, mining methods and step changes across the business I think are critical. And for those that have taken the time to dial into the future smart stuff can see how the thinking is starting to evolve across those areas.

Again, marketing remains an important part of the business in helping us improve our returns or margins and driving the returns. And certainly, we have made great progress and we can still see a lot more opportunities in terms of improvement.

On the return side, balance sheet flexibility has been restored. Stephen, I think, made a very important point about keeping our balance sheet flexible, so that we are always thinking about the right place to put money to drive the business, to improve performance.

And what you tend to do if you let yourself get out of whack on the balance sheet is you then start making short-term decisions around what you should spend and what you shouldn't spend. So, we don't want to get back into that trap.

So, for us, very important. For us, the bad cash flow and returns, absolutely critical.

The syndication comment, we have been talking about syndication of major projects ever since we got ourselves into a position where we were building five major projects at the one time and we got caught in squishing the balance sheet. So, I wanted to make the point, the lesson has been learned.

We have studied the oil and gas business and other businesses and how they effectively manage a portfolio and risk on most major projects. So, for us, Quellaveco is very much about getting the syndication and our profile right because there are always things you don't know you don't know that could touch in here.

So, I think, most importantly, we have taken the lessons of the industry in the last five years, in particular, applying them, always learning, but we certainly see that the improvement in the operation reflects the focus on what we think are the critical issues. And if I make one final point.

In many ways, it's the elevator test or the elevator message that I'd like to leave with you. In our business, we talk about three things in measuring whether we are doing the right thing for shareholders: Are we generating cash flow – free cash flow that supports the future development of the business and delivers real returns to shareholders?

So, it's about free cash flow. Secondly, how did you get that cash flow?

And the best way to measure your efficiency in delivering those cash flows is your returns on capital. So, that conversation from the first day, return on capital employed, remains a mantra for us.

Absolutely critical. Third point, how do you grow those cash flows?

How do you improve the business? How do you make sure the business is sustainable?

So, safety, environment, the social development work you've got to do, people, the talent pool you have, competitive costs and capital allocation. Absolutely, the critical elements to make sure cash flow and returns are sustainable and we can grow off the foundations we have created.

That's how we are thinking. That's how we are approaching the business.

Very happy to take questions with that. Well, I'll start from the right, work across.

Morning. It's Ian Rossouw from Barclays.

Just two questions. Firstly, on your unit cost guidance.

It looks like you are guiding in four of the eight business units that unit costs will increase this year. Just sort of relating that to the productivity driver.

Obviously, there is some headwinds in weather, grades, but do you think over the medium term you can actually bring those unit costs down through this productivity drive?

Yeah. Part of the cost guidance issue is the FX rates.

Stephen, you want to make a comment on that?

Yeah. Obviously, some of the assumptions we have assumed into the second half show a little bit of currency sort of adverse impact.

And in some of the businesses where you are getting byproduct credits and things, obviously, our assumptions on those prices going forward are also a little bit softer. So, that would feed a little bit into those numbers.

Obviously, we'll be working hard to deliver a little bit better than that.

Okay. And just on the second question around capital allocation.

Just wondering whether – you talk about the syndication of some of the risk projects and bringing Quellaveco back into that. Just if you – if that's still looking to approve or decide that sometime next year?

And, I guess, just relating to that, where you mentioned the PGM markets where there is some uncertainty around demand and you will focus on capital allocation for value over volume, it seems like some of those projects still will bring out some volume into the market, maybe just comment on that as well.

Sure. On Quellaveco, we will complete the technical work by the end of the year.

In fact, most of that is done. What Tony has done, and with Duncan, they've looked at different ways of thinking about the project and getting a lot smarter in how we allocate capital and how we get potential suppliers to do a lot more work in thinking smarter about capital allocation.

So, there is some good work being done there to try and improve our capital intensity. That's where the real focus is, to make sure the costs are right.

Secondly, when we have completed that work, we think it's then right to engage with potential partners. We have got lots of expressions of interest and people who would like to get in there with us.

We want to make sure that we're in the right dialogue with the approving government. Mitsubishi has an option to go to 30%.

We would like to keep 51% and operate it because we would like to start with the operating model and drive efficiencies from the get-go. So, I would expect developments during the course of next year.

I don't want to second-guess what we find at the end of the year. And I certainly don't want to get ourselves ahead of the board, but that's the order of flow.

Certainly, from the expressions of interest, we expect pretty easy to get a partner that will be willing to come in with us. So, Steve…

Maybe just to add on to that, obviously, from a cash flow point of view, on the basis that we do syndicate down, then for us, most of the cash flow would be from 2019 to sort of 2022. So still some way out in terms of any calls on our cash.

Which is important. We want to keep getting our debt down before we start moving to those sorts of things.

On the plat side, there is been a lot of talk regarding the market. I won't to try and replicate Chris' descriptions, but we certainly see three to five with certainly some thrifting and changes in the smaller car market.

We are seeing higher platinum loads and automobile numbers increasing. So, we know it's probably recently flat, maybe growing slightly in the next three to five.

The real question will be how quickly can the new technologies come in, particularly those that require PGM, those catalysts, the hybrids, the fuel cells, the hydrogen, the industry, all those pieces. What we have got to do, irrespective of what happens, is make 15% or better return at these prices and lower, and that's what Chris and the guys are focused on.

And so, from our point of view, if that means we trim a bit of production, stopping areas that aren't making money, that's what we will do and that's what we have been doing. I think we have to keep that focus.

And Chris and the guys are doing another step out, making sure that we find those areas that aren't making a contribution. And, yes, you will see some incremental improvements in certain areas, but I expect you will probably sort of been trimming in others as well.

So, net-net, I wouldn't expect to see too big a difference in the short term in any case.

Okay, thanks.

Menno.

Morning. It's Menno at Morgan Stanley.

Two things. First, maybe things are going so well, so let's focus for a minute on the problem children.

So, Grosvenor had a terrible 12 months, a horrendous second quarter. It's far below return on capital.

You mentioned the second panel is coming. Hopefully, things will get better.

Can you be a bit more specific on how that is improving? Secondly, Gahcho Kué, clearly, revenue per carat seems like you are selling pebbles rather than diamonds.

Is that going to improve or not? And operation seems to be doing okay, but realized prices are terrible.

And Los Bronces, clearly, ground all done, now it's dealing with rock hardness. Yes, it has higher grades, but something appears to be popping up every six months.

How can you get that better and in control? And then secondly, both of you mentioned getting better at what you do a lot and small-scale capital opportunities to improve the business.

Now, you sound a little bit like a Premier League football manager in there. But they say that every Sunday, especially at Arsenal.

So, can you be a bit more specific what you say because, clearly, you have a lot of projects behind this that you are thinking of. Can you be a bit more detailed about what you exactly mean?

So, you are saying Arsene Wenger, not Tony – not Antonio Conte.

Exactly.

Well, firstly, let me pick up the three points. On Grosvenor, the first longwall panel in any new mine is likely to be your most difficult.

And it would be fair to say, Seamus, that we have had some geotechnical issues that weren't anticipated. So, we have had to look at – and you get the normal teething problems with equipment.

So, the guys have had to adjust their practices to the conditions they have found and they have reset and also did a lot of work on the equipment and changed their operating practices. And so, we were averaging around 80,000 tonnes per week in the period up to that middle of June, Seamus?

And on a look-forward basis, the last four weeks, we're certainly north of 150,000 tonnes, hitting closer to 200,000 tonnes a week. So, that's four weeks.

Menno, I wouldn't book that yet. I think there is still more learnings that the guys will pick up.

The geotechnical conditions haven't improved markedly. I think the practices have improved, and I think that's important.

Seamus was thrilled to have his technical adviser, Stephen Pearce, to a site visit a couple of weeks ago. And Stephen had lots of suggestions, all of which have been ignored.

But, certainly, we're seeing improvement. And I think the next quarter report will be an important one in terms of showing us where we're up to.

So, that's one.

Mark, just on coal too. That coal portfolio, the good news within that is that the other assets had stepped up really well in terms of hitting the volume.

And the movement that you see on cost there, yes, Grosvenor didn't run as we would like it, but it's also a bit of a portfolio change. And what we are producing is a much bigger margin out of that portfolio than what we would previously with the production mix we have had.

Yeah. The average quality of the product is significantly high.

That's the really important point to make in terms of margins that most haven't picked up. So, thanks, Steve.

Gahcho Kué, I think it would be fair to say, Bruce, that what we found so far is that whilst the quality has been a little bit lower than we anticipated, the actual carats per tonne have been more than we thought. And, therefore, the revenues per tonne have been on or better than anticipated in terms of the current mix.

So, we think that the news is fine with – the production ramp-up has been going very well. So, they've had a good few months.

So, I think you've always got to be a bit careful, particularly in the upper levels of the ore body. But the revenue per tonne is holding up okay, a little bit down on quality, but better carat.

So, so far, so good in terms of the revenue. But, again, I think we just got to be a bit very careful.

It's still very early, Menno. But we are certainly not worried by what we have seen so far.

It would be within the scope of what we would expect. On Los Bronces, it is a tight pit.

You are right. Duncan and the teams are working with a very tight pit room.

And until we can get that further opened up, things will remain tight. I think the key with Los Bronces is to again establish that pit room and continue to work with Codelco in finding the best way to work together across the pillar, so that we both get a positive outcome.

The relationship with Codelco is very good, very open both ways. I think we have mended all the fences, plus some.

So, I think it's a good relationship. The team has got a lot of work to do.

So, I think it is still going to be tight, certainly for the balance of this year. And I think the key will be that relationship with Codelco to get a bit more flexibility.

On the positive side, we see a great improvement next year, which will be, obviously, a positive for the operation. But physically, we're working with more of a constrained space.

Improvement projects.

Yeah, improvements you talked about, the things you can do better. Can you give me some color around what you mean by that?

Yeah. So, if you look at the productivity improvement, we are up to 70%.

If you look at Sishen, in the areas that we implemented the operating model in Sishen, we hopped up about 30% or 40%. I think in the last six months, we are probably up another 20% to 30% on equipment, Seamus?

Our average truck hours are probably only a bit over 5,000 hours, where we would like to see truck hours across the organization pushing 6,000 on average. There is always some structural issues.

So, those basic numbers tell you that we have still got 20% to 30% underlying productivity across the business that we want to chase. Clearly, we have picked and worked on the areas that we thought we could impact the quickest, but there is still a lot more stuff across the portfolio.

So, I'd like to see that index hop over 200 in the next couple of years, and so that will give you sense of what we are going to try and achieve in terms of the people side. Energy improvements will continue.

The real opportunity, I think, though, is beyond the daily stuff, and it's in the technology work. Tony, did you want to say something about how you see technology framing up?

And what sort of time frames are we looking at in improvement?

Look, we've got a very active program on innovation. And it's actually far broader than I think most of the industry is running.

Automation is only a small subset of our broader program. And we are really concentrating in three main areas.

One is the ore body, getting much better tagging of the mineralogy and the properties of the ore body. And we are generally doing that now with hyperspectral imaging.

So, it's basically processes that will ultimately replace SA. If we then flow that through into our processing plants, what we are really trying to do is become much more precise in the way we target the minerals entering our processing.

We are working – basically taking this tagging and then working on flotation, in particular, the way we cyclone coarse particle flotation. And I think a lot of the industry rules around flotation and recoveries you actually get are about to be rewritten.

An example of that is some of the new crushers we are developing with partners in Germany. Break rock in a very different manner than we have ever been used to.

It tends to break along the particle boundaries rather than just smash everything. And I think it will actually set us up for very different chemical recoveries.

And we will see step changes coming out of them. So, I found this much more interesting than the balance sheet.

The day we get you guys into this head space, I think we will have made it. But we are putting quite a full presentation on our innovation out in Australia in a couple of weeks' time.

So, I think if you can pay some interest in that, you will get a lot clearer idea of where we are going.

Excellent. I think an important point to note is on the capital allocation, where Stephen and Tony worked with each of the group executives on how we make sure that we are spending every dollar in the right place.

And that natural three-way tension, I think, is really important in making sure we are spending the right dollars in the right places. And the competition for capital is aggressive.

So, I said I would go out the back. Yes.

Then I could, coming across.

Tyler Broda from RBC. Two questions, if I may.

One for you and one for Stephen. The first one to you, Mark.

You mentioned bringing forward potentially projects that are high return on capital. Have you identified within the portfolio and could you share with us any projects that are within that organic portfolio that you would say right now have a good chance of being above 15% ROCE?

And then, just a second part to that. If you are syndicating projects, would you go – is there a maximum number of projects you would do on a syndicated basis, just in sort of a more conceptual level?

And then secondly, for Stephen, is an EBITDA margin business of 40% with the CapEx as low as it is right now and the balance sheet now at below one times net debt-to-EBITDA, I guess, from a conceptual level as well, is it ever appropriate to run a business like this at net cash? Is that too low?

Is there a point at which these start to reduce the overall return on equity?

Okay. I understand you want to go…

Start with that one. I love the way you are thinking, Tyler, in terms of the net cash business.

Listen, will we get that far? I’m not sure.

But, obviously, it would be a lovely problem to have. At that point, we would clearly have to start to think about how we are allocating the cash in terms of returns to shareholders versus paying down debt.

Obviously, debt costs are relatively low at this point in the cycle. So, they don't provide a huge sort of shelter in any event.

So, yeah, listen, I am really comfortable in taking the balance sheet debt down low. You would be aware, we still have a little bit of a split balance sheet to work through.

So, I wouldn't see that happening in a hurry in terms of getting to a net cash position. But we'll balance up, sort of feeding into your other questions to Mark, the number of projects that we are committing to, the amount of money that they commit to over periods of time, the balance sheet, the liquidity, and obviously, absolute debt levels and the debt portfolio and maturity profile.

So, we'll piece all of those things together and how we're then setting up the capital structure for the company going forward.

In looking at the portfolio on the smaller scale stuff – and I’ve sort of just jotted down a few examples. But if we start with diamonds, the one thing that we believe in our diamond portfolio is we've got a great endowment that we haven't fully tested.

So, what can we do more at Orapa, Jwaneng longer term, Venetia? Gahcho Kué is still too early to make a call on the future.

But those endowments are quite significant. And we haven't done a lot of testing beyond where we are today.

The most significant one that we think is not working towards its potential is Orapa. And so, Bruce is thinking very hard about how he can get more out of that in the right way and working with Tony and the team on stepping that out with incremental improvements in the operations.

And so, we've got a few of those. Some of those will take up a little longer.

But, certainly, we think that is where the big opportunities are around those major assets where we haven't really tested those endowments. Secondly, in copper, Collahuasi and Los Bronces, both have lots of potential.

Los Bronces is going to take a little more time, and I think will require some – a little bit more flexibility around the mine as I talked to. And certainly, with our friends next door, if we can help each other with a bit more flexibility, there is an opportunity there.

I think the technology stuff, though, in copper is really important. So, we've currently got our pilot plants operating on coarse flotation with the crushing, coarse flotation and the dewatering, so that we can materially reduce our water consumption, we reduce our energy, probably 20%.

Those opportunities in copper are quite significant. And the reason why they are important is water allows you to produce more because that is the scarce resource.

So, they are the two opportunities in Collahuasi and Los Bronces. I think it's around technology.

And Tony and Duncan are teaming up in that work. In platinum, Chris' incremental options on Mogalakwena still look very good.

If you remember, he put money aside to do debottlenecking to get to 400,000 ounces. He didn't need the money to get to 400,000.

He has done a fantastic job with the team debottlenecking, just doing simple things smarter. He's still got some money there to do a little bit of sensible debottlenecking, given it's $1,000 an ounce margin.

It's a great place to be. He's already highlighted this week his intentions on Amandelbult to try and take $200 to $300 an ounce out.

He is already building a chrome plant that he has got less than a 12-month payback, Chris, on the delivery of the chrome plant. So, lots of opportunities to do things smarter in platinum.

I could talk about the Grosvenor debottlenecking with the processing plant. Let's make sure we get the asset running to potential.

It was only going to operate five days a week. We can get it to seven days, so we do a bit of work in the coal prep plant.

That's a great incremental contribution to the business. You know about Minas-Rio going to its 26.5 million.

Obviously, that's linked to the licensing process and we think there are things we can do to get it to around 30 million tonnes at the right time with very small capital increment. So, there is a whole raft of projects that we have got and we can see across the portfolio that are being nurtured through either innovation or basic technical changes that we think can deliver very good payback and very – returns well above the 15%.

In terms of major projects, I think we made the comment one or two meetings ago, we prefer not to have one big project opened at any one time. You might be at the start or in the tail, so you will have some overlaps, but that's a preference.

And in our case, clearly, Quellaveco is the one that's moving towards a commitment, probably the earliest. But I think, again, keeping the balance sheet in the right place, making sure we've got a good balance of opportunities, I think, is the key to continually improving the business.

And I think we've got a lot of those opportunities that we're still scratching at it in terms of where we go to from here. That's why Stephen is making it clear that $2.5 billion is the pitch number.

There may be opportunities to do some really good stuff for a little bit more, make sure we've got the development balances right. We haven't starved the business, although we've made tough calls.

What we want to make sure is we have got everybody balanced in the right place and we've got the flexibility to be productive and get that productivity number over 200%.

Hi. Matt Hasson from Numis.

Just following on from Tyler's comments, the market at the moment is currently rewarding deleverage and capital returns. However, less than 1 times net debt-to-EBITDA seems probably like 1 times is probably the right number.

The market really is – if the commodity prices stay the same, it's going to reward growth, also asking for growth in about a year's time. At the moment, building mining projects is probably quite cheap.

Contractors are cheap. Everything is cheap at the moment.

Wouldn't it make sense to fast track some of these projects instead of paying down net debt and getting on with it while costs are cheap rather than having to chase it when everyone else is vying for growth in two or three years' time?

Look, it's a tempting proposition. You're right.

He's an engineer after all.

Things are attractive at the moment. We think they will remain attractive for a while yet.

And I think – but most important, we've got to hold our dividend -- discipline, so – well, dividend and discipline. Stephen, do you want to make a comment?

And then I'll pick it up again.

Yeah. Some of it comes back to just where we are in the journey.

And it's great where we are today, but we have only just got there. And we have come off a period of high commodity prices.

So, yeah, there is a general expectation in commodity prices, particularly for the bulks, would ease through this half. Yes, we are below 1 just at the moment.

But as I say, I think the market is rewarding strength in balance sheet. And coming back to Tyler's point, whether it be number of projects, dollars within projects, we will be considered and we won’t put the balance sheet at risk as we take on those projects.

So, we think we've still got work to do to growing the credibility even within our own teams to make sure that we're making the right calls. And I think we're making the right steps, but I don't think we should get too excited in terms of where we are.

I think we've still got a lot of work to do, and I think we've got to be realistic.

Even something like Quellaveco, we're actually not ready to progress the project. We've still got technical work and final costings and reviews and all those things to do.

So, it will come through in its right time. But I don't think it's right either to accelerate it.

We need to do the work and work at how we take it forward sensibly if that's where we're going.

Okay. Yeah.

I’ll work up back.

Tom O'Hara from Exane BNP Paribas. I would just like to get a sort of a clear image on the free cash flow generation potential because $2.7 billion is quite a staggering level of free cash flow generation for a company with a market cap of $20 billion.

So, we know that CapEx is going up in the second half, so we can sort of knock $700 million off that. It doesn't include interest, does it?

So, sort of interest for the year, what, $650 million, $700 million, is that sort of…?

No. It's about $200 million for the half.

I'll just look at my colleagues at the back. Yep, around that.

Okay. So, on a full year basis, sort of $400 million or $500 million.

So, if prices stay the same, if the earnings level stays the same, then we're looking at, what, sort of $4.7 billion minus sort of $400 million or $500 million interest, so over $4 billion of free cash flow generation potential to equities. Are there any other components within that – so, within that first half performance that slightly flutter it that we shouldn't extrapolate and assume is sustainable?

Yeah. So, there are a couple of things from a cash point of view that sort of didn't show up in the first half.

And that's, I think, where some of the analysts and their numbers were just a little bit out, and not because of criticism, because we were probably surprised. So, obviously, CapEx was lower.

Our cash tax was a little bit lower. Some of that is just a timing thing, depending on the commodity and the country and where we are in a tax position.

That will probably be a little bit lower. Cash tax will be a little bit lower in the second half as well.

Offsetting that, we will have, obviously, the $600 million dividend that flows to our shareholders. But also, obviously, with Kumba paying the dividend, we get some of that cash, but so do the minorities.

So, you'll see some of that sort of self-correct a little bit in the second half. So, all together, if you combine that with the softening in commodity prices, I wouldn't expect to see quite the same movement.

But then, we'll be focusing on other levers in our working capital and all those other things that you would expect us to focus on. So...

So, in terms of – if we sort of ex out the commodity price aspect and say, if we repeat the commodity price deck of the first half and we take that sort of – that ability to generate cash into, say, 2018 where CapEx will be a couple of hundred million dollars higher, would it be fair to assume something in the high $3 billion as the sort of sustainable free cash flow?

If you were using that price deck, then it would be the sort of number that I drop out. Obviously, we don't plan the business [indiscernible] prospect, but I would love to have that problem…

Yeah. In terms of your ability to generate cash out of that price deck.

Is sort of high $3 billions is a sort of fair representation for where we are now? That's sort of where we are in the journey?

Correct.

I think it would be fair to say, there are no hidden elements there that have not been stated. And I think that's the first point.

I think Stephen's articulation of the elements you should adjust for are pretty clear. Beyond, you'll assume the commodities and make the numbers, cash flow base [ph].

But there is nothing that we are sitting on that we haven't – I think you should be able to pretty well forecast forward on that…

Yeah, the nice thing about this half is the result is really clean.

Yes.

So, yeah, there is not a lot of noise in the numbers. So, what you see is what you get, if you like, in terms of the underlying operations, remembering, though, we did have some volume issues and cost issues and rain in the first half.

We do expect to catch those up in the second. Grosvenor hitting its straps should come through in the second.

So, we also have a few winds over our back in the second half as well.

Okay. So, if I can sort of add on a second question because that's quite a staggering level of free cash flow generation ability for a market cap of your size.

So, I suppose…

So, let's say, the price adjustment.

I'll take payment for this stuff. So, the second question is, clearly, there is some sort of concern in the market.

And I guess, it's in South Africa, sort of challenges that you are going through. Do you see any progress being made in the near term on that or are you basically dealing with a sort of lame-duck administration ahead of the potential leadership changes later in the year?

Okay. So, look, on the cash flow side, two months ago, I made the comment that we – I think we are generating 20% free cash flow per share.

The underlying performance, you can do the numbers, and we would agree with you. We think we look a bit cheap.

Hopefully, people will give us more credit. But I also acknowledge that the South Africa question is the question.

So, in terms of South Africa, we're doing all the things we said we'd do. On the corporate structures, we're simplifying them.

We're working on all of our overheads and our costs across the business, and we have reduced those significantly. We have managed and sold assets that are either small scale or not long term, really not a fit.

That's the five assets we've got in process at the moment. We've done all – we're doing that type of work.

We're improving the businesses. A lot more still to be done.

And that's where we're going to remain focused. I've said – and I think I've said this last time.

We don't expect to land a longer-term position on South Africa this year because I think there'll be so much noise around the leadership debate that it will be really difficult to get anyone to focus and align with us on the pieces going forward. So, what we said is we like the assets we have.

We're going to continue to improve them. And at some point, there will be a dialogue on the positioning and approach on the way forward.

I am not sure where that will land. In the meantime, we like the businesses.

The guys are doing a great job in restructuring. We are going to keep driving it and, hopefully, continue to generate cash.

And with Chris and the guys working hard in platinum, we will continue to improve it. I think the other point that's really important is, if you look at the US, they are still arguing about the election.

There is nothing new in countries going through leadership debates. They have lots of noise.

Unfortunately, South Africa tends to be more noisier than most, given it's 20 years into a constitution. So, we knew it would be noisy.

It is noisy. It is unlikely we will get someone on the other side post the electoral piece – or the leadership piece – probably in November, Norman – and we will continue doing the things we said we would do.

Okay.

Hi, Mark. It's Cedar Ekblom from Bank of America Merrill Lynch.

Three more direct questions just on SA. There is no mention in the presentation really of the idea of core Anglo anymore.

So, would it be fair to assume that pursuing asset sales activity is no longer a priority for the management team? Related to that, how do we think about the South African bulks piece within the group?

There have been praise articles in SA about Anglo potentially considering a partial exit or an exit of its South African bulks businesses. With no core Anglo in the presentation, should we assume that that's not something that you are working on?

Following on from that, is an exit or a partial exit or some kind of restructuring in SA dependent on the political outcome or can you do something in SA without having a more business-friendly leader of the ANC in place, if we want to call it that? And then the last point, can you do anything in SA until we get a resolution on the charter as it relates to transfers of mining rights?

We know that there has been some topics in the press about Anglo platinum maybe not being able to execute on asset sales as quickly as they would like because of political interference?

I think that was four questions. Look, thanks for that.

Firstly, in terms of the business, what we have said is that the 37 assets that we have today are assets we would be happy to operate for the longer term – generating cash, good returns that we can continue to improve the businesses. So, we don't have any active processes.

But one thing I will say is that any business has to make sure that it's got the right portfolio. You're always considering your positions over time and we have landed pretty closely to what we originally defined as the target portfolio back in 2014.

Clearly, niobium phosphate is the only material asset we would have liked to have kept. But at the end of the day, the price we've got, I think people were fairly happy with what we delivered in terms of value.

So, no active processes and we're not out there trying to sell. We are drawing a line we will operate.

But it doesn't mean we won't continue to improve and make some sales on the basis of improving the portfolio as we should proper capital managers. In terms of the SA bulks, as I've said, we like Kumba.

The work the guys have done has been fantastic. We are happy to operate the asset.

We remain open to where we go in the future. And that conversation, there is always one that we're in and will be in over the next 12 to 18 months, whatever it may be.

But if nothing changes and we are happy to be where we are, that's where we will be. I don't want to go any further than that because it's a bit hard speculating on what we don't know and the politics will change over the next 12 months.

Like all these things, politics is something you take into account, but it's not the only issue. There are a range of things that we will take into account.

So, at this stage, we're open, we're operating, we're improving, and we'll make those decisions probably during the course of 2018 as you would expect we would in making sure that we have got the portfolio right. Politics, yes, it will make a difference, but not to the extent that it's the only factor.

There a range of factors. And in every country we operate, we take a whole range of factors into account in making decisions to allocate capital.

So, it ultimately comes down to our capital allocation and delivery returns. If we can make money, if we can operate, then we're happy to be there.

So, they're really the key points. We have done the work.

We have improved the business. We've still got a way to go.

Every jurisdiction remains under the scrutiny. Every dollar we spend in capital remains important, including South African dollars.

Okay.

Just on the charter, can you comment on whether you can actually do anything on SA with the charter in its – not in its current form, but in flux? We don't know what it might look like.

Let me be clear as a bell. We think we're in a good position with all of our approvals and our positions.

And we have constitutional support, legal support, and in our view, bilateral trading support in terms of our position. So, we believe we're in a strong position.

The current document that has been tabled is simply – well, it's not understandable, one. And it's not workable, two.

It has to be started again. And the process – and we have got a hand-out, like all of our colleagues in the industry, let's work through this and find a solution.

No one wants to go down the legal route. But if that's where we have to go, that's where we have to go.

But, again, I want to make the point, we are committed to transformation. We have been a partner to the government for 24 years.

That hasn't changed. We want to be a part of the solution.

As it stands, what we have is simply not workable, and most South Africans know it.

Just on one point in terms of some of the transactions that we have announced. So, the sale of the domestic coal assets to Seriti, that was announced, an application was lodged back in June.

Our engagement with the DMR has actually been quite positive from both parties' point of view. So, that's been progressing through its conditions precedent.

Obviously, how it will play out, we'll be seeing – yet to be seen. But so far, our engagement has been quite positive.

Yeah. Thanks, Steve.

Yeah, thank you. Sergey Donskoy, SocGen.

Two questions. First of all, on your debt and part of dividends, we understand now that deleveraging is still business in progress.

So, your goal into reducing that debt further, but do you have any metrics in mind where you finally want to arrive? I'm not talking about maybe what was your current earnings, which are perhaps somewhat elevated.

Do you have any number in mind in terms of your leverage versus your through-the-cycle profitability in terms of net debt, EBITDA, in terms of gearing or whatever where you want to be? Second question.

You currently have a quite significant net cash in South Africa, I think. You have had it for some time.

Now, it's especially big. And this big net debt – sorry, net cash, looks especially noticeable in the context of increased political risks.

I understand that it helps to balance out net debt for the group. But, ultimately, the only thing you can do with this cash is pay it out as dividends, right?

So, why it's still sitting there? And second question is actually about diamond market outlook.

The rough diamond market has been performing reasonably well or even pretty well, which stands I think in contrast with somewhat unimpressive performance in the polished market with prices stagnating and there are very mixed signals in terms of demand from jewelry and midstream. What do you see here in terms of outlook for the second half, in terms of outlook for 2018?

Is there a risk that the situation in the rough diamond market could deteriorate sharply as it – what had happened before with diamonds or you think this is not on the cards?

I'll hand across to Stephen for the...

Thanks. I'll throw it back to you for diamonds.

Yeah.

So, debt, dividends and South Australian, I suppose, they are all sort of linked as the question was there. So, no, not changing our long-term targets at this point in terms of the sort of stated target we have had in terms of debt-to-EBITDA ratio.

So, 1 to 1.5 times through the cycle. That does mean, though, when we have periods of higher prices, we should be really right towards the low end or below the low end, so that when you do get back to long-term cyclical prices, you are back in that range.

And that's just where we happen to be in the journey at the moment. So, I'm going to make most of it over the next 18 months, particularly in terms of getting that as low as we possibly can.

You touched on the sort of the split balance sheet. So, while the 0.8 looks very attractive from a rest of the world point of view, we are below 2.

But still, on a long-term price scenario, that would probably creep back towards 2. And we would like to be below 2 from a rest of the world point of view.

So, we're just nicely, neatly in that range at the moment. The South African cash has built up partly because of the operations and the pricing, particularly on bulks, but also because we suspended the dividend.

And so, what you'll see even in this half as some – so, I think Kumba's dividend was about US$500 million equivalent. Just over half of that effectively flows to us.

Half of that will flow to minorities. And so, you'll see a little bit of a self-correction of that, particularly as we continue kind of the payout ratio journey in the six-month periods ahead.

So, we're not rushing out to do anything other than run the business as usual. And you'll see some of those things sort of correct themselves over time.

I think the other point too is South Africa, over time, simply because we're growing elsewhere in the world, becomes a lower proportion of the contribution. It does self-correct a lot quicker than people probably realize.

So, it's just a matter of correcting over time. But, again, there are all considerations we think about in terms of the long-term portfolio mix.

On diamonds, Bruce, I'm not going to ask him to say a word because he's in the middle of a site, as we speak. So, we're always a bit cautious in making any comments about the market.

If I could just go back to what we have said in the last couple of months, the US has been a great place. It's a little noisy at the moment, I think, on a general economic perspective.

And as a consequence, diamonds may or may not be impacted by that. China has been pretty good.

I think we've just got to remain cautious. I think we said this year will be about clearing our stock.

We did that pretty fairly successfully early in the year. And we're just going to continue to take a fairly careful approach with the way we price our products, taking very careful notice of the site-holders' feedback and we are in the middle of that process.

So, my comment goes back a month, cautious, careful. We want to make sure that we're matching our sales to that's what appropriate in the market.

Okay?

Thanks.

Mark, we've got [indiscernible] two more questions.

Well, let me try and clear [ph] that off.

I've got two questions.

I’ll make the answers short.

But they're quick questions actually, [indiscernible] time. First of all, with FY 2018 CapEx, are you hinting that that's going to creep up?

Is that the way we should interpret the comments today that you actually have some great opportunities to deliver kind of good returns on slightly higher CapEx? The second thing is, again, I'm slightly confused around sort of the – what you are talking about in terms of cost savings.

Because you say $1 billion is a stretched target, but in the same breath you start saying that there is huge potential across the portfolio. So, cost saving, can you more than offset underlying inflation or are you just going to be offsetting mining inflation?

Just thinking about the business as a whole going forward, what we should expect in terms of cost?

I think, generally, in South Africa, we have done a fairly good job in offsetting inflation. In fact, in the coal business, we have been flat for four years now.

So, that remains our objective, particularly in high-inflation environments, to be able to do better than the local inflation rate. So, that remains our objective.

It's never linear or without a few bumps. So, what we're saying is we have picked, I think, the lower-hanging fruit and we have made some really hard changes with the processes we put in place.

The operating model actually drives a continuous improvement. So, we want to continue to do that and see if we can keep ahead of inflation, plus some.

And that's the sort of – probably a good guideline for how we're thinking about delivering cost and volume improvement because they do come hand-in-hand. So, that's where we are.

So, looking to do better than inflation across any of our jurisdictions is probably the sort of guide that we are looking to achieve or better. And to get to that 170 to 200 requires us to – that would help us deliver that number over the next two years.

So, that gives you a guide.

Yeah, some of it's timing too. Some of those things take a while to gear up and deliver as well as to identify and then embed through the business.

So, some of those savings will take time as we identify the opportunities. On CapEx, I'm going to stick to my guns and say you are going to – I'm going to be patient on FY 2018 and wait until we do the work and we'll give you guidance when it's appropriate.

We have guided $2.5 billion in terms of sustained business-type CapEx. And then, I'd expect it to sort of broadly hit that number in terms of other aspects.

And if there is other real opportunities with really quick paybacks in terms of some of the innovation and concepts that Tony spoke about, we'll have a good look at them if they make sense.

Maybe I'll jump in with one follow-up. It isn't really related – it's not really a follow-up.

But just in terms of Mr. Agarwal, how are kind of interactions with your temperate shareholder going?

Have you been pressured in terms of broad kind of seats or anything like that? Thank you.

I’ll pass it over.

He's not after a board seat. He's been very good, very supportive, likes the strategy, thinks we're doing the right things, believes that he sees lots of value there, thinks we're doing all the right things.

And we'll continue to be respectful and treat him as an important shareholder as he is. Fraser?

Fraser Jamieson from JP Morgan. A question on working capital maybe for Stephen more than you, Mark.

We haven't really talked about it. But actually, given some of the production disruptions that we have seen in the first half of the year, the working capital performance looked exceptionally good and significantly better than we were expecting.

To what extent – or can you maybe talk about some of the elements that drove that? You didn't really address them in the slides or your comments yet.

To what extent might that reverse in the second half? And actually, when we look at you relative to peers, you still look as if from a working capital perspective, there is – the working capital cycle is significantly longer than some of your peers.

So, are there actually opportunities for it to get even better?

Yeah. No, a really good question.

I suppose I'm really starting to delve into the working capital space, literally like not right now. So, we had, I think, a couple of hundred million dollars improvement in working capital in the half.

It possibly could have been better if we didn't have a sale – a processing issue in platinum, cyclones in Queensland, swells in South America. So, you could have seen it come down even lower.

It gives me – it makes me think there is an opportunity in the second half to actually keep improving. Really good question in terms of cycle of our working capital.

And I think, again, particularly in platinum in the processing facility, that does take a while to flow itself through. Offsetting that, we had some positive working capital moves in diamonds.

Their stock levels are probably a little bit lower given the sales they had in the first half and we might rebuild that a little bit in the second. So, a number of moving parts.

Still want to dive into stores and spares and what all the right targets should be by business unit and really start to drill that down, so we're understanding it and then deciding and chasing if we think there is a price there to chase. So very much work in progress, but working with the whole team to really try to lift our understanding and focus in that space.

Okay, thank you.

Thanks, Fraser. Any – one last question?

Got it. That's it.

Yes, up front.

Hi. It's Hunter from Investec here.

Look, you've just started paying dividend, so this is just a question for the future. But some of your peers have a debt target and a dividend payout policy.

And the two of them don't mix because one of them is either your debt is falling too low or you are not paying out enough. Now, you talk about a discretionary dividend beyond your 40%.

What would be the driver behind that discretionary dividend?

Happy to take that, Mark. I'm looking forward to the day when we've got that problem.

So, our cash flow comes in the second half and the first half of 2018, as Tom suggested, then maybe the problem will come quicker. So, what will determine it?

It will really – we are not going to hang on to cash just for hanging on to cash's sake. So, I personally love paying dividends to shareholders.

I think it's a great competitive discipline internally as well in terms of how you think about cash allocation and whether it's to shareholders, to dividends or to capital projects. Now, in time, we'll have a look at various forms of returns to shareholders.

Right now, I think a simple dividend suits us well and we'll look at those options. How are we going to evaluate it?

It'll depend a little bit the phase you are in, the capital projects and the growth opportunities that may come through that pipeline. So, it's hard to give you a hard and fast rule.

Ultimately, the theory is grand and everyone has got a similar slide. It's how you then apply it over time and how you demonstrate that discipline.

And I think watch the space and see how we do it as we go forward. Harder to give you a more specific answer than that just at this stage in the cycle that we're in.

Yes. I think the – just to support Steve, and I think the dividend payout ratio, I think, was an important policy change and very well supported by the board.

And I think most people saw that as quite logical. I think the debt, Stephen has been very clear on wanting to keep a conservative balance sheet.

I think that's very clear. The third piece in the triumvirate is the capital allocation conversation, making sure cash flow and returns are there to underpin to make sure the other two parts are properly covered.

So, that's a continuing conversation that we'll update. But I think two of the three planks have been clearly set out.

And from our point of view, it has to deliver real cash flow and returns [indiscernible].

Right. I think that's it, the call.

We would like to thank you for being here. Much appreciate giving the time.

See you.