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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Thank you. Good morning, everyone, and thanks for joining us today. On the call with me is our Chief Financial Officer, Katie Tovich; and our Chief Operating Officer, Noel Pillay. I'll give a short summary of our results before handing back to the operator for questions.
Firstly, and most importantly, we will never be truly successful until every single one of our people go home safe and well. It is with great sadness that we did not achieve this during the period. We woke up with devastating loss of 2 of our teammates, Tonela and Alfredo, at Mozal Aluminium in November, and we continue to do everything we can to support their families, friends and immediate colleagues who remain in our thoughts. We are sharing lessons from the internet across our organization and with the broader industry and also undertaking a significant amount of work to improve our safety performance.
Moving to our results. This year, we realized the benefit of our portfolio improvements that have increased our exposure to commodities critical for a low-carbon future. We increased production by 12% with the addition of Sierra Gorda copper mine and now expanded low-carbon aluminium capacity through our increased ownership of Mozal Aluminium and the restart of the Brazil Aluminium smelter. And our teams around the world did a number of strong operating results, including record production at GEMCO.
Hillside Aluminium and Mozal Aluminium continue to test their maximum technical capacity. Operating unit costs were below or in line with guidance at the majority of our operations. We recorded one of our largest profit results with underlying EBITDA of USD 1.36 billion despite commodity prices declining from record levels in the prior period. This is when I would like to announce an interim fully franked ordinary dividend of $224 million or USD 4.90 per share in respective of the December 2022 half year. We have also increased our flexible capital management program by $50 million to $2.3 billion, leaving $158 million to be returned by the 1st of September this year. Looking ahead, we expect to increase production to further 6% in the second half of the 2023 financial year and operating unit cost guidance has been reduced to hold in line with the majority of our operations. Along with strengthening commodity prices, the outlook for margins is positive, and we will continue to reward shareholders as our financial performance improves.
We continue to invest in high returning projects to improve productivity and unlock volumes. And we have a portfolio of high-quality growth options in the Americas to underpin our next phase of growth and value creation. At our Hermosa project in Arizona, the feasibility study for the Taylor zinc-lead-silver deposit remains on track to support a final investment decision in mid-calendar year 2023. While our milestones at Clark include completing the selection phase pre-feasibility study and entering our first MOU with an end user to establish a framework for supplying battery-grade manganese into the North American market.
Finally, today, we announced changes to our lead team that will take effect from the first of April, Katie Tovich will be appointed to the role of Chief Human Resources and Commercial Officer. And our Vice President of Finance, Sandy Sibenaler, will be appointed Chief Financial Officer. Katie has been an outstanding Chief Financial Officer and an extensive marketing and commercial experience, it means she is well placed to excel in her role. Sandy brings more than 20 years of treasury, finance and commercial experience to the CFO role and will continue to deliver a disciplined approach to capital management. Thank you. I will now hand back to the operator for questions.
[Operator Instructions] Your first question comes from Tim Clark with SBG Securities.
Congratulations on the results, firstly. I've got a couple of questions, please. First of all, I just wondered if you could talk through working capital and cash flow going into the second half. You sort of mentioned better margins, a bit of deferral of CapEx. You had a bit of a working capital build in the first half. And I was wondering if you could give us a bit of an outlook as to how you see that unwinding?
And then the second question, just listening to your overnight call, there's clearly an enormous amount of integration that's advancing fast between Taylor and Clark and Hermosa. And I just wonder if -- I suppose I wonder how -- look, why you would approve Hermosa with Clark so close behind without doing as a fully integrated sort of operation? Or am I just misreading it if that's kind of the plan and that we should expect a Clark feasibility study with or very close to Taylor?
And then lastly, just on GEMCO, please. Your Eastern leases project has taken a while to get towards approval. I wonder if you could just speak about why there's delays there and what's happening in [Technical Difficulty] on the Southern leases?
Tim, look, the working capital -- and I'll give Katie to talk about last year to talk about the build we've seen and also the outlook. I would sort of start, if you think about the outlook for the second half [indiscernible], we had a good pack in the -- slide in the pack on Slide 14 that really say, I guess, what our first half prices look like in FY '23 versus the first half, if you like, in FY '22. And then we actually show on the other side what spot prices look like versus the first half. And generally, across the board, you are seeing a bigger lift up, if you like, in prices, in double digits in many cases. So that's obviously going to help on the cash flow generation.
We're also seeing our operations, actually, if you like, hold or if not lower the unit cost in the second half of the year. We've got a 6% additional production growth for the period. And also, you did see most of them managed to defer, if you like, some of that capital into the next financial year by negotiating some of the long-lead contracts. But maybe Katie, you could think about specifically in the context of working capital, and then I'll come back and answer the other 2 questions.
Yes, sure. Thanks, Graham. I guess maybe just to sort of reflect on half 1 in terms of our free cash flow generation from operations, including our equity accounting investments, we delivered $127 million, and really, that's the story of one-offs and timing. So if you think about the one-off, we did have a number of portfolio impacts that saw cash come out of the system in the first half in relation to the Sierra Gorda and the completion of tax payments to complete that transaction.
And also, we paid $43 million for the Cerro Matoso life extension, 15-year life extension project. So sort of both one-offs there. In relation to this year, we got tax payments. We are intending to seek recovery of the majority of those funds from the vendor. That payment is in dispute, but we needed to make the payment to complete the transaction.
We also saw a working capital build in the first half of about $152 million. That's -- a large portion of that related to the ramp-up of Brazil Aluminium smelter, and that will be a permanent increase to our working capital pipeline. But we also had temporary build of finished goods in our aluminum value chain relating to shipping delays.
We also probably didn't see distributions from Sierra Gorda in the first half. And we also were impacted by the lag effect of the prior period's record profitability in terms of our cash tax payments. So if you think about looking forward into H2, very much as Graham mentioned, it's a positive outlook for us in the context of the price environment for our commodity mix.
We are expecting to see a 6% uplift in production in the second half, with unit costs lower or flat predominantly across our business. And if I think about the aluminum value chain as well, we are seeing some moderation in raw material input prices there where we don't guide as well.
So I think you would expect to see us deliver strengthening margins in the second half, which also we would see some normalization of our cash tax payments flushing through. None of those one-off portfolios, payments coming again in the second half and a potential for cash distributions out of Sierra Gorda in the second half. So I think that the outlook is pretty positive.
I would call out, just in terms of our cost base, we did see a substantial uptick in our cost base as a business related to our portfolio activity, so Mozal and Sierra Gorda, in particular. But what that comes with, for the half, is a 42% operating margin and underlying EBITDA of $210 million. So we're really starting to see the value associated with those transactions, driving margins in the business.
Tim, is that clear.
That's very helpful. It sounds like with higher prices, it's all about the cash flow coming through. How much of the -- have you given an estimate of how much the inventory tie up on the aluminum smelters?
Yes. So we said $152 million in working capital build. And if you think of that, probably about $40 million of that relates to a permanent uplift in working cap associated with Brazil Aluminium and the balance of that really is the temporary shipping delays that we would see unwind.
That said, I would say, working capital story of FX and commodity prices, raw material input prices, so depending on where they go in the period, we may see still elevated levels of working capital, particularly with the higher prices that we're starting to see and also the higher -- the still elevated raw material input costs.
Tim, if we talk about Taylor and Clark, I guess, what I would start with is, when we made the Hermosa acquisition back in the early days, we always talked about those 3 sources of value. And I think that's important to understand that ultimately, we envisage more than one operation there. We probably envisage more than 2, to be honest.
Obviously, Taylor is the most advanced. Clark is coming quickly behind, and we'll talk about Clark in a second. But then we've also got 15 highly prospective targets at which peak, for example, that's a copper polymetallic deposit where we've drilled 6 out of 8 holes that have been planned for this year and have some good hits around copper. And we're hoping to get into the flux deposit, which has very similar, if you like, pigmented in shape, you see Taylor as a brand new deposit. So there's a lot of work to be done on a broad perspective project.
Taylor itself is the most advanced. That is on track to go to the Board for approval and to execution with calendar year this year. The question a lot of people have asked us, what does the capital look like? To date, the capital is holding on the pre-committed work, but also some of the packages that have started to come through. They're not finalized yet, but the signs are good so far.
Look, Clark is an interesting one, because Clark I've always talked about. Clark sits above the top of Taylor. It is a separate mining domain. It would have its own access. So Taylor is going to be accessed by 2 separate shafts. Whereas, Taylor -- sorry, Taylor is accessed by 2 separate shafts. Whereas, Clark will be accessed by a decline, and that's because the ore bodies are actually quite separate.
The synergies and benefits you will see between the two are, one, that you could -- because we are already doing the deep watering for Taylor and you're going, obviously, from the top down. Clark will have that water taken out before Taylor and our way to do things like a box sample via a decline pretty quickly.
The second thing is, you will actually create more voids by mining Clark, which allows you to take a little bit of pressure off the tailings facility. If you remember, the tailing facility stage 1 is built on the private land. So it does actually need to get a federal approval until you actually do the second stage tailing. It gives the ability to push it out. And there will be some ancillary infrastructure around people and equipment that you might share, but they're probably the 2 major benefits. What the team has done, as we think about permitting for Taylor and you think about life, water impacts, you think about other impacts that might be discharges, that's all being considered as part of the Taylor feasibility work. So when you're permitting, you're sort of permitting it once.
I think where Clark is at the moment is we've spoken about, Clark has sort of moved pretty quickly into a place that's quite exciting, but still have a lot of uncertainty. What we are seeing after the inflation reduction react in the U.S., there is a strong push to basically develop EVs in North America and get security over the supply chain. The other thing is, not only is zinc a critical mineral on the U.S. list, there's only 4 of them. The other one is manganese.
And you're actually seeing a number of car manufacturers and people in between around batteries talking very strongly about how they displace, if you like, some of the cobalt and the nickel with manganese. So if you think about an NCM 622 battery, you're probably looking at 70% manganese content. Some of the batteries that people are talking about, they're talking more about 60% manganese.
That world has not settled yet. What they're exactly looking for has still got some work to be done. So what we're looking to do is help build that understanding because we are the only manganese deposit/project in the U.S. So we're working with a number of people who've got MOU already signed, about doing, if you like, a pilot plant, getting access to a box sample to actually share some of those results and then look at the way you move that to a demo plant and then you actually scour that.
So it's never going to quite match the actual development sequence that you'll see at Taylor. It will be independent. And the size of Clark is open for interpretation at the moment. So when I say that, probably 18 months ago, customers were talking about 10,000 tonnes in the market, all of a sudden, an individual customer is talking about 50,000 tonnes.
So there's a lot of scope of how this developed. So we're going to be nimble and keep quick. But we're going to have an eye on the future to make sure that any permitting we're putting in around the federal process considers Clark in its completeness.
Very helpful. If you -- I mean without putting any commitment to it, if you took a best guess at when you would be completing or looking to complete the feasibility on Clark, is it like a year away or 2 years away do you think then?
Well I think the study work will be relatively easy. To my mind, the critical pieces of work at the moment are to actually do the metallurgical test work and do that bulk sample collection. We expect that sort of be up and running the pilot plan by about midyear calendar 2023.
We're also talking to various parts of the U.S. government about support to de-risk this in line with what some of their mandates are. That's an ongoing discussion, and we're working closely with a number of battery producers to sort of make sure that what they can have a look at the output and talk about what works, what doesn't work.
So I think by the end of -- halfway through this year, we'll have a lot more information to talk about. But it is certainly, Tim, accelerating fast than we would have envisaged 18 months ago, 12 months ago or 6 months ago.
GEMCO Eastern leases. Look, the reality is with Eastern leases, we're close to having that actually finalized. As you would appreciate, it's a sensitive, if you like, location, not only with the traditional owners, but also some of the biodiversity issues we have there around the animals but also on flora and fauna. We're just finishing some of those studies. We're working with Angelo to finalize that.
There's nothing in our mind that's putting anything at risk. It's just actually doing all the work completely and doing it in the right way. I think like everywhere around the world, the permitting, there's more effort now that goes into that to make sure we cover all the bases and get it completely right.
And then Southern leases, any progress at all?
Southern leases are still a bit more challenging. So if you look at the resource, we've got about 2 years' worth of material and the resource already, which will probably convert across the reserve. I think the bigger challenge for us is there's a large piece of the Southern leases area that is unexplored because it is areas that is far more important to traditional owners.
There will be water streams that has [indiscernible], which is culturally much more significant. At the moment, there is not a lot of support for us to go in there and basically explore. But I think, to be honest, to me to get closer to the end of the mine life, that will be an ongoing discussion, if you like, about how do they feel about that. Because we have to repay a large royalty check to the traditional owners as well as the government federal land-owned territories. So that's -- so it will happen over time.
But this unleashes also risks. We might get out there. There's more clay. There might be less clay, we just don't know. So what we're doing at the moment? We've got 2 years that's actually sitting in the resource. But I think the big thing will be getting the traditional owners come forward to do some more exploration.
Your next question comes from Sylvain Brunet with BNP Paribas.
Katie, congrats on the new role. Three questions for me, please. The first one is on power costs. Obviously, we're seeing a pretty large correction in gas, coal and oil prices to some extent. I know that in your aluminum, alumina divisions, in particular, you haven't made changes yet to your guidance.
Are we -- could you help us a little bit understand the delays and time lag for when we should expect, hopefully, some lower translation into power tariffs in South Africa and elsewhere, if any? My second question is on Cannington. If you could help us understand the production profile a little bit beyond 2023, having in mind issues with crushers and labor availability, but from a production profile standpoint, should we assume that production should stay flat? Or is there a risk of lower production?
My last question is on the manganese market, we've seen some traction in the oil price lately. Obviously, there were -- there was this landslide in Gabon. Was wondering if your marketing team was seeing a genuine pickup in demand from the 2 producers in China because we're not really seeing it elsewhere, if you look at the behavior of the iron ore price. So wondering if this iron ore tick up -- this manganese ore price pickup is substantiated by fresh demand besides production issues?
Thanks, Sylvain, appreciate the questions. Look, maybe let's start up with power costs. So I guess, in some ways, there is good news if you look, for example, of Sierra Gorda. You see, we're actually shifted away to traditional coal-fired, et cetera, to have moved to fully renewable. The fully renewable is much cheaper than what we had in the past. So I think that's a significant move that will start coming through going forward.
The smelters is interesting because when you think about South Africa and Mozal, the power contracts are now very similar. They're actually no longer tied to the LME price. They are a base price that has a PPI. Obviously, that has an impact on it a little bit about the PPI a second. Historically, with high levels of inflation in Southern Africa, that PPI over the last couple of years has probably been bigger than what we would have expected it to be, particularly with COVID and some of the other impacts on the economy.
Now it has been much cheaper than the general power increases you've seen in South Africa were significantly cheaper. And the reality is, if you look at the inflation, the floating prices in places like Europe, our power contract or some has become very valuable in Southern Africa versus very many of our peers. But in saying that, if you look at the PPI, maybe you can comment on those, Katie, what they've been over the last period of time?
Yes. So we have captured the PPI in our guidance. Hillside PPI kicks in, in August. And it was this period with the adjustments that flow through that contract sitting around 17%. The impact that flows through to Mozal doesn't flow through until the second half of the year.
So what you will see, we actually have a slide, Slide 45 in the pack, and you can see quite clearly the PPI uplift has been pretty much offset fully by the rand at Hillside, with the weakening of the rand. Whereas at Mozal, you can see the rand benefits still flowing through, but the PPI adjustments to come through in the second half. So the -- as Graham said, we've moved away from the LME linkage, but the rand is largely offsetting the PPI uplift.
That helps on the path Sylvain, happy with that?
Conceptually, you would still expect some alleviation in the cost pressures towards the later part of this half? Or is it too optimistic to assume that?
Look, what I would expect to see -- if you think about Sierra Gorda, you're going to see a cheaper cost of power actually coming through, and that will start coming through in the second half. And from memory, it's about 44% at what the previous year was with the new contract. The smelters, I think, look, you're going to be subject to the PPI that occurs in South Africa and Mozal?
Yes, I think Sylvain, I'll probably say this broadly speaking, we're relatively well placed from an energy perspective relative to a lot of our peer group. We're not exposed to spot prices. Obviously spot prices have come in a little globally. But if I look at, say, Worsley, for example, Worsley's got relatively low-cost access to coal power at the moment, they're working through that transition to gas with the gas -- their first boiler transitioning in the half or by mid this year. That's going to add a nominal uplift to their cost structure, probably around $2 a tonne.
But the key there is that they've got potentially fixed price contracts with CPI-type adjustments, similar to our aluminum business. And then as Graham said, we've got relatively good renewal contracts that we've locked away at Sierra Gorda. There's a low cost. And if I look at Mozal Aluminium as well, we had 2 long-term contracts that we've locked in there for that smelter reset -- smelter restart. One is a flat price of the U.S. dollar agreement and the other one is effectively a local currency CPI-adjusted agreement. So we're in a pretty strong position from an energy exposure perspective with limited spot impact.
So you'll have your own view on spot, if you believe spot is going to continue to be high, we're well positioned. If you believe spot is going to crash, well, then it goes the other way, but it's probably hard in our mind to see a world where you're going to see energy costs become cheaper in the short term.
Cannington, Sylvain, you're happy to move on to that? Is that okay?
Yes, yes, yes.
Look, Cannington itself is interesting. I was actually up Saturday, Sunday and Monday, at Cannington doing a site visit, but also celebrating the 25th year anniversary of that business. Keeping in mind when it was actually put into construction about 28 years ago, it had a mine life of roughly 12 to 14 years. So that mine has been going for a long period of time.
We still have an underground resource of about FY '29. And then you got the option of looking at the open pit plus and tail end reprocessing to maybe somewhere between 5 to 10 years. But I think what you are seeing now is because of the age of the mine, the actual number of stopes we have access to at any one time is less and the stopes are smaller and there's more often. So some of the high grade, which gave us flexibility, is sort of gone.
So I think you're going to be more inclined to see a bit of variability, if you like, in the numbers at Cannington. So when I say that you're going to see probably quarter-to-quarter jump around a little bit, it only takes one stope now to move for one reason or another, and you actually will see quite a different sort of change in the profile.
Obviously, it's still a very high grade in terms of margin business. It's still probably one of the better businesses out there in terms of silver, lead and zinc, but it is sort of going to sort of bounce around a fair bit.
If you think about the grade. The grade obviously, over time, will continue to come down to the reserve grade. It's going to be more, I think, about the variability of where we're at in terms of which stopes, so you're going to have ups and downs. We're probably at about the right throughput right now, so I don't think that's going to shift dramatically. And we've gone from probably being in the world historically where you've been constrained by, if you like, the process plant and now you're constrained by the mine.
So the plant can probably do somewhere between 2.9 million to 3.1 million tonnes per annum. The mine is probably going to sit somewhere between the 2.6 million to the 2.8 million tonnes, and that's going to really set the pace going forward.
[Operator Instructions] Your next question comes from Myles Allsop with UBS.
Great. I'll start with a couple of follow-up questions on GEMCO. Could you remind us your current mine life with the Eastern Leases and what you could potentially do by converting the 2 years of resources? Just give us a sense as to how this should whole thing play out if it all goes to plan with the studies? And then on Clark, you're saying that the size of the market is quite variable. I mean how large can Clark be? What sort of subsidies can you get from the IRA in terms of making it even more competitive? And just in terms of the cash cost, I don't quite -- how does it sit on the cost curve relative to other manganese assets and converting kind of ore to sulfate elsewhere? There's a few other questions, but start off with those two, that would be helpful.
Yes. Let's maybe start with GEMCO. GEMCO itself has got about 4 years' worth of reserve and about 11 years' worth of resource. In the resource, you have about 2 years of the Eastern Leases and have about 2 years of the Southern Leases. So they're probably relatively easily the studies to convert those into reserve.
I think you can come back to that question of Southern Leases and getting harder a little bit more of exploration that I think then you'll have a better sense. Yes, the Southern Leases, again, could stop at 2 year, it could be another 5 years, 10 years, we just don't know how to do some of that work, but yes, that's something. We hopeful we get clarity over the next period of time.
Look, when it comes to Clark, I mean the comment I made, I guess, about the size of the market is interesting today because when you think about manganese in batteries, it's probably at best somewhere between 3% to 6% of total demand. We can actually see a case where it ends up becoming a substantial portion of battery manganese will actually sort of go into that space.
To sort of put some numbers around that, to give you a sense, we could probably see by calendar year '30, you could see as much as 30% of demand for manganese going towards that battery technology. So that's quite a significant shift. So when we talk about the market, we had a new deal 12 months ago, that view of the market has dramatically changed upwards. I don't feel it's going backwards. I feel it's going the other way.
But it's a difficult one because at the moment, really the only person that produces the kind of material we're talking about, i.e., the high-purity manganese sulfate monohydrate is really coming out of China, and it's a small portion of product, and it's a little bit opaque. I wouldn't be trying to think about, well, how do you price this off a cost curve. I think you really run the issue. This is going to be about domestic supply.
This is going to be about scarcity of product. This is going to be about security of supply. And the reality is the portion of manganese in the battery is going to be cost. It is still going to be really small. It's going to be more about how can we respond quickly to the market and what does that pricing look like around some scarcity pricing.
I think in terms of assistance around Clark, there is a large pool of money that's been allocated to the Department of Defense, Department of Energy. And the way they're sort of doing or talking about that at the moment is providing grants that match some expenditure. That is something, obviously, we'll engage on as we have a little bit more information. As you'd expect, we talked to the government already. We've got to work out exactly how we're going to develop it taking it forward.
I think the other advantage in this space both zinc and manganese are 2 of the 4 critical mineral system in the U.S. That does allow potentially the most to go into the far supporting one process, which really is about accelerating federal permits, no corner-cutting, but making sure that you've got the full weight of the federal and the state services behind accelerating the project.
And if you think about Hermosa, 2 critical minerals, underground mines, small footprint in Santa Cruz County, there's one of the ports, if you like, in Arizona. It doesn't have any tribal, First Nation issues. You can't see it from a highway, note a large amount of ground disturbance. It's probably the poster child to go into that side of kind of program. And that's the stuff we'll continue to work throughout the next 3 or 4 months.
Again, I think by the time we hope a site visit, which is scheduled towards the end of May, there will be a lot more information on how Clark is progressing. We're talking to a number of people. We've got one in our unit in place. Everyone is keen. It's just more understanding about once they set up these being a battery facilities in the U.S., you probably design a new facility to produce batteries to roughly somewhere between 10 to 20 years. It's about locking in a couple of customers whom we meet and going forward from there.
Okay. Maybe on Hillside as well, is load shedding kind of -- it clearly doesn't look like it's having an impact. Could it have an impact as we look forward? Or do you think you're pretty safe from that sort of volatility? And in terms of greening Hillside, is there any progress there in terms of getting reallocated power from nuclear and so on?
Look, Hillside, maybe I'll get Noel to talk about the greening journey, so he could talk about how that's ongoing. If you think about load shedding, look, they still shed according to the contractual agreement. In saying that the communication on the ground between us and them, I think, is first rate. It has -- you still see Hillside continue to deliver great results despite record load shedding. I think the other thing that's really important to understand is the area is important to us as they are to us. We're providing with the ability to load shed. We're the largest paying customer. If the network falls over, they need us to actually restart.
And there have been very few of the public inquiries. They make money off the power they sell. So some of them are running at a loss, but it's very important for them. They're very important to us. I think I don't see load shedding as the biggest issue. We can manage our way through that. To me, the bigger issue is more of some of their critical infrastructure falls over for a period of time, you need to restart.
Noel, maybe you can comment on the journey around renewables.
Thanks, Graham. Look, on the renewables front, we've -- in the first instance, we've got a dedicated team with a multipronged approach, looking at various options that makes business sense for us to transition Hillside. And those include working in partnership with Eskom and other stakeholders as well as independent power producers to find workable solution.
What we've also got is a work stream that's trying to access unallocated green energy that's existing on the grid today. There's, in part, some renewable energy through solar and wind. But the biggest one is actually nuclear, which is a great transition fuel to help with the longer-term greening of Hillside that is, as I said, is unallocated, and it's not necessarily commercialized in South Africa yet.
But we're working in step with Eskom to see how we can access some of that power, which will actually kick start our journey to transition in the coming years. So probably that as far as I go, Graham, unless there's more questions in there.
Just to be clear, so it is still -- you feel reasonably confident that you'll be able to achieve a green power source over the next, sort of, power contract period? So it's still looking good in that respect?
So we've been very clear -- sorry, Noel, we've been very clear, we've given a dive at 2035 to half our emissions. The current contract runs 2031. We've been very clear to the South African government and Eskom that we will not own and run a ground aluminum scour going forward because we think the discount and the cost will be too big, it will be uncompetitive.
We're also very conscious of the role that we pay there -- play there in terms of the number of people we employ, the downstream industry we trade. But we should also understand we sell about 30% of our product downstream, which a large percentage of that is sold into Europe for auto parts. So this is a real big issue for the South African government to address. Technically, it's not an issue. Policy is moving. Nuclear, to Noel's point, I think, is a really quick and easy solution, medium- to long-term recovery renewables. So the opportunity sits between us and them to make this happen by 2035. That's the focus of the team we put together.
Obviously, there's a bit of political noise at the moment in South Africa with the load shedding that's sort of distracting the politicians and everyone for the short term, not about the renewable build-out. And the change at the Eskom CDO is probably not perfect, but to be honest with our negotiations at various levels, it's not just with them. So I mean, I think we will find a way to get there or we'll look at in the [indiscernible], which I think is a good outcome for anyone.
Okay. And then maybe just finally, in terms of Sierra Gorda and how we -- in terms of the expansion projects, they'll go into plan. When will we get more visibility on ramp up and so on of the oxide and the fourth line?
Yes. Look, absolutely. I mean the point I'd start with is saying, yes, the acquisition of Sierra Gorda for us, so far, has been really positive. We've been very pleased with the relationship and the operation to date. At the moment, the primary focus has been on the de-bottlenecking project. That we originally talked about getting left about 50 million tonnes, with some of the challenges that had around the high-pressure grinding roles. That's probably looking more around 48% to 49%, but I still think an opportunity to improve.
The next logical one in the development will be around the fourth grinding line. We expect that study to be finished by the end of the calendar year. That gives you a capability to lift up to maybe 58 million tonnes, that's kind of ballpark subject to how the study finishes. So I think that's another good opportunity.
At the same time, I think the other thing that's important around the oxide facility is, you need to understand an express alternative. So from our perspective, it's not really something that Sierra Gorda was pushing forward. We want to understand what would it cost to build an oxide facility versus using some of the spare capacity that existed, something like [indiscernible] treating it. I think that's something we can do in the background.
Primary objective is de-bottlenecking, fourth grinding line. And as part of the fourth grinding line, you actually put in the third, you do some work on the digging performance. But today, we've been really pleased with what we're seeing at Sierra Gorda in relationship with KGHM.
And just to be clear then, so if the study is completed end of this year, when should we hope for seeing throughput lift to 58 million tonnes? Is that sort of 2, 3 years later? Or how long will it take for that sort of project?
Look, I think when you think about that, your time frame is not unreasonable. But again, we haven't finished the feasibility study, so there's more work to be done on that. But typically, you'd probably be looking at another couple of years after that to execute it. But again, let's finish the study, and then we'll talk to the market about it, but the optionality exists, the attractiveness actually exists with the better detail there.
Just while we're weighing -- our apologies, I realized we didn't actually get back to your manganese question. I left that one out. Look, the way I'll talk about manganese at the moment, you have seen some support in the pricing due to the landslide that has occurred [indiscernible] you talk about.
And there is an expectation, if you like, coming in quarter 1 of calendar year '23 about increased expectations around steel demand and hence sucking it through in terms of demand. Look, I think the way I look at Hermosa's performance, while they have started some shipments, we would not expect them to get back to full supply until after March '22 (sic) [ '23 ]. So that will have an impact in the market of about 0.8 million tonnes.
But I think on the flip side and which is probably stopping pricing move more if there is a surplus in the Chinese market of alloy material, then obviously you're not seeing strong demand yet through steel. But again, the expectation in the quarter is you will start to see some of that coming through. I wouldn't expect to be seeing a huge move in the manganese ore price.
I think you'll continue to see the preference for higher-grade material over the lower grade material. But important to know that with these prices and the prices we have seen over the last 6 months is still economic for us to truck, and it's still a business that continues to sort of generate cash for us.
Thank you. There are no further questions at this time. I'll now hand back to Mr. Kerr for closing remarks.
Thanks, everyone. I appreciate the time and effort to attend today. I know there's a lot of reporting going on. But the way I describe where we are today, there's been a number of years in investment to shift the portfolio to move out low-returning businesses, reorientate our exposure, if you like, to the minerals that are going to be essential to decarbonize the world.
And you've seen that the Sierra Gorda acquisition, the increased stake at Mozal, the restart of our power of the smelter in Brazil and some of the general improvement projects we've got across the group. That was really reflected, if you like, by the 12% lift in production in the first half. There's another 6% to come in the second half. As we mentioned earlier, you've seen much more leverage to high commodity prices in the first 2 months of the year.
If you talk about our operations, cost performance has been well managed with the majority of our assets wholly intact, their guidance or slightly lower guidance. And if you think about the growth side, I think with Taylor, Clark, the fourth line of Sierra Gorda, the oxide, et cetera, I think we're well positioned to have strong growth over the next couple of years. There's some really exciting opportunities.
And what should you expect from us to be consistent like we have in the past. Now we've got that capital framework that remains unchanged, and we continue to return excess cash back to our shareholders as per the increase in the market buyback.
But thanks, everyone, for your time and see you in a couple of weeks.