Glencore PLC
LSE:GLEN
Earnings Call Analysis
Q2-2023 Analysis
Glencore PLC
The narrative of this earnings call spins around a company deeply invested in critical minerals, with a robust operational stance and a clear focus on copper. The company has recently acquired a 56% stake in the MARA copper project in Argentina, now owning 100% and thus becoming the sole operator. This brownfield project promises low capital intensity and a long 30-year lifespan, potentially producing at least 200,000 tonnes of copper annually for the first decade, positioning it within the top 25 producers. However, the company remains cautious, aiming to bring the project to market only when copper prices signal strong demand – above the $8,500 mark it seems to currently hover below.
Addressing concerns around resource nationalism, such as unexpected coal royalty hikes in Queensland and potential increases in New South Wales, the company is engaging with policymakers to seek transparent discussions and stability in fiscal conditions. The company has also clarified its commitment to the MARA project, stating no current intention to syndicate and share the financial burden of development, thanks to a sufficiently robust balance sheet and a preference to maintain control.
In the cobalt market, the company has faced challenging conditions with weak prices and excess supply. As cobalt's role in electric vehicle (EV) manufacturing remains strong, the company anticipates recovery over time and is not averse to stepping into the market to create equilibrium, possibly by adjusting production or stockpiling parameters. Nonetheless, cobalt production guidance suggests a cautious approach with the possibility of recalibration to align with market demands.
The consideration of the right moment to act on projects reverberates through the call, with emphasis on MARA’s development being contingent on favorable market conditions. The company desires to maximize returns throughout the project's lifespan, choosing not to rush production despite the possibility of high short-term returns. Instead, the strategy is underscored by a desire for extraordinary shareholder value that aligns with long-term market conditions, namely copper prices expected to exceed $10,000 per tonne.
The company has delineated an intricate balance between strategic acquisitions and capital allocation. Recent portfolio activities like the acquisition of the MARA project and the consolidation of stakes in businesses like Polymet are not a pivot towards aggressive growth strategies but a continuation of opportunistic, value-driven M&A that fits within the company’s stringent capital allocation framework. The executives suggest that while these moves are measured and based on existing relationships and opportunities, they will not hesitantly embark on large acquisitions if they align with the company's outlook and promise right returns.
The company highlights its management of cobalt guidance as a testament to its agility and ability to react to market dynamics. Despite a clear signal of a surplus and a subsequent need to adjust production targets downward, the team remains poised to manage and leverage cobalt stock levels strategically, underscoring their commitment to financial prudence amidst fluctuating market conditions.
Summarizing the call, the CEO stresses the company's strong position in delivering critical minerals, with a growing recycling business alongside a powerful marketing arm that generates significant returns. Moreover, there's a promise of continued high shareholder returns, commingled with acknowledgment of the business's robustness, cash-generating capability, and alignment with the pivotal commodities of the future.
You don't have any saved screeners yet
Good morning, good afternoon. Thank you for joining us. Welcome to our half year 2023 financial results. Presenting today will be Gary Nagle and Steven Kalmin, and I'll hand over to Gary to commence the call.
Thanks, Martin. Good morning to all of you, all those who are dialing in from other parts of the world. Good afternoon, good evening. As Martin said, I'm joined here by Steve. Peter Freyberg is also with us on the industrial side, if there's any questions on that.
But I think let's kick off straight into the presentation.
If we go to Slide 4, as we normally do on our financial scorecard, looking at the first half, a real solid set of results for the first half of the year. It's very easy to be a bit caught up in some of the negative variances that we see on that slide, given the tremendous year we had in 2022 with extremely high energy prices, huge arbitrage opportunities, huge volatility. But if you look at the results as a whole for 2023 versus some of our history and if we exclude 2022, it's the best first half we've had in the last 10 years. Of course, as we know, 2022 was an exceptional year because of the circumstances of the year. But this has been a very solid and, in fact, record-breaking first half of the year.
So drilling down into some of the numbers, and Steve will obviously get into more detail on that later. We've achieved an adjusted EBITDA for the year of $9.4 billion, $7.4 billion of that coming out of our industrial asset business. And on the marketing side, adjusted marketing EBIT of $1.8 billion. As we've said, that's annualizing above the top end of our range. We normally guide a range of $2.2 billion to $3.2 billion for the year.
We've guided that we would exceed the top end of our range and guided between $3.5 billion and $4 billion for the full year. So we're nicely on track to meet that guidance for the full year and a very solid and strong set of results in the marketing side of $1.8 billion.
The business remains highly cash generative, and during the first half of the year, the cash generated by operating activities was just short of $8.5 billion, which has allowed us to return additional cash to our shareholders. So today, we're announcing a $2.2 billion top-up shareholder return. That's broken up between $1 billion in cash dividends and $1.2 billion in share buyback. Steve will take you through the details of how we calculate that versus our formulaic capital returns policy. There's a slide on that later in the presentation.
But when we add that to the existing returns that we've already announced for 2023, that gives us $9.3 billion that we're returning back to shareholders for 2023. So a really strong and solid set of results, be able to repay our shareholders, provide them good returns on the investment and in a very strong business.
Moving on to Slide 5, where we have our ESG scorecard. On the environmental side and starting there, during the course of the year -- the early part of the year, we published updates on our progress in 3 main areas, that being climate, water and nature. And those who haven't seen those reports or haven't been able to review them in detail, I encourage you to have a look at our 2022 Climate Report, which is a stand-alone report, as well as our 2022 Sustainability Report, where we really drill down into the details on those 3 major areas as well as other areas of our business, and provide real transparency on how we approach our ESG and, in particular, environmental side of our business.
On the social side, our first and primary goal every day that we go to work and we wake up every morning is to keep our people safe. Our primary goal is zero harm in this business. It's with a heavy heart that we have to report that we've lost one of our colleagues this year, and that just encourages us to double down on our efforts to continue to improve our safety and strive with zero fatalities and zero harm in our business. This year, we've also published our payments to government report. You would have seen that earlier in the year where we paid a little over $12 billion of taxes, royalties and levies to governments around the world.
That's up from $7.6 billion in the previous year, obviously, on the back of the record profits we made in 2022.
On the governance side, under our agreement with the DOJ, we've had 2 independent compliance monitors appointed. They've started, work is going well, and we're collaborating very well with the monitors, and we look forward to a very constructive and positive outcome through this monitorship period. At the end of last week, we also disclosed against Principle 15 of the Global Industry Standard on Tailings Management as well as our overall conformance to the GISTM for our extreme and very high-consequence dams. Those dams were independently assured by third-party assurance, and we continue to work on our full tailings dam disclosure, with the remainder of the tailings dam disclosure to be in compliance or to be disclosed by 2025 as required under the GISTM.
And with that, I'll turn it over to Steve on the financial performance.
Thanks, Gary, and good morning, good evening to all those on the call today. Thank you for joining. Over the next few slides, I'll take you through the -- walk you through the financial performance for the first half, expectations for second half as well, culminating in the free cash flow generation at spot prices, which we update periodically throughout the year. We'll run through the balance sheet and our capital management initiatives and update as we've walked through the balance sheet. So various moving parts, both in the P&L and in the balance sheet, which we'll get through on the following slides.
Many of these slides would look very familiar to those who have been following us for a while.
On Page 7, these are just some headline financial figures. Gary had spoken to most of these, and they will be covered later on in detail on the various slides. But at a high level, most of the headline where the EBITDA, both industrial and marketing, roughly half of H1 2022's record performance where conditions both in the marketing and the industrial, particularly in the energy complex were certainly exceptional. As we work our way through to that business having generated both large amounts of cash flow last year as well as this year and both on a lag effect, we've already at the half -- in the first half of the year, have made $5.2 billion in shareholder distributions and buybacks. By the end of the year, which we'll see later on, given the second half base distributions as well as the top-ups that we've announced today, we will exceed over $10 billion in shareholder distributions and buybacks during the course of this particular year.
Our net debt is still down at a very comfortable low level at $1.5 billion, which is an outturn for the first half. That's with those shareholder distributions as well as we'll see later on in the bridge of the net debt position, there's been a big catch-up on some taxes paid in respect to the 2022's record earnings, where in some countries, you pay on some provisional basis throughout the year. And once finalized the tax returns, there is the final settlement in the following period, which has happened particularly in Australia and Colombia, which we flagged earlier in the year when we made our dividend distribution in respect to the 2022 year as well.
If we work over on Page 8, the next few slides will cover the industrial business before we move on to marketing. Very much a summary on Page 8. We'll get to the detailed waterfall on the 9, and then there's some commodity-specific slides later on as well, but the reduction down to $7.4 billion from $15 billion. As we'll see later on, the reduction was very much driven by lower commodity prices and, in particular, the lower coal earnings, which was the reason why its exact opposite of last year's increase from the 2021 year, we went positives, particularly on the energy, both industrially as well as marketing.
We've also seen, which is notable across many of our businesses in the industrial side, there has been the inflationary impact for us was mostly built during this 6 months rather than throughout last year as the lag -- if they're particularly energy prices, both coal, oil, electricity, the full imports commodity link that we're feeding through the entire sort of economic change, it takes time for it to work through in terms of contractors, in terms of freight, in terms of parts and pricing. So it was notwithstanding that we had the price increases last year. There's a lag effect in terms of when it ultimately works through in terms of your own cost within the business. So you've seen some increases generally across the board in most of our business industrially, but we are now peaking, and we expect to have a moderating cost, and I'll run through the variances. And with some volume benefits we expect first half and second half, our unit costs will improve throughout the rest of the year and into a spot illustrative basis as well, which we'll talk on some of the variances later on.
In the metals and minerals business, we -- there was a decline to $3.1 billion. Cobalt pricing, in particular, we did call it out in our production report last year as well as having impacted particularly the African copper business. It's a byproduct. Metal price itself, which we gave some of the comparisons period-on-period, was down 59%. What we sell is an intermediate product, both from our Mutanda and KCC operation producing a cobalt hydroxide.
Its mechanical market dynamics is a function of a payability between buyer and seller payability relative to the metal pricing that is still reflected weakness in that particular part of the market segment, such that our realizations for cobalt hydroxide were even more than the 60% reduction that we saw in metal prices as well.
If you look through the financial report, you'll see just in our copper business, which declined $1.2 billion period-on-period, of that $2.8 billion within metals. African copper business itself was $0.8 billion that, having reduced from $987 million EBITDA first half of 2022 to just $172 million, and we'll see that on the copper chart as it follows, so that's a drop of $0.8 billion. And the hydroxide pricing period-on-period was more than 70% down, with payabilities averaging between 75% and 80% through the first half of 2022 to roughly 60% for this particular period. And mathematically, if you just looked at the cobalt impact isolated of itself in our copper earnings, we produced 19,000 tonnes of cobalt in the first half of 2022. We've had a reduction in the realized pricing of that product of around $19 per pound, which itself is an $800 million variance.
So cobalt, as a byproduct of our copper business, was particularly impactful. Both in payability and metal pricing has bounced off some lows in Q2. We have updated our cost structures and our earnings at spot pricing through the last week or so. That itself is helping some of the cost structure improving and some of the spot illustrative cash flow generation and EBITDA of that business as we see today. We still see the long-term fundamentals of cobalt being attractive.
We see synchronized demand ultimately both in EV and non-EV, propelling that business positively in terms of demand. There is a period currently of both demand and supply factors which is leading to an oversupply. It's a buildup in inventories, but it is something that we expect to be largely a short- to medium-term impact, with positive fundamentals for that business long term as well.
In terms of volumes on the metals, we will have a better second half over first half performance. That's the expectations across all of our key metals business, whether it's copper, whether it's nickel, whether it's zinc, anywhere between sort of 50% to 55% compared to 45% mix or so in the first half of the business. We'll see in each of the individual commodity sheets later on as well in all the businesses.
Coal, of course, on the energy, industrial dropped from $9.5 billion to $4.7 billion, really a function of lower prices, particularly in coal, which dropped $4.4 billion and also our small nonoperated upstream E&P business itself, which produces both oil and gas. In West Africa in itself dropped $400 million between the 2 periods.
If we move into Page 9, you can see the aggregate waterfall bridge for our overall industrial business, having declined for $15 billion down to $7.4 billion. The big bar is, of course, the price reductions that we saw contributing $5.7 billion of that reduction. Within that $4.1 billion of that energy, so the biggest contractor there. Within the $4.1 billion, as I said before, coal was $3.7 billion on pricing. The E&P business was $0.4 billion.
And then within our metals, we had contributions. That was $1.6 billion. Copper business, which is both copper and cobalt, added $0.7 billion. This is the price impact that we do: the absolute prices less any costs that are directly linked to those revenue as well.
So commodity-linked royalties that may go up or down relative to commodity prices, would also go into a price variance category as we have. Copper was 0.7, Zinc business 0.5 and the nickel business, 0.4. And as you can see bottom left, we've seen price reductions average period-on-period in the Newcastle benchmark dropped 36%. And even more profound was API4s and API2s around 50%. Copper, 11%, was more modest compared to zinc at 26% and cobalt on the metal, as I said earlier, 59%, but realizations even substantially higher for our particular business as well.
In terms of volume, there was a $1.3 billion negative impact. Energy of that was $0.6 billion, and that was primarily in coal, and we're calling out Cerrejón as a major contributor within that, was down 6% period-on-period in production, around 600,000 tonnes. There was some both weather and blockade -- community blockade-related impacts during the course of the year. It is a very high-margin operation. So the more -- so the loss of tonnes, particularly out of that business, has an impact across the volume variance.
Within the metal side, $0.7 billion. $0.2 billion was in copper. Most notably, Collahuasi was 10% lower period-on-period. We expect a decent catch-up in H2 and Collahuasi as well as the copper business generally. Within the zinc business itself was $0.2 billion.
We had weather impacts, particularly in Australia. Again, second half should be better, both in the zinc and copper output, particularly out of Northwest Queensland that saw particular flooding and weather-related impacts in Q1 this year. And the nickel business itself was $0.2 billion. And again, we had an INO variance period-to-period due to the lag effect of the lengthy strike at Raglan, which meant we were ultimately producing final product with more third-party inputs than our own production during the period. Again, we expect a big tick-up in own-source nickel production period-on-period.
That entire volume variance of $1.3 billion by the end of the year, we expect to neutralize and finish flat, potentially slightly positive. So there is a big second half or first half improvement that we see volume-wise in industrial.
On the cost side of the business, it's -- to some extent, you'd look at cost and FX as a combined cost impact. There's some negative correlations between U.S. dollar strength and some of the movements in pricing in some local currencies, particularly in places like South Africa. But we had a negative $1.1 billion increase across our cost business. Energy was $0.4 billion of that, and metals was $0.7 billion, with positive currency benefits of $0.2 billion in Australia and $0.2 billion in South Africa, making up $0.4 billion, with the rand being 18% weaker, Australian dollar being 6% weaker.
Across all the inflation and cost variance, we would -- as I said, we're calling for a moderation in both inflation impact as well as the denominated effect for us of better volumes as we go forward, both H2 to H1 and, in a spot illustrative sense, that we expect the cost variance to not move as it moves through the year. So that should have peaked out and should not continue to be a negative factor within the industrial contribution.
If we then move into our overall businesses themselves, copper on Page 10. This business contributed $2.1 billion EBITDA for the half. We have all of our spot illustrative analysis with the details on Page 24, which you can refer to later on when you look at the presentation, but you can see on the right-hand side, that business on spot illustrative basis macros of last week, and cost structure today at $1.21 is generating just over $5 billion of EBITDA. The actual production itself was a small reduction, 4%, again, consistent with our expectations around peer-on-peer movements and contributions on Collahuasi and Antamina. The cobalt pricing, as I mentioned before, was particularly impactful as well as other byproducts, but we're calling out cobalt specifically for the particular copper business, but they also produce vast amounts of zinc as well coming out of the Antamina business.
So you've seen a cost structure at the bottom in the middle, having moved from $0.80 a pound in 2022 for the first half to $1.45. And byproducts itself, with an increase of the $0.65, byproducts was itself a lower credit, i.e., an increase in net cost of $0.45, where it was just a reduction of $0.60 per pound this year -- this period compared to $1.05 in the 2020. So there was -- aside from the byproducts, there was a $0.20 increase in the gross effect part of that inflation. Part of that is just the denominator effect.
So both to do with now second half increases in volumes that we expect in Collahuasi, Lomas Bayas and Antapaccay as well as cobalt hydroxide pricing having bottomed in Q2. It's up 10% to 15%, partially in metals pricing as well as the hydroxide pricing. Our spot pricing in copper business is currently around $1.20, which should see us finishing at $1.32. So we're averaging between $1.45 and $1.21. So we'll see a pickup in H2 performance and a business that today is generating a little over $5 billion and has been a solid operating performance during a particular period.
If we go to zinc on Page 11, it contributed $600 million EBITDA for the year and around $1.1 billion of spot illustrative free cash flow. Its production was down 10%, primarily to do with some disposals of the smaller zinc portfolio that we were working on and progressing throughout 2022, both in Bolivia, Peru, some closure, some lost units through the closure of Matagami, a small operation in Canada, which has been running for a while as well.
What's worth noting out just in terms of geography of accounting, given we had expensed with -- we're carrying -- we recorded an impairment at the Mount Isa Copper business, and you'll see the nickel business will -- Koniambo itself that we're taking down to 0, effective this year, we're now effectively expensing all CapEx as well. So it's running through the OpEx because having determined the value long term of that business to be towards 0 to be just capitalizing and impairing at the same time makes no sense. So we're just expensing all that. And within the mine coal, the Mount Isa operation itself, there was $46 million of CapEx that has been expensed during this particular period, itself having a cost impact of $0.64. The flip side, of course, is that will reduce the reported CapEx, it's cash flow-neutral as it works through the system as well.
So we had that -- for the first half, we were $0.42 cost structure. On a full year basis, we expect to be around $0.35. And we've got the volume benefits of scaling up second half, the first half performance. We've got continued ramp-up of Zhairem and the recovery from Mount Isa from the weather impacts of the H1-H2 split in zincs around 46%, 54%, with the movement towards $0.35 for 2023. That's roughly the spot illustrative cost structure also in the mid-30s generating a $1.2 billion EBITDA in that business as well.
That's performing reasonably fine.
On the nickel business, this would be an area that -- it's a business that is struggling at the moment as much in Koniambo itself, I'll talk to itself, but just the nickel business generally in terms of margins through a price that had dropped in LME terms, the price had dropped 13%. And realization, you can see in the top right of this overall business, in fact, dropped 23% to $9.53. Our Australian and Canadian business are selling product broadly in line with LME prices.
Our ferronickel business, Koniambo product is a ferronickel. It's largely competing with the NPI out of Indonesia, where the discounts relative to LME, which is just a calculated expression at a point in time, has increased tremendously where it used to be the likes of $500, $1,000 a tonne. It's now in the many thousands of dollars a tonne in terms of the realization. So that will continue to for as long as that product is largely competing in an oversupplied and competitive cost structure. Its margin environment is quite tricky, and it's manifested across the overall portfolio at a larger discount to the LME price by virtue of that product that we have within the Koniambo business.
Again, as I mentioned, we are expensing CapEx at Koniambo, which was $32 million, having a $0.31 impact across the business. This will be a large recovery in volumes period-on-period across all of our particular business. INO, as I said, to do with the Raglan strike. It should pick up 10,000 tonnes of nickel H2 over H1. And then across Murrin as well as Koniambo, we should have another 5,000 to 10,000 better H2 over H1 performance as well.
That has a large impact in the unitary derived cost, which is improving from $9.73 to $8.50, and then even if spot is around $8.20, still not a business that's able to generate much, but it is something that would move from a breakeven EBITDA during the first half performance to a spot illustrative of around $300 million.
And within that $300 million, you've got a business around Canada and Australia that's in the 400 to 500, with Koniambo even at these prices and expectations of producing annualized in the 30,000 tonnes of nickel would still be not quite breakeven. That would be loss-making in the sort of $100 million to $150 million or so. So that is something that is -- that we're very focused in the whole industry and the French state around what is a future sustainable model look like for nickel production within New Caledonia but given the structure of the market and the cost structure of those particular business as well.
If we turn on to Page 13, we've got coal business, which contributed $4.5 billion for the first half. And on a spot illustrative basis, it's generating -- generate $6.8 billion. That's fully loaded to latest cost structures, latest pricing. That's with Newcastle average forward -- 12 months forward around $150, with a portfolio effect generating of $22, generating a $130 net price across all of our 110 million tonnes, with a cost structure at $68.50. So that generates $6.8 billion, $6.8 billion within our coal business.
There has been a cost at least during recent periods where we averaged $77 in the first half of 2023. There was some impacts of higher logistics relative to previous expectations, particularly in South Africa.
Trucking be it railing is much more expensive. We've had the impact of the increased Colombian royalties come through as well as some of the lag effect, as I mentioned earlier on, on freight explosives and contractor costs as well. We will have the lower pricing, unfortunately, also lowered cost as well because we do have royalties in all the operations, particularly Australia and Colombia, which is linked to the revenue that we generate in that business and as we've marked the whole book to the $152 Newcastle or so on a spot basis, it's taken ourselves down to $68.5 of the cost and a margin of $62, which is still a very healthy business, having that outturn of $6.8 billion. We'll see the spot analysis later on.
On Page 14, we can see the marketing earnings for the year of $1.8 billion, of course, overshadowed by first half 2022's performance of $3.7 billion. That was in the immediate aftermath of the Russian-Ukraine war, the initial disturbance and dislocations and recalibration and chaos frankly across all the energy markets there and prices and volatility that we saw. So we've seen a returned to Earth, to some extent, still very good earnings at $1.8 billion, $1 billion in the energy, $0.8 billion in the marketing. You can see in the graph or chart in the middle of the bottom, those are half year numbers. So if you annualize, let's say, $2 billion, energy; $1.6 billion in metals, by any historical standards, those would still be respectable and good earnings and tracking towards slightly beating the top end of our range in the $3.5 billion to $4 billion.
We go across to balance sheet on Page 15. And a lot of words on 15, so maybe we'll shortly get to Page 16 and 17 with some easier charts and bridges in our net debt evolution and how we thought about the capital returns, but a few bullet points on Page 15. Liquidity -- committed liquidity of the business around $13 billion, still very strong and same as the start of the year, notwithstanding all the cash disbursements that we've done during the year. We've refinanced all of our core borrowing facilities as well. There was a materially higher taxes paid.
As I said earlier on, it's the lag effect of settlement on the final income taxes in respect to the 2022 year, most notably for Australia, $1.8 billion, and Colombia. You would see on Page 29 of the financial statements where you see in the balance sheet, you've got the income tax payable itself decline exactly by that amount, $2.7 billion from $4.7 billion to $2 billion.
And given the materiality, particularly of the Australian final settlement, which we knew was due clearly when we released our full year results in February, we said this is a commitment, really like an M&A that was appropriated like obligation that was appropriate to reserve or to take into account when we did our distribution or top-up declaration back in February this year. So we called out already a payment of $1.8 billion that we knew was due in Australia. That's exactly how the final settlement worked out.
We didn't adjust for Colombia at the time because we're just focusing on the most material, $1.8 billion, and just making an appropriate adjustment in respect to taxes. So there was the $2.7 billion settlement. It's now all back to kind of normal in the tax liabilities that should largely follow in the year of generation as well. It was just to do with the extreme earnings contribution that we saw in 2022 that we finally settled all our tax liabilities during this first half of this year.
We've had a return of working capital, $2.2 billion net in the non-RMI and a $1.4 billion reduction RMI itself. I'll speak to that on the next page as well. And as Gary mentioned earlier on, the total shareholder returns at the bottom, $9.3 billion, given the $2.2 billion top-up roughly a 70-30 split between cash and buybacks.
On Page 16, just a follow-through of the net debt at the beginning of the year, largely flat at $0.1 billion. The FFO, which is after tax, which reflects the $2.7 billion of taxes that was paid in respect of 2022 during this particular period. So that is a -- that's a lag effect that's captured there. One should add that back in terms of doing any comparisons of FFO for any reasonable year-on-year comparisons. The net CapEx, $2.5 billion, there will be a slide later on.
It's spending at a lower rate than what we expect for the full year, but that was the net CapEx after a small amount of disposals as well.
Investments on the M&A, that was largely this $0.6 billion inflow, largely the receipt of the cash portion in respect to the Cobar sale.
Non-RMI, we generated $2.2 billion. Within that, it's important to look at what's the marketing components and maybe the nonmarketing components. This was a big area that was focused in previous periods as a buildup in working capital, where the marketing business was discussed and highlighted and having consumed about $5 billion in non-RMI working capital during 2022. But this year, working through that $2.2 billion, we had a marketing inflow of $3.2 billion. That was the initial margins, $2.1 billion.
As we discussed last year that had built up to $4.1 billion, net margin calls initial during the course of 2022. It's back to $2 billion, which is a more normal level for us. So that's effectively fully reversed.
We had some buildup last year in the physical forward part of our business. That's where we have to wait for the cash realization of longer-term fixed-price contracts, particularly in our nat gas business with the reduction in pricing there. There was a reduction of $1.1 billion. So that $3.2 billion can be considered as part of that $5 billion of the marketing buildup last year, which has come back, so almost 2/3 of that, and the remaining amount may come back at some point, but it's a bit more structural in terms of our mix of businesses across terms of trade, classic receivables and payables, where we called out the loss of Russian supply, particularly last year. It was a heavy built-up, $1.5 billion.
That's clearly still the case today. So that's not necessarily flagging that there will be material further releases of working capital.
We also had a $0.2 billion reduction in non-RMI inventories out of industrial businesses, the likes of Astron having built up some inventories ahead of their restart and some consumer builds and some of the other businesses. So we've got $0.2 billion back there. And of course, we settled the last of the DOJ resolution payments, which we paid in February of the $0.5 billion, and then there was reductions in deferred income of $0.9 billion, which is, from time to time, we do sales of noncore byproducts out of our industrial assets to physical buy universes, primarily gold and silver out of smelters, historical streaming transactions is in that particular area.
Distributions and buyback, $5.2 billion. And other is mainly leases to get to $1.5 billion, as I said, is still a very low level for this particular year and gives us capacity to invest in the business to return cash to shareholders and the likes as well, which we've been quite busy in that front as well.
On Page 17, you can see how we've thought about the top-up returns as well. So starting at $1.5 billion. We still got our second tranche of the announced $5.6 billion cash amount at the beginning of the year. That's $0.22 that we paid in September. The final $0.2 billion of the $1.5 billion buyback that was announced was completed in July.
We've got $1.3 billion of announced transactions, which we expect to close in this half, and Gary will speak to some of those later on. That leaves $4.2 billion, what we effectively reserved or allowed for, put a placeholder around potential M&A and clearly putting a name on it. There is the particular Teck situation, where we announced that we put in an offer cash for Teck's coal business back in June. That itself, if it was to consummate, would be a material cash-funded acquisition.
And as part of appropriately rethinking the business and steering it towards its eventual outcomes, we've set itself if that transaction was to materialize, we would look to then spin off that larger coal business as soon as possible. Once the business has reached its target leverage levels expected to be within 12 and 24 months, and the non-coal business would be brought down to a leverage level of no more than $5 billion. So this is an attempt to start thinking about finding the right balance between shareholder returns today and rewarding shareholders and positioning for potential outcomes.
Now of course, if nothing eventuates from that particular situation, that $2 billion immediately comes back to shareholders or as soon as practical. Now of course, we can wait until February. We can do out-of-cycle potential increases to buybacks or the like, but that's not going away. It's in the business, and it's been reserved for a particular situation. We thought that was an appropriate balance as we build back up towards the $10 billion or putting down $2 billion and just limiting the peak of what balance sheet net debt may be at a particular point in time, where we historically said we wouldn't go to more than $10 billion to $16 billion as well to facilitate M&A and then delever appropriately as well.
That's left $2.2 billion top-up, which Gary mentioned before. We've allocated that between additional cash of $1 billion, which is $0.08, which will take the cash payment in to $0.30 next month as well as incremental buyback, $1.2 billion at $0.10.
In terms of CapEx, nothing particularly on Page 18 to highlight. It's as we were largely, so we're keeping 2023 to 2025 CapEx as it was earlier this year, $5.6 billion per annum, which at the time was felt that it was going to be $6 billion in '23. We now are calling for a 2023 CapEx of around $5.5 billion. So there is a slower spend in this particular year that will ultimately get caught up, will come again towards the end of the year when we do investor updates and just recalibrate exactly where we expect CapEx over the next 2 or 3 years. We think a reasonable guidance still out for the next 3 years is averaging $5.6 billion.
Just before I hand back to Gary, just a final recap on Slide 24, where we show details of our free cash flow at spot generation as well. We showed the EBITDA of $17.4 billion, split between the various businesses: copper, zinc, nickel and coal. The other categories are oil, ferro, our small alloy business and SG&A coming out to $0.8 billion. Marketing, $3.4 billion, conservative relative to historical performance. We've pitched that at around $3 billion EBIT.
Of course, we've been way above that in recent years, plus some of the depreciation, getting to $17.4 billion. Cash taxes, interest and other is net interest of $1.3 billion. That's at funded debt at $28 billion max at around $5.7 billion average cost of finance, with taxes of $3.1 billion.
And of course, on the CapEx side, $5.5 billion industrial and $100 million in marketing for $7.3 billion. That's a decline from $10.6 billion number, which is where we were guiding to or highlighting at the end of February. That's been a function of declines in prices, particularly in the coal part of the business as well, which itself is still a good margin, $62 or $6.8 billion.
So that's the cash flow of the business, still very healthy, still very strong, still able to invest, return to shareholders and just manage a solid business.
And with that, I'll hand back to Gary, just to conclude and wrap up.
Thanks, Steve. Before we get to our final slide, I mean maybe just following on Steve's theme of capital returns, capital allocation, I'll just touch on 3 of our M&A activities that we've concluded during the first half of 2023, which you are aware of, but I'll touch on them quickly now.
In the alumina bauxite space, we announced an acquisition of 30% -- of a 30% equity stake in Alunorte and a 45% stake in the MRN bauxite mine, both in Brazil from Norsk Hydro. Total consideration on closing, which we expect sometime probably Q4 of this year, in the region of $700 million. And that gives us a stake in a Tier 1 long-life asset. This is one of the largest and lowest-cost alumina refineries ex China. The MRN deposit, terrific resource base and terrific quality and gives us exposure to also lower-quartile carbon product, which helps us service our customers, particularly in the Atlantic market.
So a very good asset for our portfolio, fits nicely into our alumina bauxite trading business and something, as I said, that we should close in the fourth quarter of this year.
On the copper side, recently, we announced the acquisition of a little over 56% stake in the MARA copper project in Argentina. We bought that from Pan American Silver. This is a brownfield copper project that we already owned the remaining 44% of. So this brings us up to 100% sole owner and operator of this project. It's a terrific brownfield project, very low capital intensity.
It's a life of nearly 30 years. It will be a top 25 producer for the first 10 years of its life. It will produce at least 200,000 tonnes of copper. And a project that we're very excited about, as I said, brownfield, so much lower risk, much lower capital, much faster to market. And we'll bring that to market as we see the market needs those tonnes.
I think the world is starting to recognize the shortage of copper coming in the next few years, and this will be one of the first projects that able to feed into that copper demand, but before we bring this on, we certainly want to see higher copper prices.
And the other announcement that you would have seen more on the smaller end of town, but more cleaning up the Polymet structure, Polymet. Polymet's a listed company, where we owned around 82% of that company. We're taking out the other 18%, and we've made a cash offer to shareholders, and that's subject to approval from those shareholders and the courts and various other closing conditions. That will take us to 100% of the Polymet project or the Polymet company, which is in a 50-50 joint venture with Teck's Mesaba project, which we now call -- the greater project is the New Range project, a very good -- also, a brownfield project that will produce copper and nickel right in the United States, critical minerals right there where it's needed. So something very exciting for the future, and we'll allocate capital to that as required going forward.
So if we move on to Slide 21, I guess we just try to capture the key elements of our business on one slide. As Glencore, we're a major critical minerals portfolio. We have all the right minerals for a decarbonizing future, very large copper producer, nickel, cobalt, growing in the aluminum-alumina space, as you would have seen, and zinc, sometimes a forgotten commodity of decarbonization but absolutely critical in the decarbonization journey.
And focusing a little bit more on our copper portfolio. We're a leading copper producer, 1 million tonnes of copper production. And a very exciting part of our business is our portfolio of main brownfield projects, one very large greenfield project but mainly brownfield projects, and we did touch on the MARA project, which could add up to another 1 million tonnes of copper into our portfolio, which we will bring on as the world needs and as the price environment is welcoming for those additional tonnes into the market.
We also continue to grow our recycling business, and we promote circularity. We've invested in recycling over the last couple of years, and we'll continue to invest in that, both organically and inorganically. We already produced significant amounts of metals through our recycling business, and it really gives us an added advantage when we visit our customers, being able to offer third-party material, our own material and recycled material. And not only is it the responsible thing to do, but when you look at where the world is going and the requirements under law and the requirements of what our customers need to be able to provide that recycled material is really beneficial to our business, and we expect to see that business grow further in the years ahead.
In the interim, as the world decarbonizes, and we do recognize that the world needs to decarbonize as quickly as possible, but it's not achieving some of its goals in the short term, and the world does need energy to progress and to grow and to take people out of poverty, we are supplying the energy needs of today. And we do that through our coal business. But at the same time, we responsibly run down that coal business to ensure that we achieve our net-zero ambition by 2030 in our energy business -- in our company.
And then lastly, our marketing business, where we source the materials that our customers need, this is a best-in-class marketing business that year in, year out delivers terrific returns. We've always had our range of $2.2 billion to $3.2 billion EBIT that we've delivered to our customers or to our shareholders. The last 3 years, we've achieved above the top end of the range, which has been a great achievement for us. And we'll continue to work on that business to be able to supply the commodities that our customers need and provide the returns to our shareholders.
So overall, that gives us a very responsive and very highly cash-generative business model. Steve touched on the numbers, but just to reiterate them here, a spot illustrative EBITDA and free cash flow of $17.4 billion and $7.3 billion, respectively.
And with that, we'll conclude the presentation and hand it over to Q&A.
[Operator Instructions] And your first question comes from the line of Liam Fitzpatrick from Deutsche Bank.
Just 2 questions on the EVR bid and your coal strategy. Firstly, can you confirm if the cash proposal that you submitted back in June is at least as high as the $8.2 billion that was offered as part of the original merger? And linked to that, would you be willing to partner on the deal with other companies who may want a minority stake in EVR? And then secondly, if you're not successful in this approach, where does that leave your coal strategy? Will you look at other acquisitions?
And will the aim still to be -- to eventually demerge the business or something else?
And one final one, just on the operations on Koniambo. That seemed to drive a lot of -- a big part of the miss versus our numbers at least today. What sort of solutions are you looking at for that asset? And when could things actually start to happen? Could it be in the next 6 to 12 months?
Or could it take longer?
Thanks for the questions. Unfortunately, I'm going to have to disappoint you on your first 2 questions on the price and the partners on the EVR. I cannot comment on those particular issues. So we're just going to have to leave it there.
I'll move rather on to your second question around the coal business and what happens if we're not successful. I mean nothing really changes in the sense that we have a world-class coal business, multi-steam coal, some coking coal in our business across Colombia, South Africa and Australia, as you well know, and our commitment to responsibly run down that business. We've always said that we will listen to our shareholders, and -- which we continue to do, and we've said that business, if our -- the majority of our shareholders wants to see us spin that out, we would spin that out. The most recent consultation with our shareholders has been that if we are not successful in acquiring EVR, we would keep that business within Glencore.
However, we continue to consult with our shareholders. Ultimately, it's their capital that we deploy, and we get their pleasure. So if they would like us to change strategy and spin out our coal business, we'll do that at the time. But at this stage, the feedback from our shareholders is that if we are not successful in acquiring EVR, the coal business would remain within Glencore.
With respect to Koniambo, agree, very disappointing. In fact, disappointing in the sense that production-wise, even the last 3 months have been very good and a real shout-out to our management on the island. They've done a terrific job. But Steve mentioned the nickel market, which has been -- which has not been in favor of Koniambo given it's a fair nickel producer, we've worked very closely with the French government. The media has reported on a report that the French government has put out.
I assume you may have seen that. They ultimately have recognized that all 3 nickel processing facilities on the island have challenges and a solution is needed. We absolutely agree that a solution is needed. From our perspective, all options are on the table. It's right up on the top of our agenda.
We're working very closely and collaboratively with the French state and our local partners on island, and we hope to have a solution on the way forward for Koniambo as soon as possible.
Just very briefly coming back to the coal strategy. So if EVR doesn't happen for whatever reason, was this just a one-off exceptional opportunity? Or do you think there are other assets out there that could kind of improve the business and open up a demerger further down the line?
I mean in all our commodities, there are terrific assets out there. Now this is an opportunity that came up because of a particular circumstance. So we're not out there chasing assets simply because we think they're nice to buy or whatever it may be. This is a particular opportunity that came up. Of course, we'll only allocate capital to assets to buy -- provided they meet our very strict capital allocation framework in terms of returns, in terms of jurisdiction, in terms of commodity.
So it's very difficult to speculate on what may be out there that meets that capital allocation framework and that would fit within our portfolio. So it's not -- I'm not trying to be purposely evasive, but you can't point to another asset and say, "Well, we don't buy this. We'll buy that." This was a particular opportunity that's come up, and we're engaging on that.
And your next question comes from the line of Jason Fairclough, Bank of America.
Just 2 quick ones for me. First one is on resource nationalism. So last year, we had a negative surprise from Queensland on the coal royalty and, obviously, some chatter now coming through about higher royalties in New South Wales. So just wondering on your thoughts here, how you're engaging with policymakers.
Second would be on MARA. So you bought in 100% from partners who perhaps didn't want to execute. I guess from here, would you now consider syndicating this project to bring the NPV forward and use somebody else's balance sheet for the CapEx?
Jason, thanks for the question. Look, I mean resource nationalism has always been a concern for us and particularly what we saw in Queensland. You've mentioned New South Wales. We continue and we are engaging with the New South Wales government as we attempt and we do engage with governments around the world around any signs of resource nationalism or change of fiscal conditions. We obviously would like a fair discussion and transparent discussion around not only a 1-year scenario around commodity prices but history, future forecasts, investment certainty and the like.
So we continue to engage with all governments around the world on our business.
With respect to MARA, no decision has been made around syndicating. I mean, as I said, this is a low capital intensity business. So the -- and we have a very strong balance sheet, as Steve has outlined in the financial presentation. So there's no real need to syndicate out any part of this. Of course, we're always -- we work well with partners.
And if it's something we choose to do at the time, we would -- we could do that, but there's no need to syndicate anything out on MARA.
Not just as operator we can sort of get our own sort of hands across the sort of asset and make it our own planned property, optimize feasibility. It's sort of been a joint venture, it's been non-Glencore-operated, sort of historically. So there's a degree of work still to be done with sort Glencore's overall stamp on this asset and optimize it to the transaction close. It hasn't closed yet. So we're still need -- still some work to do there.
And just a follow-up, if I could, guys, on MARA. Any kind of indicative time line to final investment decision in first metal?
I mean there's no indicative time line because -- I mean we have our own time lines in terms of how long it will take to investment decision. But the investment decision will only be made when we believe that the market is there for these tonnes. This is not something that we're going to rush to market. The market is below $8,500 of copper now. We see a couple of projects ramping up around the world.
We certainly don't want to bring copper units into a market that may have additional or excess supply. So we're not sitting on our hands. We're working on the project. We are derisking the project as we are with all our projects. But we're not going to sit here and put a date out there in anticipation of perhaps demand being there.
We want to see real demand for copper. We want to see higher copper prices, and that's where we'll bring that to market.
And your next question comes from the line of Danielle Chigumira from Credit Suisse.
On the additional $2 billion reserved for M&A, how should we interpret this? Is it an indication of how likely it is you think the EVR transaction will go through? And assuming it's not successful, the EVR transaction isn't successful, what would cause you to add that back into consideration for additional returns? Or would you just keep that $2 billion in the back pocket? That's the first question for me.
Yes. Thanks, Danielle. I mean if that transaction was to not transpire, it would automatically and mechanically come back to shareholders at the first opportunity. So there's no general reservation. We've never done it.
This was just something that is a sort of a live process, and it's a material process, and we put an announcement out in June as to what our -- is the fact that we have made an offer. So it was circumstantial to the sort of major side and just where we are in that sort of transaction deliberations that are currently in change. So it will -- if there was an announcement at some point that says that's been unsuccessful, that will just get released, and it will flow back into -- it'll automatically come through in February, and I guess we would have the opportunity to access it earlier if it was appropriate through some other top-up or buybacks that was sensible at the time.
So there's no reservation or some other sort of M&A situation that's being thought about in the context of having a placeholder always there. There's no M&A budget. There's no war chest. This is just around that particular situation at the moment as being appropriate for balance sheet management sort of now and into the more immediate future should that be successful.
Very clear. And just another question on the balance sheet. So just given your previous comments, Steve, we should not be expecting a further reduction in non-RMI working capital in the second half? Is that correct?
You should not be -- yes. I think it's -- I mean it can happen, and there's still obviously working capital sort of in the balance sheet. But the easy -- the low-hanging fruit has reversed out with the sort of more normalization in valuations on our physical contracts, volatility levels, margin and trading levels. So the sort of low-hanging fruit is clearly back. There is other areas that to do with mix of business and other opportunities that could well happen that some of the remaining, largely just normal receivables payables, mix of business.
But I think for now -- I think the sort of direction of travel should be just position it for no further release, but there's probably some bias towards, if anything -- if there's going to be some movement, it's likely to be a smaller release rather than investment. I'm not saying that some of that release here is at risk of getting clawed back in the absence of a return to the highly volatile and higher-price environment, which we would welcome, I mean, both in industrial and marketing businesses. This is always one of those questionings we'd get, when do you expect working capital and how much, and it's sort of careful what you wish for because I would have preferred to have still being stuck in 2022's sort of environment both in pricing and general opportunity, which environment that we're at.
So I would say, certainly don't have a number in there. There's some bias towards further release, but the easy stuff's done.
Very clear. And just lastly for me, is $3 billion to $4 billion now the right range for marketing because notwithstanding 2022, that's about where the business has been?
We're not quite ready to sort of formally raise the guidance. I think there's still -- the world is still tricky, still geopolitics, still sort of slightly above average opportunity set, but it is more normalizing. Let's see where the next 6 months and maybe into 2024 as to how that progresses as to whether we settle in industries or whether there is some reversion to a number more in the 2s. So I think during the course of 2024 would be an opportunity for us to finally sort of get off our sort of holding pattern, and I understand it may be sort of a bit of -- sort of the noncommittal position. But I think during '24, we'd be able to -- through into first half next year to properly reconfirm whether it has stepped up either or whether it's appropriate.
And your question comes from the line of Alain Gabriel, Morgan Stanley.
Two questions from my side. So firstly, Steve, the question is for you. The coal costs were historically very much price-linked or correlated where they would fall sharply as prices correct. Is it fair to assume that this no longer is the case with the royalty structures in both Colombia and Queensland and potentially in New South Wales? And how real is the risk of these new royalties in New South Wales being introduced?
That's my first question.
It is still very sensitive to royalties. I don't know if that was your question to say that it's much more sensitive to royalties, given the changes that have been made both in Colombia and particularly Queensland. So it will -- and that's why you've had cost move between sort of 82 is where we finished in 2022, moving to a spot of 68. That's almost 90% would be due to royalties, give or take some other inputs into the business, whether in contractors, freight, inflation. So it still is a factor.
And that 82 cost, I think it peaked even higher when we were running spot scenarios in the middle of last year.
So -- but if we assume now that prices are more in people's expectations long term or at least the real froth has come out of the business, we're running Newcastle $150. It's still elevated but not nearly the levels that it was last year. Sort of it's been rebased significantly downwards. There's still some royalty that's baked into that number. If prices came down, it would still come down a bit.
I don't know if that answers your question, Gabriel.
Yes. Well, I guess, my question was more if costs were a bit stickier now with the new royalty structures in place, i.e., if we go back to a price environment of 2 or 3 years ago, will cost go back there? Or will we stay around where we are today or in the 60s? That was my question more.
No, they certainly will come down a bit, but the big sort of almost sort of, I don't want to say, windfall elements necessarily, but there is sliding scales such that they are much more punitive. The higher you go, they step up from 15% to 20% up to 40% in the case of Queensland. So there is a big sliding scale as you move higher, but you would have to reach the absolute lowest of those bands for prices to not be influenced still by those royalties, and we're still not at the lowest bands in any of the -- particularly, Colombia and Queensland. So there still is a degree of cost elasticity that we will -- if price is lower, our costs are not sticky, and they will -- they can easily come down another $3, $4, $5 on the cost to royalties.
That's very clear. And the second question is on the CapEx guidance. So you're now expensing certain previously capitalized items at Koniambo and Mount Isa and yet you have kept your CapEx guidance unchanged for the next 3 years. With the disclaimer, are you going to have a look at it at the year-end? Is that an implicit CapEx increase?
Or will we have to assume that your CapEx will come down by a commensurate amount of the -- that is being capitalized and now expensed?
We -- it's a good question because we like -- we're having our cake and eating it on that one, in that we -- it was not material enough to consider in the overall, whether there is an increase or a decrease because we are through the major planning cycles now to do with life of mines, optimizations, budgets, timing, project sanctioning. So the $5.6 billion per annum is a reasonable placeholder. I will come back at the end of the year. So I mean, like-for-like, maybe you can say it should be less by maybe $100 million to do with this expensing, but then our cost structures have been burdened with that cost, but it wasn't material enough to do too much forensics now given that geography and will come back at the end of the year.
And the question comes from the line of Alon Olsha from Bloomberg Intelligence.
So just firstly, on cobalt, you've outlined that the market's been pretty weak, both on price and payabilities. Notwithstanding the long-term outlook, which continues to look relatively positive, do you see kind of light at the end of the tunnel in the near term in terms of prices firming, volatility reducing and payabilities reaching an acceptable level? And related to that, if that doesn't happen, you've indicated before you wouldn't be shy to necessarily step into the market to support pricing and provide some equilibrium. So would you be willing to do that if that happens?
Thanks for your question. I think -- I mean you did say a positive outlook for cobalt going forward. And you've seen -- you're absolutely right. We've seen the lows. We're off the lows, and cobalt pricing is even up a little bit in the last couple of months.
So not bad but certainly not where we think it is. There's still a surplus in the market. We do believe it will take some time for that surplus to come out the market. EV use of cobalt is incredibly strong, and forecast remains very good for that. Aerospace and defense also very strong.
It's more weak -- being weaker on the sort of home use consumer goods, [indiscernible], all those sorts of things.
But that's starting to pick up slowly as well now, particularly in China. So we've also seen on the supply side, additional supply coming on to the market. As said, they're coming on. We've seen all the additional cobalt coming out of HPL in Indonesia. So you've had a supply demand in balance over the last few months, and that results in the lower prices.
But that's starting to work itself out the system. And prices, as I say, have recovered. And we do foresee future recovery in the future. But there is still excess stocks on surface and additional -- and the market isn't quite yet in balance.
So to your second question around us taking action, yes, it is something we've done before, and it is something that we will consider in the future. We've not yet to set our cobalt at a loss or supply material into an oversupplied market. We are a large producer of cobalt. And to the extent that we believe it makes sense for us to take some action in a supply-side response, we would certainly do that.
Which could be both in the lower production and/or stockpiling for a period of time or a mix or a combination thereof.
Okay. Great. That's very clear. And just another question on MARA. You said that's a project you're not willing to pull the trigger on quite yet given where the price is.
But are you able to give an indication of kind of the metrics for the project feasibility? Previous feasibility works suggest that kind of CapEx around just under $2.4 billion. What do you think about that number? Is that likely to rise? Could you give us your latest sense of cash costs for that operation?
And just related to your comment around not necessarily pulling the trigger quite yet. I mean given this looks to be a pretty low-cost, low-risk project, which would generate a good return in this market, what's preventing you from pulling the trigger now given that it could take 3 years for this -- 3, 4 years for this material to come to market?
I think -- look, I mean it's all one question there. Yes, it is a low capital intensity project. We're obviously -- with recent inflation and recent changes in various commodity prices and inputs, we're reworking our capital estimates. But -- so we're not going to put out a guidance or an estimate now. Yes, we haven't even closed on the transaction, but it certainly is a low capital intensity.
And if you look at it versus some of the other potential projects that could come on in the world, this is significantly lower from a capital intensity perspective. And that's why we're very excited about the project. It is brownfield. So -- and it is quite significant in terms of volume, 200,000 tonnes of copper in the first 10 years. It's a nearly 30-year life.
Cash costs likewise towards the low end of the production scale. So a very exciting project. If we did bring it on now, and as Steve rightly said, we haven't even closed on the transaction. So difficult to do anything until we close the transaction. And if we did bring it on our basis, our current capital estimates and cost estimates, yes, we would make a good return on it, but we like to make great returns on our assets.
And given where we see the world going in the copper shortfall in the future, we would rather feed those copper tonnes into a stronger copper market where we see prices in excess of $10,000 a tonne of copper. That's where we think we'll get the best returns on our investment for our shareholders. It's a finite life. It may be a nearly 30-year life, but we want to make a lot of money for every 1 of the 30 years and not put tonnes into the market, which in itself could oversupply market or keep prices sort of -- or inhibit prices, which impact our existing portfolio.
So it's about timing and getting it right, ensuring the world gets the copper it needs when the world needs their copper, and that's our responsible way of bringing this asset onto the market to bring that copper into the world as it needs it. But our responsible way of working for our shareholders is to ensure we do that at the best possible return for our shareholders.
And the next question comes from the line of Myles Allsop from UBS.
Maybe first question for Steve on working capital because in the past, I think we had talked around $6 billion of the working capital build would reverse over time. Is that still the way we should think about this over the medium term? Or is it actually more of a structural build in working capital that we saw last year?
Thanks, Myles. I don't know exactly where your $6 billion comes from, but we sort of articulated, at least on the marketing component of that -- remember just last year, there were a lot of difference in geographic places of where it may have shown up in the cash flows as a working capital movement, but it wasn't directed towards investment in our balance sheet. It was paying out the likes of the resolution settlements on the investigations. It was paying various other VATs and payroll accruals and the likes as well. So the marketing component we sort of pointed towards about $5 billion, and we grouped that up between the 3 buckets of initial margin, physical forwards and normal receivables/payables, which the latter was the $1.5 billion, which we noted as being more structural to do with loss of Russian supply in the terms of trade that we're able to command historically with that.
So $3.5 billion was, if you like, the ones that we said was cyclical, was -- should come back in the ordinary course of business. And $3.2 billion of that $3.5 billion, being those 2 components, has now reversed. So that was just a passage of time. The $1.5 billion was potentially a bit stickier, which to the earlier point of someone raised to say, well, what should we think about as a potential future sort of the release. Yes, that $1.5 billion still on the balance sheet, it's working for us.
It's generating returns, cost of finance, hurdle rates. It's all factored into our terms of trade. Our marketing performance has been strong. Return on equity is good. It's recovering its interest and then some.
So it's not dead capital. It's just a different mix of business that's orientated towards having moved away from non-Russian business sort of historically.
So of that $5 billion, $3.2 billion has come back, $1.8 billion. So maybe, yes, there's a few hundred million, which is still could be a release passage of time automatic. That's still as of a point in time. But we're starting to get into less material amounts to think about and to be responding to on a 6-monthly basis. We should have -- yes, we're going to have cycles of working capital during periods that can go up or down $1 billion depending on margin calls, depending on other factors, and we would explain what they are.
But the big movement of last year in marketing and the sort of reversal of the material nature has already occurred this year.
Okay. Maybe on the M&A front as well. I know you can't talk about Teck. It's a live transaction, but more generally, obviously, we've had the Samara transaction, Polymet. I mean both seem like they're more tidying up the portfolio and opportunistic.
But how should we -- do you see more opportunities coming through apart from Teck or -- Alunorte, obviously, was another move. Is this the new Glencore as such that we're pivoting a little bit more towards gross again over cash returns? And which commodities do you feel are underrepresented in the portfolio in terms of where the growth could be going forward?
Myles, I don't think you could say it's the new Glencore. I mean Glencore M&A has been in the DNA of this company since -- for many, many years. So -- but we've also been very strict on capital allocation and ensuring that we allocate capital towards assets that are correct for our portfolio and provide the right returns for us. In the instance of the various M&A that we've undertaken over the last period of time, these have happened because we've had the opportunity to do that. We've had a terrific relationship with Norsk Hydro.
This opportunity came up because they wanted to divest some stake. This was not a public tender, public market sale. This is through a very close marketing relationship and working relationship with a terrific company and something that we were able to capitalize on.
MARA, something similar. We brought that new one stake first, and now we bought that Pan American Silver stake. We were already a shareholder in that project, and it's something that a project we're very excited about. It perhaps didn't fit the portfolio, specifically for Newmont and for Pan American and was an opportunity for us to be able to consolidate those stakes.
So those have been very good. Polymet have been a shareholder for some time, and taking out the minorities probably makes a lot of sense. And obviously, with Teck's Mesaba project next door, putting those 2 together made a lot of sense. So it's not that we're out there with a new way of approaching M&A. This is still the way we've always approached M&A, which is looking for the right value, right returns, right commodities for our company, and we continue to do that.
Okay. Maybe one very last question on coal price outlook. Obviously, prices have held up still pretty well. What would stop coal prices from falling back below $100 over the next sort of 2, 3 years? Do you think the prices are now pretty well bedded at this sort of level?
Or why wouldn't we go back to where we were 2, 3 years ago?
Look, I mean, it's very difficult to predict. No one's got a crystal ball, Myles, but coal is so dependent on the supply/demand and what happens. Now we've seen so many different things happen in the world. You've seen Indonesian supply increase significantly. You've seen imports in China have grown significantly.
China is still building coal-fired power stations. India continues to grow imports. So both on the demand and the supply side -- on the supply side, what does give us some comfort that -- and particularly in the high quality, which is where we play. Remember, Indonesia produces mostly the lower quality. Our mines generally produce high-quality coal, steam coal.
We're not seeing any new capital allocated to new high-quality steam coal mines.
So -- and mines are finite resources. We've closed 3 mines in the last few years, and we continue to close a number of mines going forward under our responsible rundown strategy. So we've seen that it's very difficult -- on the supply response side and high quality, you don't see new supply plans coming into the market. And on the demand side, demand still remains very good. As I say, China, okay, mostly low quality, but that's taking most of the Indonesian, but we have seen even Europe last year imported over 85 million tonnes of coal.
This year, we expect them to also import high-quality coal. Middle East, Southeast Asia continued to take coal. It still is the cheapest form of baseload power for and particularly in developing nations. And if you don't have supply-side responses and the demand is still there, there's no reason to think that coal prices, particularly for the high quality need to fall any further.
And your next question comes from the line of Chris LaFemina from Jefferies.
Actually, I have 2 questions. So first, on the 2 DOJ monitors. Gary, I think you said that, that was going well. What exactly are the DOJ monitors doing? What's their involvement in the day-to-day business?
And how might their involvement impact the way the marketing business actually operates?
And the second question on coal strategy. Can you explain the rationale between why it makes more sense to list the coal business -- demerge it and list it if you do an EVR deal and then it doesn't make sense potentially to demerge coal if you don't do any EVR deal? I would have thought Glencore coal on its own is smaller float, maybe easier to list in that regard. So it's not really clear to me why listing Glencore coal as a stand-alone might not make sense. I understand that you've been consistent with the point about -- it depends on shareholders' feedback and shareholders want you to keep that business.
But I'm not sure why it makes more sense to list the combined coal business and not Glencore coal on its own.
No problem, Chris. So just quickly on the DOJ and the monitors. They started here in June. Their involvement is to assess our compliance program and our obligations that we've made -- or commitments, excuse me, that we've made to the DOJ but largely around assessing the effectiveness of our compliance program and assessing our culture. It's something that -- and I've said before, I, in fact, think it's quite good to have these -- the monitors here.
I'm very proud of the compliance program that we've implemented in this company, has been implemented over many, many years, and we continue to grow it and strengthen it over many years. So having the monitors here is, in fact, a positive because we have a terrific set of professionals who are going to try and poke holes in it and look to see if there's any weaknesses so we can strengthen it. We're very proud of it. As I've said before, I think it's the gold standard.
So it's fine. Their involvement around marketing that you asked around or the ability to impact marketing, I think, is limited in the sense that our marketing department operates in full compliance and conformity with our compliance program. And as Steve pointed out, over the last 3 years, we've performed above the top end of our guidance range. So I don't see any impact on our marketing business. Our marketing business is very strong and works in line with our compliance program.
In terms of the coal strategy, the way we look at it is this, we've always said that if our shareholders want us to spin out our coal business, we would spin out our coal business. And there are -- and I'm just talking Glencore stand-alone. Our most recent consultation, the majority -- the overwhelming majority of our shareholders were very supportive of keeping our coal business within Glencore and following our responsible rundown strategy. We have also consulted with our shareholders around a potential spin-out if we are successful in acquiring Teck's coal business. And there is an appreciation from our shareholders that when you put our world-class coal business together with Teck's very, very good steam -- met coal business, you actually get an even bigger, better coal business.
And the ability for that business to, in fact, trade at a better multiple to even Glencore stand-alone coal business is certainly there. There's a value creation by putting a met coal business out of Canada together with our steam and met coal business in Australia and our steam coal businesses in Colombia and South Africa. So you do get a bigger, better coal business. Despite the fact that our coal business stand-alone is a world-class coal business, you can get even a bigger and better coal business. So stand-alone, we believe that business -- and we have no issue around size, we believe the New York market would be able to swallow that up very quickly.
The demand for stock in a stand-alone business like that, particularly the amount of cash flow that it would generate is substantial.
So our shareholders are supportive of this value-accretive spin-out if we are successful acquiring Teck's met coal business. If not, we're very happy to keep our world-class steam coal and met coal business within Glencore. But of course, we continue to consult with our shareholders. And if at any stage, the majority of our shareholders feel that it's better to spin that out, we would do that, too.
So in that case, would you think that in the event that you do a deal with EVR, the valuation uplift that you would get on that combination would be dependent upon a demerger? In other words, you wouldn't get that value creation within Glencore if you kept coal because if we think about -- unless the market is totally misvaluing coal within Teck versus the way it values coal within Glencore, I would have thought that, that valuation capture happens whether you keep coal or spin it off. So I'm just trying to understand what the -- why there's a better arbitrage in terms of valuation on a merger/demerger than there is on a demerger as a stand-alone without doing any EVR deal. Does that make sense when I ask that question?
I think so. I mean maybe I'll answer, and then tell me if I've answered your question. If you
look at Glencore and the valuation of Glencore trades and our EBITDA multiple we trade at, we don't believe we trade -- we're not getting true full value for our coal business. There's no question. We don't believe we're getting true value for our coal business.
Even as a spin-out, if we spun out our coal business and the way the market values stand-alone coal businesses, and you can look at the likes of Whitehaven, New Hope and the likes in Australia, even the market, we don't believe is valuing those correctly.
So just spinning out our coal business by itself, we don't believe it's going to create any value for our shareholders in the sense that on a see-through basis, it's not providing any -- or it's not providing the true value within Glencore or if it was stand-alone. However, when we take Teck's business and we put it with our business, now we have something that is more geographically diverse. It is more product diverse. It really becomes the best, biggest, greatest coal company in the world, cash generative through the cycle, met coal, steam coal, as I say, 4 different continents. So we believe that, that would, in fact, achieve a better rate or rerating versus just a stand-alone Glencore coal company being spun out.
And we believe that is something that is value accretive for our shareholders, and I'd like to see.
And your next question comes from the line of Sylvain Brunet from BNP Paribas.
Two questions for me on the portfolio, please. The first one on Viterra-Bunge, if you could perhaps talk to your commitment in the long term to the 15% stake you would end up within Bunge.
And the second one is on lithium. You announced this joint marketing initiative with Eramet out of their project in Argentina. If Glencore's keen to develop a marketing presence in lithium, would you say this could involve some backward integration in assets as well eventually if and when opportunities arise?
On the Viterra-Bunge, we'll get a 15% -- probably be higher than a 15% stake with the Bunge buyback. And we have no commitments around what we will do to that 15% stake. I mean we will own a terrific share in a terrific agri company that is across the whole spectrum in terms of origination, supply and the likes. Bunge's a terrific company. Viterra is terrific, and the 2 together really is world-class.
So we're very proud to be shareholders in that company. And no -- we've made no decisions, or we have no plans around the shareholding that we will have in that joint company.
With respect to lithium, yes, we entered to a marketing arrangement with Eramet in Argentina. We have a number of marketing arrangements and a flow of lithium through our books largely through our recycling business. It's a growing business. It's a profitable business. Our customers are pleased with the fact that we can supply them all the critical minerals that they require, whether they be the nickel, cobalt, copper and lithium, whether it be recycled, whether it be primary.
Trade and material, we have all of those in our book.
For us to backward integrate into operating assets and owning assets, it's unlikely that we would get into lithium. It's not something we like very much in terms of the abundance of the material and how much of it is sort of would enhance that -- of operators who can increase supply for the benefit of what they produce, which may be batteries or whatever it may be and rather not a supply-constrained commodity. So not something that we like, and there's no intention at this stage to look at any sort of equity investments or operations of mines.
And your next question comes from the line of Ian Rossouw from Barclays.
Just a question on Zhairem. It would be great if you can give us an update just to how the ramp-up is progressing. And I see in the release, you talked about that you've delayed processing owned material in favor of the third party. Maybe just provide a bit of details around that, please?
And then secondly, just on -- just a follow-up on cobalt. Your guidance you've given in February, I think, has volumes for next year, ramping up to 60,000 tonnes. I mean do you think given what you've said about the market dynamics, that is still an appropriate sort of target for production for next year?
I'll let Peter talk on Zhairem, and I think Steve can take the guidance on cobalts.
Just very briefly, Ian -- just very briefly on Zhairem. The remediation project is progressing at a steady pace, and we've recently commissioned parts of the plant that needed repairing, and that's now operating. The ramp-up continues through the second half. And in fact, our mill throughput rate goes from 50% of design -- or 56% of design capacity in the first half to around 75% of design capacity in the second half. And early in the new year, we should be running at the 5 million tonnes per annum throughput rate.
The third parties, Peter?
Well, that's always -- we've -- it favored us at the moment to do that in terms of where the markets are the products that we're producing at the moment. So it favors us to take in some of these third-party products and then sell on some of the concentrates to other parties. So there's always a balance in all of those issues where we're looking for maximum value.
Some cobalt treat longer-term guidance that was -- it is fail, I would say a cautionary approach towards that. It will be lower as we rerun and recalibrate different plans across the whole sort of cobalt sphere that we have at the moment. So that will come down further to Gary's sort of comments and, I think, Alain's comments earlier on around just managing through this period of sort of period of oversupply. So we will -- it will be less, but we're in the middle of that whole process to determine these base case sort of production, stock management, stock movements, if you like, around cobalt. So yes, it's going to be lower, and we'll come back to you in a few months.
Maybe just a follow-up. Have you stockpiled any in the first half? Or did you sell at around '22 that you produced?
We have stockpiles so -- which also affects obviously some of the costs coming out of the copper business. If it's not sold, that does also temporarily inflate the cost somewhat.
And in terms of expectations for the full year, this production versus sales, can you give us any guidance there?
Not specific guidance, Ian, other than sales will be less than production.
And your last question comes from the line of Daniel Major from UBS.
Three questions. The first one, just back to MARA on -- in Argentina. Can you give us any indication on assurances around capital controls that you have around the project yet? Or is it too early to tell on that? That's the first question.
The second one, just on your alumina-aluminum strategy, you had the Alunorte acquisition also, I suppose indirect acquisition of Jamalco through Century. Are you looking to acquire more assets here? And is this a focus more on the bauxite and alumina? Or are you looking more upstream into aluminum smelting as well? I'll start with those 2.
Look, on the alumina strategy or bauxite aluminum strategy, this was, as I said, an opportunity that came up to invest in a Tier 1 world-class, long-life assets. We've been trading aluminum -- alumina bauxite for many, many years very successfully. And having an equity stake in this Tier 1 low-cost and low-carbon asset certainly helps us in that -- in our marketing business. I don't think you should expect us to be looking to do any large M&A on -- in the alumina-aluminum bauxite space. This was something that is, as we said, it's about a $700 million check.
And certainly, the IRRs are very good on that business. And it will supplement our marketing business.
But of course, it doesn't mean that we're not going -- we're not aware of a live or open to additional opportunities within that -- in that space. But I don't think you should think that we're going out there aggressively looking to buy bigger assets in that area. So we're very comfortable with what we bought, and it supplements our existing marketing business.
On MARA and capital controls, I mean it's a bit too early to talk. But certainly, when we do eventually get to the stage of approving that project, we'd have world-class capital controls, we'd a world-class projects team managing that project to ensure that we keep to budget, keep the timetable, but certainly way too early to preempt any of that now.
Okay. And if I could just squeeze one last one in. Since you've changed your distribution strategy with your $10 billion net debt target, there's been, I guess, consistent one-off adjustments, whether it's DOJ, M&A, et cetera. When we look at your $2 billion provision for M&A that you put in now, obviously, this is related to a specific transaction. But is there a threshold on size of potential M&A deals in the future that would cause you to continue to hold capital back?
Is there a threshold number or size of deal?
This has certainly met that threshold. So we know where -- we know what's in, in terms of sort of material where we've been historically -- I mean some of those discussions like the sort of Alunorte was brewing for a while, and there was a lot of work and engagement there for a while and was sort of in the working behind the scenes. That certainly was not something that it was a small enough, of course, size. So you've got some sort of bookends there. So it would have to be sort of multiple billions for us to be thinking that some reservation was appropriate.
It's always easier to do it when there's a live situation with some sort of market knowledge. If there's things that we're working on, we would have to think very sort of carefully as to whether that was appropriate.
But in any event, we've sort of got these guardrails around the business with its sort of -- and then cap, we've always said would take a maximum to $16 billion. If there was opportunities that -- within M&A world, this is certainly something that is sort of testing that for the first time. There hasn't been anything near the size in terms of sort of materiality as we've been more working M&A in the few billions here or there, whether it's sort of buying or selling. This was quite sort of a specific situation that sort of materialized through engagement with Teck during the course of this particular 6 months. So it would be something in a very high sort of dollar range that was more in the public sort of domain as to whether that was appropriate that we could sort of engage with and get -- and have these discussions as to whether -- and Board deliberations that, that was appropriate.
So I don't know exactly where the number is, but obviously, basis, this transaction was appropriate, and it's not like we've reserved the full amount. We've sort of taken a balanced, measured approach towards allocating some capital towards a potential transaction. It would need to be material. This clearly is. Other transactions that are $1 billion or $2 billion or $3 billion is sort of not material, maybe at some point.
I don't know where that cutoff is. It probably needs to be tested. That's important.
That concludes the Q&A session. And I will now hand the call back to Gary Nagle, CEO, for closing remarks.
I guess just a thank you to everybody who joined the call. In summary, a very robust, very cash generative, very strong business in all of our commodities, the critical minerals for the future, the energy needs of today, a growing recycling business and a top-class marketing business and terrific shareholder returns for our shareholders.
So with that, I'd like to say thank you. And any other further follow-up, Martin is available for you. Thanks very much.