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Coal constraints take the shine off Sasol results

South Africa’s petroleum and chemicals giant Sasol delivered mixed results for the six months to December 31, citing operational challenges locally, where coal quality and supply were constrained, resulting in lower fuels and chemicals production. Picture: Karen Sandison/African News Agency/ANA

South Africa’s petroleum and chemicals giant Sasol delivered mixed results for the six months to December 31, citing operational challenges locally, where coal quality and supply were constrained, resulting in lower fuels and chemicals production. Picture: Karen Sandison/African News Agency/ANA

Published Feb 22, 2022

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SOUTH Africa’s petroleum and chemicals giant Sasol delivered mixed results for the six months to December 31, citing operational challenges locally, where coal quality and supply were constrained, resulting in lower fuels and chemicals production.

The interim dividend was passed. Headline earnings fell almost 20 percent to R9.5 billion, due to noncash adjustments. The group said higher oil prices helped cash generated by operating activities jump 73 percent to R20.3bn.

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Earnings before interest, tax, depreciation, and amortisation (Ebitda) increased 2 percent to R31.2bn.

The group also reported a R5.3bn loss on the valuation of financial instruments and derivative contracts.

Sasol benefited from a 62 percent rise in the average rand per barrel price of Brent crude oil, and a 49 percent increase in the average chemicals sales basket price.

“Mining productivity was 16 percent lower, due to safety incidents, higher than expected rainfall, and slower than expected ramp-up of the full calendar operations integrated shift system,” the company said.

Sasol said it suffered five workplace fatalities during the six months. Last year, it also experienced a fire at Shondoni mine, as well as a high-wall failure at Syferfontein mine – both had no fatalities.

Chief executive Fleetwood Grobler said: “We are redoubling our efforts with focused interventions. Safety is our top priority, and we are committed to turning the tide, to ensure our people return home to their families unharmed, at the end of each day.”

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Grobler said Sasol was also focusing on initiatives to address coal quality and supply in its South African value chain leading up to June 2022, through increases in production and productivity, as well as higher coal purchases and stockpile levels.

“As of Friday, February 18, our coal stockpile was just under 1.1 million tons, and we are well on track to meet our target at the end of this month. Higher external coal purchases to replenish the stockpile will continue until the baseline is restored. These purchases are tracking our plans, with procurement processes well in hand,” he said.

Grobler said Sasol’s Secunda Operations was also on track to achieve the revised target with operational issues largely resolved.

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“While the recovery continues, gas loads to Secunda Operations will be optimised to protect value chain beneficiation.

“In line with the Secunda Operations recovery plan, we are stepping up production for Chemicals Africa,” he said.

Last year, the Secunda operation was revised downwards in December due to challenges with coal availability and quality.

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Umthombo equity analyst Matthew Zunckel said the results showed substantial improvement in the cash flows and balance sheet.

“Sasol is fortunate that both chemical and oil prices proved very favourable over this period, as other drivers of the business within management’s control proved disappointing. Both the mining productivity for feedstock, as well as the overall safety performance, were disappointing and pose risks to the investment case for the business,” he said.

According to Zunckel, the management needs to make sure the group is well-positioned for down cycles.

“This means stabilising mining productivity, minimising downtime at operations, as well as providing for a long-term sustainable feedstock supply to ensure continuity of the group’s operations.

“Environmental concerns are also a key factor that will need to be addressed long term, and management has tabled a plan to shareholders in this regard.”

Zunckel said the board was erring on the conservative side in not declaring dividends during this period, and there was a chance of a dividend payout in the full-year results.

Sasol share price closed 3.4 percent lower at R318.08 on the JSE yesterday.

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