Wednesday, January 26

Production at Sasol Secunda falls due to shortage of coal supply

RYK VAN NIEKERK: Petrochemical group Sasol has lowered its expected production volumes from its Secunda plant by around 9%, due to a drop in production at several of its coal mines. Several major events, including security incidents and adverse weather conditions, have reduced coal production by around one million tons. Sasol, of course, produces fuel and chemicals at its Secunda plant.

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On the line is Fleetwood Grobler, Sasol’s CEO. Fleetwood, thank you very much for joining me. It seems that the market did not like this ad at all; Sasol’s share price is down 7.5%, representing a drop in market capitalization of more than R13 billion. Is the loss of a million tons of coal that significant?

Sasol stock performance for one week

FLEETWOOD GROBLER: Good afternoon listeners and thank you, Ryk. From a management point of view, we are equally disappointed. [with where] we meet today. I think the movement you have seen is the result of the market not anticipating it. We are in an area where the number of incidents has accumulated to a point where we have to… bring that news to the market.

But we are also confident that we have strong plans in place to deliver on the guidance that we have provided, given that we have taken a very, very realistic approach here for the guidance that we provide today. We believe there could be more benefits, but we do not want to plan or communicate those benefits before [have] Proven recovery plans that we have put in place now.

RYK VAN NIEKERK: What is the real effect of this loss of one million tons of coal on your production levels at the Secunda plant?

FLEETWOOD GROBLER: The impact is in the guidance we provide. Previously, we indicated that we forecast the production guide for the whole year between 7.3 and 7.4 million tons of products, both fuel and chemical, from the Secunda complex. Today we have given the guidance that it is in the range of 6.7 to 6.8 million tons. That is the downward revision on the impact of the product that we have guided, and the reason is that due to the impact of coal we have lost raw material to produce these volumes, and now we have to recover from there through a series of aspects that we are tackling and launching to guide the output of the volume that we have given.

RYK VAN NIEKERK: That must be very frustrating and financially damaging, as the price of fuel is currently at an all-time high. How much of this disruption would affect your ability to produce fuel?

FLEETWOOD GROBLER: Then, the production of chemicals and fuels is revised down from 7.3 to 6.7 [million tonnes]. That is the impact. So if you can calculate it arithmetically, it’s less than 10% for the full year. Yes, it is disappointing for us, but I think we have some advantage and we have communicated to the market today, as I said, that we want to demonstrate that advantage and block it, and then we will hold the market. Up to date.

We are about to announce our semi-annual results in the February cycle, and will then provide market guidance also in January as we get closer to that semi-annual results cycle. But we want to show that the plans we implement are solid, to see if we can even augment this guide. At this time we believe this is a realistic assessment.

RYK VAN NIEKERK: So do you think it’s pretty close to normalized production levels, even putting some plans in place to try and boost them?

FLEETWOOD GROBLER: The plans we have are the first to ensure that our operational discipline and safety are at the standard that can sustain predictable and assessable operations. That is first.

The second thing is that we will work to increase our arsenal, because that gives us room for maneuver, it gives us the flexibility to optimize all the quality of coal from the various sources and in our synthetic fuel operations. All of that unfolds now in the next four to six weeks.

I think it’s also important to understand that, from our measurements, the Secunda complex has had the highest rainfall in the last 19 years.

We measured these rainfall statistics at our own resort site, which in the November period were the highest in 19 years.

Only in November we had almost 300 millimeters of rain, while last year in November we had [a normal] 111 millimeters. In December we already had 192 millimeters, and this is affecting [us]. Last year, for the whole of December, we only had about 99 millimeters.

This is affecting the operating activity of the coal mine. For example, one of our main suppliers tied to our Secunda coal mine supply system is an open pit mine.

This supplier has lost almost 300,000 tonnes of coal in the last six weeks due to the impact of rain and other unforeseen events. All of this consumes our reserves.

It has also contributed to lower levels of storage than we want to have.

RYK VAN NIEKERK: The great plant of the Sasol armory has been the one in Louisiana, United States. How are operations doing there?

FLEETWOOD GROBLER: Operations are going very well. Right now, just to be very clear, this coal supply issue has no impact on our US-made products or our European-made products. That plant is increasing our plan in terms of the three to five years that we have indicated, and it is producing well, and we are seeing very good income coming from the complex in which we invested.

RYK VAN NIEKERK: How big is the Secunda plant still, relative to the other operations within Sasol? How important is it still for Sasol?

FLEETWOOD GROBLER: The plant continues to contribute more than 50% to our bottom line, bottom line and, of course, continues to be an important part of our business. Therefore, we are so disappointed that we ran into this situation with a number of contributing factors.

But, as I say, we have plans to deal with that and we will make sure we leave no stone unturned to get back to the normal production that we can expect and deliver at this complex.

RYK VAN NIEKERK: Fleetwood, thank you very much for your time. That was Fleetwood Grobler, the CEO of Sasol.

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