Sasol’s investors look to 2019 and beyond
Sasol delivered an uninspiring set of annual results on Monday, but investors live in hope that the synfuels company will deliver something spectacular in 2019 and beyond.
A lift in oil prices was a boon for Sasol, which produces fuel from coal at a break-even price of $40 a barrel, but a range of issues — many of them one-off items — caused earnings to more than halve for the year ended on June 30. Next year will be a defining year for the company, or at least that’s the mantra for Sasol executives.
Sasol’s investment in the Lake Charles Chemicals Project in Louisiana is expected to begin to pay off in 2019. The R11.1bn mega-project, which incurred delays and cost overruns — thanks in part to Hurricane Harvey — and proved a bugbear for Sasol investors, is expected to contribute $250m to $300m to company cash flows.
Chemical and sales volumes, which had been hit by interrupted electricity supply and slow economic growth in 2018, are expected to rise in 2019, despite a planned shutdown at the synfuels plant.
In 2019, the balance sheet will be geared to 40% to 44%, but from 2020 it will begin deleveraging rapidly. Sasol teams already are laying the groundwork for potential acquisitions.
The Sasol share is up 36% over the past three years and eight out of 14 analysts recommend it as a buy, according to Bloomberg. Four recommend to hold and two to sell.
Harmony Gold is not the company it was a few years ago, with improved grades, a better set of longer-term assets and a pipeline of what promises to be decent projects.
It has one glaring problem in the next five years, which, by its own admission, is an astonishing drop off a production cliff, when output falls by some twothirds to below 500,000oz.
CEO Peter Steenkamp strikes a sanguine note when talking about the gap that’s coming as the company closes old mines in SA, the base of the company’s annual production, and the start of the large WafiGolpu mine in Papua New Guinea, where it is partnered with Australia’s leading gold miner Newcrest Mining.
Steenkamp outlined a host of projects in SA and Papua New Guinea that will go some way towards filling the gap, but exactly how much of the 1-million ounces they will replace is unknown with many of those projects the subject of feasibility studies.
The funding mechanism of Wafi-Golpu, where Harmony has to fund R20.4bn for its half of the $2.85bn mine, plant and infrastructure development, has long been a source of debate among analysts and management. Steenkamp said Harmony will come up with a funding model before June 2019, by when it expects the mining licence to be awarded.
With shareholders getting a tantalising glimpse of the cash that could come their way from Hidden Valley and the newly acquired Moab Khotsong it’s an open question whether they will have the patience to wait for Harmony to repay a chunk of its R4.9bn net debt, as well as fund a massive capital bill in Papua New Guinea, then wait five years before the mine comes into production and another decade to repay the investment.