Sasol’s saleable production rises 22%

Improved runs, productivity and cost-efficiency

LISTED chemicals and energy group Sasol’s saleable production for the first quarter of the company’s current financial year increased by 22 percent, compared with the same period last year, the company said yesterday.

Sasol said production for the three months to September was 10 million tons, up from the 8.2 million tons last year.

“We are starting to see improved production run rates, labour productivity and cost efficiency resulting from our business improvement programme. We are on track to achieve our targeted ‘Mining unit cost of production’ of between R260 to R270 per ton for the financial year, which equates to the 2016 ‘Mining unit cost of production’ plus inflation and excludes the effect of the strike cost. This is a strong indicator of the business stabilising, post the strike, and returning to normal operation,” Sasol said.

Production at the Natref refinery at Sasolburg was down 6 percent at 4.8 million barrels, compared with 5.1 million barrels in the same period last year. The company attributed the decline in production to an unplanned plant incident late June, which flowed into July. The incident followed an unexpected Eskom supply interruption, Sasol said.

“The plant is also undergoing a planned shutdown in (the second quarter of the current financial year) which will focus on improving the performance of the Crude Distillation Unit. Accordingly, based on our current plans and projected production run rates, we still expect to achieve the targeted volumes in support our liquid fuels sales guidance of approximately 60 million barrels,” Sasol said.

Sasol also gave an update on its flagship Lake Charles Chemicals Project in the US, which it said was 79 percent complete. The company said it was making steady progress with the project, whose cumulative capital expenditure to date stands at $8.2 billion (R110.6bn).

“The impact of Hurricane Harvey has been estimated to result in a schedule delay of approximately four weeks and additional costs of approximately $130 million. We, however, still expect start-up of the first units to take place in the second half of 2018 and the project to remain within the approved $11bn budget,” said Sasol.

It said that, once completed, the project would reshape Sasol as a chemicals company and diversify its earnings.

Meanwhile, Sasol said it had hedged 70 percent of its exposure to the rand/dollar exchange rate and 84 percent of its exposure to crude oil.

It had completed its hedging programme for the 2018 financial year. “The premium paid for oil hedges (in respect of the 2018 financial year) amounts to R1.2bn, which will be recognised as an expense in earnings,” Sasol said.

The hedging programme mitigates against the financial risk posed by lower crude oil prices and exchange rate. In its latest annual report, Sasol said oil prices were at risk of staying much lower for longer and might impact on our business’s profitability.

For every $1 per barrel change in the annual average crude oil price, Sasol’s operating profit was impacted by approximately R850m in the 2018 financial year. Sasol said it was able to operate profitably and sustainably at $40 a barrel.

On the other hand, the group has estimated that a 10 cent change in the annual average rand/dollar exchange rate would impact its operating profit by R710m.

Sasol’s share price on the JSE yesterday closed 0.12 percent lower at R391.38.