Sasol predicts lower returns

Sasol lowered estimated returns at its $11 billion Lake Charles chemicals project in the US and said it’s disputing a revised tax bill in SA.

Sasol projects an internal rate of return of 7% to 8% at Lake Charles, which will convert ethane into plastics and other products. The range is based on “conservative” ethane prices and compares with a previous estimate of about 8%, co-CEO Steve Cornell said.

The company reran the numbers after “limited structural changes” to the market since February, when it last published longterm IRR estimates, it said in an earlier statement. Sasol’s weighted average cost of capital for the project is 8%.

The return estimate’s lower “because of the views in the industry primarily around polyethylene margins pushing it down”, Cornell said. The cracker apparently still remains cost competitive and is at the lower end of the cost curve for ethylene producers.

Sasol, which yesterday reported full-year earnings that beat estimates, said last year the cost of the project in Louisiana had escalated almost 25%, prompting it to make cuts elsewhere. Capital expenditure at Lake Charles reached $7.5 billion as of June 30 and the project’s on schedule and in budget, Sasol said yesterday. Sasol said it is disputing a revised assessment by Sars for 2013 and 2014 that could result in a “potential tax exposure” of R11.6 billion. Sasol submitted an objection and has resolved with Sars to suspend payment, it said. Sasol’s earnings, excluding one-time items, for the year through June fell 15% to R35.15 per share. That beat the R34.66 average of analyst estimates compiled by Bloomberg. Profit was hurt by a stronger rand and lower oil price.

Sasol benefits when the rand’s weaker because most of its products are sold in dollars, while its costs are mainly in rands. – Bloomberg