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- A coal supply shortage at Secunda is expected to impact earnings by between R3 billion and R5 billion.
- The shortage has resulted from a series of unfortunate events, ranging from safety incidents to poor weather.
- Sasol insists the problems at Secunda are not a result of spending cuts.
Coal supply shortages affecting Sasol’s Secunda plant will wipe up to R5 billion off the group’s earnings in the current financial year, the group told investors.
In a call on Tuesday, the synthetic fuel and chemicals producer explained that some 600 000 tons of production cuts prompted by a significant coal shortage, will translate into an impact of between R3 billion to R5 billion.
“This will have a significant impact on our earnings,” said Sasol CFO Paul Victor. “However, I want to caution that the volume cut is not linear. There are cost items that move positively if the performance of the company is and we can also optimise in other areas.”
Sasol CEO Fleetwood Grobler said the impact on earnings was a “very realistic number”, as estimated by the group. “We have not included all the possible upsides because we have taken the view that we want to demonstrate recovery, before raising the upside,” he said.
Earlier on Tuesday Sasol had announced to the market that the coal supply issues were expected to hit production and it revised its forecasted volumes from its Secunda plant to 6.7 and 6.8 million tons, down from estimates of 7.3 to 7.4 million tons previously. Sasol produces synthetic fuels at Secunda with the use of its world leading coal-to-liquids technology.
The news sent Sasol’s share price tumbling more than 7% to hit R255 a share during afternoon trade on Tuesday.
Sasol swung back into profit in 2021 after huge losses in the prior year which were linked to major Covid-19 disruptions put strain on the group’s balance sheet which was already stretched by the debt incurred for the disastrous Lake Charles Chemical Project, which ran $4 billion over budget.
Short of coal
The significant shortfall in coal supply, Sasol said, resulted from a variety of issues at Sasol’s coal mines where, since the end of October, three major production impacts have caused more than 1 million tons of lost coal production. These include significant safety events, adverse weather conditions and some significant operational challenges.
In Tuesday’s call, a number of investors queried whether the problems were linked to spending cuts which Sasol has instituted last year as part of a strategy to pay down debt and avoid a rights issue.
But group executives insisted this was not the case.
“None of this indicates underinvestment,” said Victor. “There were a couple of unfortunate events here that resulted in us being where we are. But we do believe that we can manage ourselves out of it.”
Sasol made the call to cut back production when last week its coal stockpile hit 680 000 tons, as opposed to a target level of over 1.2 million tons.
Bernard Klingenberg, Sasol’s executive vice-president of energy operations, said the stock pile was at 1.1 million tons at the end of September. In mid-October a fire at Sasol’s Shondoni mine caused a 280 000-ton production loss.
In early November, an underground water reservoir incident at the Bosjesspruit mine, which resulted in three fatalities, caused another 195 000-ton loss.
Then, problems with equipment and high rainfall impacting an external coal supplier – Thungela Resources’ Isibonelo mine – caused another 260 000-ton loss.
Sasol’s priority now is to intensify the focus on operational discipline and safety and to rebuild the coal stockpile to targeted levels.
“We are confident that the plans we’ve got in place will take us through this really difficult spot,” said Grobler. “I believe our plans will achieve the results that it intends, and we’ll work from there to restore normal delivery of our coal system to synfuels [Secunda].”