Production at Sasol Secunda declines on coal supply shortfall

After experiencing the highest rainfall in 19 years, CEO Fleetwood Grobler says ‘we will make sure that we leave no stone unturned to get back to the normal output we can expect and deliver from this complex’.

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

On the line is Fleetwood Grobler, the CEO of Sasol. Fleetwood, thank you so much for joining me. It seems that the market didn’t like this announcement at all; the Sasol share price is down 7.5%, which represents a drop in market cap of more than R13 billion. Is this how significant a loss of one million tonnes of coal is?

Sasol share performance over a week

FLEETWOOD GROBLER: Good afternoon listeners, and thank you, Ryk. From a management point of view we are just as disappointed [with where] we find ourselves today. I believe the movement that you’ve seen is a result of the market not anticipating that. We find ourselves in an area where the number of incidents have cumulated to a point where we have to… bring that news to the market.

But we’ve also got confidence that we’ve solid plans to deliver on the guidance we’ve given, given that we have taken a very, very realistic approach here for the guidance that we provided today. We believe that there could be further upside, but we don’t want to plan for or communicate that upside before we [have] demonstrated recovery plans that we’ve put in place now.

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

FLEETWOOD GROBLER: The impact is on the guidance we’ve given. Previously we indicated that we foresaw the full-year production guidance between 7.3 and 7.4 million tonnes of products – both fuel and chemicals – out of the Secunda complex. Today we’ve given the guidance that it is in the range of 6.7 to 6.8 million tonnes. That is the downward revision on the product impact that we’ve guided, and the reason is that because of the impact of coal we’ve lost feedstock to produce these volumes, and we now have to recover from there through a number of aspects that we are addressing and putting in place to guide to the output of the volume we’ve given.

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

FLEETWOOD GROBLER: The output of chemicals and fuels is then revised down from 7.3 to 6.7 [million tonnes]. That’s the impact. So if you can arithmetically calculate it, it is less than 10% for the full year. Yes, it is disappointing for us, but I believe we have got some upside and we have communicated to the market today, as I’ve said, that we want to demonstrate that upside and lock it in, and then we will keep the market up to date.

We are about to announce our half-year results in the February cycle, and then we’ll give market guidance also in January as we lead up to that half-year results cycle. But we want to prove that the plans that we put in place are solid, to see if we can even increase on this guidance. At this point in time we believe it’s a realistic assessment.

RYK VAN NIEKERK: So you believe you are pretty close to normalised production levels, even putting some plans in place to try and boost them?

FLEETWOOD GROBLER: The plans we’ve got are first to make sure our operational discipline and safety are at the standard that can sustain rateable and predictable operations. That’s the first thing.

The second thing is that we will work to increase our stockpile, because that gives us headroom, it gives us the flexibility to optimise all the coal quality from the various sources and into our synfuels operations. All of that plays out now in the next four to six weeks.

I think it’s also important to understand that, from our measurements, the Secunda complex has seen the highest rainfall for the past 19 years.

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

In November alone we had almost 300 millimetres of rain, whereas last year in November we had [a normal] 111 millimetres. In December we’ve already had 192 millimetres, and this is affecting [us]. Last year for all of December we had only around 99 millimetres.

This is affecting coal-mine operation activity. For example, one of our main suppliers linked into our Secunda mining colliery supply system is a open-cast mine.

That supplier has over this last six weeks lost almost 300 000 tonnes of coal because of being impacted by rain and other unforeseen events that it has experienced. This all eats up our stockpile.

It has also been contributing to lower stockpile levels than we want to have.

RYK VAN NIEKERK: The big plant in Sasol’s armoury has been the one in Louisiana in the US. How are operations performing there?

FLEETWOOD GROBLER: Operations are really going well. At this point in time, just to be very clear, this coal-supply issue has no impact on our US-produced products or our European-produced products. That plant is ramping up our plan in terms of the three to five years that we’ve indicated, and is producing well, and we are seeing very good proceeds coming from the complex we are invested in.

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 is still contributing more than 50% to our results, bottom line results, and of course it remains a significant part of our business. Therefore we are so disappointed that we have run into this situation with a number of contributing factors.

But, as I say, we’ve got plans to deal with that and we will make sure that we leave no stone unturned to get back to the normal output we can expect and deliver from this complex.

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

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