Chemicals and energy group Sasol has cut its production guidance for Secunda for the second time in two months, with heavy rains and mining incidents expected to cost it between R3bn and R5bn in lost revenue.
The news put Sasol’s shares on track for their worst day in over a year on Tuesday, but CEO Fleetwood Grobler said the group was being cautious with its production estimates, wanting to show recovery first before factoring in potential operational improvements.
Sasol will be looking to bulk up its coal stockpiles over the coming weeks, including buying on the open market, focusing on embedding safety and discipline across operations, as well as tweaking its integrated shift system, which was recently subject to an in-depth review.
“We need to set ourselves up to approach financial year 2023 from a position of strength, supported by safe, stable and sustainable operations,” Grobler said.
Secunda is expected to produce 6.7-million to 6.8-million tonnes of fuel for the group’s 2022 year, a fall of about 8%, amid poor coal quality and availability for the synthetic fuel plant.
In October, the group trimmed its guidance by about 1.3% from as much as 7.5-million tonnes, citing unexpected delays during the September shutdown, poor coal quality and erratic power supply from Eskom.
Sasol said on Tuesday these operational issues had been resolved, but it has since experienced operational incidents at its coal mines, including a fire at its Shondoni mine as well as a high-wall failure at its Syferfontein mine, both of which had no fatalities. An underground water reservoir incident at its Bosjesspruit mine resulted in three deaths.
In addition, wet weather disrupted coal supply from the group’s commercial supplier, Sasol said, including the heaviest rains in Mpumalanga in almost two decades in November.
The company intends to supplement its production shortfall through the purchase of coal on the open market, but it is not possible to determine the shortfall at this point.
Sasol will be seeking to bulk up its stockpile to 1.2-million tonnes by the first quarter of next year, and up to 1.5-million tonnes by the end of the second. The stockpile is now about 770,000 tonnes, having recovered from a recent dip that forced it to cut production.
In afternoon trade on Tuesday, Sasol’s shares were trading 7.77% lower at R255.26, putting them on track for their worst day since November 2020.
Sasol has been a beneficiary of higher energy prices in 2021 and its share price has almost doubled.
Sasol’s share price touched almost R300 earlier in December, underscoring the remarkable turnaround for a group that was trading as low as R20.77 in March 2020, when SA’s hard lockdown took effect and global oil prices slumped.
Brent crude prices have still risen more than 43% so far in 2021, while early in the year Sasol had said progress in cutting debt meant shareholders would be spared from a rights issue.
Update: December 14 2021
This article has been updated with additional information and comment from Sasol management.
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