Is it a unicorn? Is it a phoenix? No, it’s Sasol! 

It could have been written by Donald Trump. Or perhaps, for him. Or perhaps for mineral and petroleum resources minister Gwede Mantashe. 

Sasol’s “burn, baby, burn” strategy, designed to “strengthen, grow and transform” its business, went down remarkably well with the market. As the group’s top executives rolled out their plan to pump up production at Secunda, which happens to be the world’s largest single-site emitter of greenhouse gases, the Sasol share price surged.  

While the executives were talking, the share price moved steadily upwards, closing 12% higher at R82 on Tuesday May 20. Since then, sporadic bouts of hesitation have been followed by upticks. A remarkable turn of events for a share that hasn’t known much joy since it hit its five-year peak of R430 in June 2023, a level pumped up by the Covid-induced oil-price surge. 

Still, even the low R50s to which the share had crumbled in April might have been a comfort to shareholders, who had looked on in horror when it plummeted to R22 in that fateful March 2020. 

Going full out on Secunda production – it’s targeting at least 7.4-million tonnes of liquid fuel by financial 2028, up from a current 6.8-million – is probably the core ingredient of Sasol’s new strategy. Many investors had previously assumed (some had hoped) the Secunda plant was being wound down gradually.  

In addition to the rehabilitation of Secunda, it seems management have worked out what’s wrong with the international chemicals business and why it was only able to achieve an earnings before interest, tax, depreciation and amortisation (ebitda) margin of 6.4% compared to the 12.5% achieved by its international peers. This is going to be promptly fixed and by financial 2028 ebitda margins will be 15%. Along the way businesses will be sold or, failing everything, mothballed. 

But back to the all-important Secunda plant. 

The problem isn’t just the pesky environmentalists – local and international – who keep harping on about the massive damage being wreaked by this dated technology. The Secunda plant itself – Sasol’s largest money-spinner by a long-shot – has been suffering major operational difficulties. Years of using rubbish quality coal has messed with the gasifiers, which are an essential part of the process of converting coal to gas. Inevitably there has been lots of costly downtime.  

During the strategy presentation Victor Bester, Sasol’s head of Southern Africa, told investors that of the 84 gasifiers on the Secunda plant, 75 were usually online at any time. That was until four years ago. “Over the past four years only 65 to 70 have been online,” he said. Inevitably the costs ramped up. 

The increasing cost of capital also added to Sasol’s woes. By August 2023 things seemed so irretrievably bad that management decided to write off R35bn of the value of the plant. It was an era-defining decision that left shareholders shocked and assuming they were now stuck with something drifting aimlessly towards stranded asset status. 

Making it all a little more dystopian for shareholders was the fact that Sasol management was not communicating any strategy they may have had to guide the group through this nightmare.  

And then, almost out of the blue came this week’s “capital market day” and Bester’s upbeat message for investors. “The good news is we’re working on the restoration of our gasifiers.” You could almost hear the declining share price going into reverse. Not only is management back in touch with shareholders but the group’s most important asset is back in favour. “We’re dealing with a specific set of issues,” said Bester to an evidently delighted audience, assuring them: “This is not a broken business.” 

The main problem seemed to have been, according to Bester, that management hadn’t responded timeously to the poor coal quality and the consequent damage to equipment. But that’s all in the past. Better quality coal, helped by a new de-stoning facility and improved maintenance will help to boost output at reduced cost levels. By financial 2028 Secunda will be able to break even at an oil price of $50 a barrel, Bester assured the investors attending the capital markets day.  

So, 7.4-million tonnes, here we come. 

Short on detail

Then it was over to Sarushen Pillay to explain how Sasol is going to pour tonnes more coal into Secunda and pump out loads more greenhouse gas emissions while all the time sticking to its emission reductions road plan. And, almost incredibly, achieving its 30% reduction target with a considerably reduced capex of between R4bn and R7bn – a hefty drop on the previous figure of R15bn-R25bn. How is that possible, you may well ask. Essentially – load up on renewables and bulk up on carbon offsets. A supportive government will also help. Easy. 

So, in brief here’s what Sasol’s top management team is offering for financial 2028: operational improvements across the group with cost and capital savings combining to lift adjusted ebitda to as much as R71bn; net debt below $3bn and a resumption of dividend payments.  

And, despite Secunda volumes of more than 7.4-million tonnes, the greenhouse gas emissions reduction target remains at 30% by 2030. A renewable energy target of more than 2GW through a new “Integrated Power Business” is key to the plan. 

The presentation was a little short on specifics – like, if it is so easy to fix, why haven’t they done any of this before? But what the heck, top management was at least communicating.  

And, unusually for a group that has traditionally preferred to blame external factors for poor results, the leadership was fessing up to management weaknesses dating back a few years. Of course, it is a new team; the CEO and CFO both in place just one year. (Apparently the remuneration committee are building the targets into the group’s short- and long-term executive bonuses.) 

Scepticism

Shaakir Salie, research analyst at Aeon Investment Management, says he was surprised by the market reaction to the presentation. “I wasn’t expecting it to be as positive,” he tells Currency, but points out the price hike was from a very low base. “Sasol just got so cheap.”

He acknowledges the targets are ambitious and distant and says there is still a lot of scepticism among investors. “The market isn’t pricing them in achieving their targets but even if they get close, it will be an improvement.”  

Salie says the important thing right now is that at least Sasol seems to be listening to investors. “They touched on most of the concerns larger institutional shareholders have and indicate they’re committed to doing something,” he tells Currency, acknowledging that the company does seem to be taking a more relaxed position on the environment. 

Tracey Davies, executive director of non-profit Just Share has probably spent too much time tracking Sasol’s failure to deliver on any of its emission reduction targets to have much faith in this latest package of targets. She’s taken aback by the market’s gullibility, considering Sasol’s long track record of reneging on a host of previous commitments.

“Even if you were to assume there were no climate concerns, a ridiculously long list of things have to work in Sasol’s favour for this strategy to get anywhere close to its targets,” she tells Currency. 

Davies’ formidable list includes reasonably favourable oil prices, being able to fix all the gasifiers, the perfect working of a new destoning plant, finding affordable quality coal to replace existing supplies which are drying up, tracking down 2GW of renewable energy, not to mention previously unheard-of amounts of carbon credits, and, finally, having the depth of management to do all the cost-cutting implicit in achieving the strategy’s targets. 

Leave it to a pesky environmentalist to bring us all back to reality.