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SOL - Sasol Limited - Update from the Chief Financial Officer

Release Date: 02/12/2010 08:00:14      Code(s): SOL
SOL - Sasol Limited - Update from the Chief Financial Officer                   
Sasol Limited                                                                   
(Incorporated in the Republic of South Africa)                                  
(Registration number 1979/003231/06)                                            
ISIN: ZAE000006896        US8038663006                                          
Share codes: JSE - SOL    NYSE - SSL                                            
("Sasol" or "the Company")                                                      
UPDATE FROM THE CHIEF FINANCIAL OFFICER                                         
Dear Sasol follower,                                                            
I am pleased to report that since our previous communication, our businesses    
have continued to perform well operationally. The Synfuels plant was safely     
and successfully commissioned after its largest ever planned maintenance        
outage. Oryx continues to sustain good operating rates and increased first      
quarter sales volumes from the chemicals businesses have contributed            
approximately one third of the group`s operating profit.                        
Product prices have shown an overall year-on-year improvement, largely          
mitigating the impact of the stronger rand. The sustained strength of the       
currency, however, remains a key challenge to the group. We are therefore       
focused on ensuring that our businesses remain robust with healthy margins by   
continuing with our efforts on the factors within our control, such as cost     
management and operational efficiency. Successful delivery of our offshore      
projects also provides a solid underpin to earnings diversification.            
Our growth strategy has been refocused towards accelerating the Gas-to-Liquids  
(GTL) value proposition and our efforts to increase natural gas reserves        
through exploration and/or acquisition opportunities remain on track.           
Higher product prices largely negate the impact of the stronger rand            
The beginning of the current financial year was characterised by the sustained  
strength of the rand against the US dollar. The easing of monetary policy by    
the G4 economies created significant capital flows into emerging markets in     
search of yield and growth which, in our view, have contributed to the overall  
strengthening of these currencies. The global environment has created strong    
tailwinds for the rand. Our expectation is that the rand is likely to remain    
strong into the medium term.                                                    
Product prices, however, remained resilient, with higher oil prices and         
refining margins largely offsetting the negative impact of the strong rand.     
Average year-to-date domestic fuel prices are up 1% from the average price in   
the previous financial year.                                                    
In the chemical markets, international polymer prices have not had the typical  
third quarter calendar year increase associated with restocking of packaging    
and agricultural film. US dollar prices for the first quarter of this           
financial year were flat compared to the average price received for the         
previous financial year.                                                        
Year-to-date solvents commodity prices, however, showed a steady increase of    
almost 20% in dollar terms, compared to the average price for the prior         
financial year.                                                                 
Modest increase in group turnover                                               
Group turnover for the first quarter of the 2011 financial year was slightly    
higher than the quarterly average achieved during the second half of the 2010   
financial year. This is largely attributed to higher product prices and         
production improvements, particularly from the group`s offshore businesses.     
Successful delivery on our offshore projects has improved the geographic        
earnings diversification, enhancing the robustness of the group.                
Our ongoing focus on controllable factors - cost containment, the improvement   
of operational and marketing efficiencies and optimising capital project        
returns - will support our efforts to sustain profitability and deliver         
sustainable long-term returns to our shareholders.                              
Energy efficiency initiatives drive reduction in costs                          
In 2006, a decision was taken by management to increase our electricity         
generation capacity in South Africa using natural gas as a feedstock. This was  
undertaken in anticipation of a significant rise in electricity prices and the  
increased risk of supply interruptions. Two 100 mega watt (MW) open cycle gas   
turbines were successfully commissioned in June this year.                      
The turbines have been in full operation since mid-July with a combined         
production output of between 200MW and 220MW. This allows us to produce         
approximately 50% of our current electricity requirements.  The new Power       
Purchase Agreement with Eskom, associated with this additional capacity         
enables Synfuels to significantly lower its net external electricity cost.      
As a further enhancement, we are currently installing two heat recovery steam   
generators to produce super-heated steam from hot exhaust gases. The steam      
will be used in Sasol Synfuels` existing steam turbine generators to generate   
an additional 80MW of electricity. This additional capacity is expected to be   
commissioned in the middle of the 2011 calendar year and is an energy           
efficiency optimisation that will not require additional feedstock. In the      
longer term, we are also investigating initiatives to replace natural gas       
feedstock with waste gas that is currently flared.                              
The group aims to undertake a similar electricity generation project at the     
Sasolburg facility which will generate 140MW of electricity using natural gas   
from Mozambique. These projects clearly indicate how rising energy costs have   
created opportunities for improved energy efficiency.                           
Progress on functional excellence                                               
We continue to pursue our cost management efforts through our Functional        
Excellence programme. This initiative aims to reduce costs in support           
functions by simplifying, standardising and sharing business processes.         
Cost savings of more than R600 million arising out of the programme were        
achieved in the 2010 financial year, and we anticipate further savings in the   
coming financial year.                                                          
Investing in plant integrity and reliability at Secunda                         
The Synfuels operation commenced the largest maintenance outage in its 60-year  
history on Friday 27, August 2010.  This was in order to ensure the ongoing     
integrity and long-term stability of the plant. This resulted in a statutory    
shut down of half of the plant in accordance with a planned maintenance         
schedule for a period of three weeks. With approximately 14 500 additional      
workers employed and over 150 000 activities completed, the start-up was        
delayed by a few days.  We are, however, satisfied that the plant has been      
safely and successfully re-commissioned.                                        
Taking into account the impact of the three-week outage, the total production   
of 1,7 million tons (Mt) is in line with our expectations for the first         
quarter of 2011. However, the delay in re-commissioning does place our 7,3 Mt   
production target for the financial year at risk. With planned plant            
availability unconstrained for the remainder of the year, the Synfuels team     
considers 7,2 Mt to be a more realistic full year target.                       
Oryx GTL reports healthy profits and production volumes                         
Oryx GTL sustained operating rates at 83% of nameplate capacity during the      
first quarter of the 2011 financial year, with actual production averaging 27   
000 barrels per day. This is in line with the expected 80-90% operating rate    
range for this facility.  This achievement augments the positive performance    
achieved since the beginning of the financial year.                             
Unit costs in financial year 2011 are expected to drop from the 2010 level due  
to increased production volumes and despite a gas price increase effective 1    
January 2011.  With higher production and lower unit costs, we expect a         
healthy contribution to group operating profit from Oryx GTL in the current     
financial year.                                                                 
Arya maximising polyethylene production                                         
The ethane cracker at our Arya Sasol Polymer Company joint venture is           
constrained at 80% of nameplate capacity. Further ramp-up is inhibited by a     
design limitation in the demethaniser column associated with the cracker. We    
aim to rectify this constraint in the medium term and the detailed schedule     
for this activity is currently being planned. In the interim, we will operate   
close to the current capacity until this modification is implemented.           
Our downstream low-density and high-density polyethylene plants are, however,   
unconstrained and have ramped-up according to plan. We are therefore well       
placed to maximise production of polyethylene and to benefit from the higher    
margins associated with these value added products.                             
Chemical cluster delivers one third of group operating profit                   
Overall, our chemical cluster has had a very successful first quarter           
contributing nearly one-third of group operating profit. Our Olefins and        
Surfactants (O&S) business continues its outstanding performance by sustaining  
a double-digit operating margin and increasing sales volumes. Overall the       
chemical cluster has managed to increase the first quarter sales volumes by 2%  
compared to the prior year quarterly average.                                   
Construction of Tetramerisation plant                                           
We are pleased to announce that our board has approved the construction of a    
first-of-a-kind Tetramerisation plant. We are excited about commercialising     
our proprietary technology to manufacture octene by tetramerising ethylene.     
The planned capacity for this facility is 100 000 tons per annum and our plan   
is to complete construction by 2014 financial year. Our Lake Charles complex    
in Louisiana is an obvious choice for a site as ethylene feedstock will be      
sourced from our existing ethane cracker.  There are other excellent site       
synergies such as high level engineering and process management skills. This    
project will enable us to build on our position as a leading supplier of co-    
monomers (1-octene and 1-hexene) and demonstrates Sasol`s culture of            
technology innovation.                                                          
Ixia Empowerment transaction concluded                                          
In October 2010, we announced the conclusion of the Ixia Coal transaction       
which is in line with Sasol Mining`s empowerment strategy and its commitment    
to comply with the objectives of the Mineral and Petroleum Resources            
Development Act, and the Mining Charter. The transaction value is R1,8 billion  
and is financed through equity and a combination of third party funding and     
appropriate Sasol facilitation.                                                 
This agreement effectively results in WIPCoal Investments owning 10,2% of the   
equity in Sasol Mining. We will recognise a loss on the disposal of the         
business and a non cash IFRS-2 charge (facilitation cost) that will impact the  
group attributable earnings per share by approximately R1 per share for the     
current financial year due to the delay in the implementation of the            
transaction. The transaction will, however, not affect headline earnings.       
Future growth focused on GTL and natural gas                                    
The group`s growth efforts have been refocused towards accelerating the GTL     
value proposition.  We do, however, continue to progress current advanced Coal- 
to-Liquids (CTL) projects such as China CTL and India CTL.                      
The arbitrage between oil and gas prices remains compelling, driven largely by  
changes in shale gas extraction technology. We believe there has been a         
structural shift in the dynamics between gas and oil prices, with gas prices    
likely to remain at depressed levels, thereby making GTL an even more           
attractive value proposition.                                                   
In the context of these price dynamics, GTL has become more competitive         
relative to Liquefied Natural Gas (LNG). Our efforts to increase natural gas    
reserves through exploration and/or acquisition opportunities remain on track.  
This will allow the group to accelerate its GTL value proposition.  With Oryx   
GTL currently being the only large-scale commercial GTL plant globally, Sasol   
is well positioned to extend its competitive expertise and technology in        
providing a viable alternative to monetising stranded gas.                      
We are nearing the completion of our feasibility study for a GTL facility in    
Uzbekistan and are satisfied with the progress made thus far.  As previously    
communicated, the China CTL project is awaiting feedback from the National      
Development and Reform Commission (NDRC) and the State Council of the Republic  
of China, following which we will consider an investment decision.              
The group`s balance sheet remains robust and we are in a good position to fund  
our near-term projects and potential acquisitions.                              
Operational guidance on track for the full year                                 
The group remains on track to deliver on its full-year expectation of           
continued improved operational performance and cost containment within          
inflationary levels. The strength of the rand remains a key risk to earnings    
for the year given the sensitivity of our business to the rand/US dollar        
exchange rate. Consideration will also be given to any adjustments arising      
from our half-year closure process, as well as re-measurement effects           
including the impact of the Ixia empowerment deal. An update on earnings        
guidance will therefore be provided once we have a reasonable degree of         
certainty on the interim results for financial year 2011.                       
Sasol`s interim results for the six months ended 31 December 2010 will be       
released on Monday, 7 March 2011. The forecast financial information appearing  
in this update has not been reviewed or reported on by Sasol`s external         
Annual General Meeting (AGM) feedback                                           
Shareholders have, among other resolutions, approved the re-purchase of up to   
a maximum of 10% of the company`s issued ordinary shares on the open market,    
subject to board approval, and in accordance with the Companies Act and the     
JSE Listings Requirements.                                                      
Shareholders have also approved the resolutions required to facilitate the      
implementation of a trading mechanism involving the listing of the Sasol BEE    
ordinary shares on the proposed BEE segment of the JSE.                         
In closing                                                                      
We were pleased to have been ranked as the oil and gas global sector leader in  
the internationally recognised Dow Jones Sustainability Index (DJSI) 2010,      
based on an in-depth global analysis of corporate economic, environmental and   
social performance. Sasol has also been ranked among the world`s top 100        
companies for sustainability by the QCRD Global Sustainability (QCRD) Index`s   
semi-annual report, issued on November 19, 2010. The award recognizes           
exceptional delivery, in the fields of environmental, social and governance     
issues, along with a strong financial performance.                              
We were also encouraged that Sasol`s 2009 annual report was ranked 14th among   
the top 300 global annual reports out of the listed companies surveyed in the   
2010 Annual Report of Annual Reports, published by Report Watch of e.com.       
Best wishes for a safe and joyous festive season!                               
Best regards,                                                                   
Christine Ramon                                                                 
2 December 2010                                                                 
Issued by sponsor: Deutsche Securities (SA) (Proprietary) Limited               
Forward-looking statements:                                                     
In this document we make certain statements that are not historical facts and   
relate to analyses and other information which are based on forecasts of        
future results and estimates of amounts not yet determinable.                   
These statements may also relate to our future prospects, developments and      
business strategies.  Examples of such forward-looking statements include, but  
are not limited to, statements regarding exchange rate fluctuations, volume     
growth, increases in market share, total shareholder return and cost            
reductions. Words such as "believe", "anticipate", "expect", "intend", "seek",  
"will", "plan", "could", "may", "endeavour" and "project" and similar           
expressions are intended to identify such forward-looking statements, but are   
not the exclusive means of identifying such statements. By their very nature,   
forward-looking statements involve inherent risks and uncertainties, both       
general and specific, and there are risks that the predictions, forecasts,      
projections and other forward-looking statements will not be achieved.  If one  
or more of these risks materialise, or should underlying assumptions prove      
incorrect, our actual results may differ materially from those anticipated.     
You should understand that a number of important factors could cause actual     
results to differ materially from the plans, objectives, expectations,          
estimates and intentions expressed in such forward-looking statements.          
These factors are discussed more fully in our most recent annual report under   
the Securities Exchange Act of 1934 on Form 20-F filed on 28 September 2010     
and in other filings with the United States Securities and Exchange             
Commission. The list of factors discussed therein is not exhaustive; when       
relying on forward-looking statements to make investment decisions, you should  
carefully consider both these factors and other uncertainties and events.       
Forward-looking statements apply only as of the date on which they are made,    
and we do not undertake any obligation to update or revise any of them,         
whether as a result of new information, future events or otherwise.             
Date: 02/12/2010 08:00:13 Supplied by www.sharenet.co.za                     
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information disseminated through SENS.                                          

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