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Sasol rids itself of poisonous, but profitable, sodium cyanide business

Sasol president and CEO Fleetwood Grobler. (Photo: Business Day / Freddy Mavunda)

Slowly but surely Sasol is walking a path back to fiscal sustainability. One day it may just regain its blue-chip status.

In line with its strategy to reduce debt, Sasol is to sell its sodium cyanide business to a locally owned subsidiary of Czech-based Draslovka Holding, which specialises in cyanide production.

The business was sold following an open tender process, for R1.46-billion. This will be used to reduce Sasol’s debt, which is hovering at about R137-billion.

Sodium cyanide is a highly toxic chemical used to leach gold and other metals from ore bodies and Sasol has a commanding position in this market.

The firm has been flogging the family silver since finding itself in an unenviable position in 2020 as the oil price collapse and volatility in chemical prices combined with the spread of Covid-19 put the extremely stretched balance sheet under pressure. Facing a liquidity crisis and breach of its debt covenants, management implemented a strategy to conserve at least $6-billion by 2021 through self-help measures and accelerated asset disposals. 

In the past few months Sasol has sold several assets, notes Asief Mohamed, chief investment officer at Aeon Investment Management. While asset sales have delivered about R46-billion of proceeds, he questions whether Sasol was paid full price for the business, given its market strength. 

Within this figure, the standout asset was 50% of its LCCP Base Chemicals business, which was sold to LyondellBasell for $2-billion. It also announced the sale of several air separation units at its Secunda facility to Air Liquide for R8.5-billion and a 30% interest in the Republic of Mozambique Pipeline Investments Company, which owns the pipeline that transmits natural gas from Mozambique to its Secunda facility. Sasol SA has retained a 20% stake in the firm.

Vestact’s Paul Theron notes that it is a sad day when firms are forced to sell off the family silver. “This is not a sign of strength,” he said.

While the share price did not move much on Monday, shareholders have backed management’s efforts to stabilise the company, and the share has rebounded by 67% in the past year to R224.12.

That said, the asset sales together with a relaxation of debt covenants and a rebound in oil prices since mid-2020 have steered the balance sheet back towards safety. At 31 December 2020 Sasol’s total debt was R126.3-billion, compared to R189.7-billion as at 30 June 2020. During the period, management used the proceeds from asset divestments to repay its US dollar syndicated loan, as well as a portion of its revolving credit facility, reducing its US dollar denominated debt by almost R28-billion to R121-billion ($8.2-billion).

The risk of a future rights issue has reduced significantly and management commented at the presentation of its interim results in March that a rights issue would only be needed if another significant adverse macroeconomic event occurred.

At the same time, a revised strategy is being implemented. This will focus the company on areas where it believes there are good value growth prospects, which are low risk and with lower-carbon intensity. Sasol’s portfolio has been narrowed to focus on two businesses – chemicals and energy – pursuing customer-led growth in select markets, while resizing the upstream portfolio to focus on gas in southern Africa and discontinuing oil growth activities in West Africa.

“Sasol has made progress on its expedited review of the business to consider how it can be most effectively positioned to be sustainable in a low oil price environment. Consistent with this approach, the expanded asset disposal process has yielded good interest in relation to a number of assets, despite the macro environment uncertainty,” says Sasol president and CEO Fleetwood Grobler.

Draslovka is a Czech-based, privately-owned company, specialising in the manufacture, distribution, and application of specialty chemicals globally, particularly cyanide-based substances. This will be Draslovka’s first major investment into Africa and forms part of its international expansion plans. It has partnered with Navuka Investment Holdings as its broad-based black economic empowerment partner. Navuka will own 25% plus one share of the SA operations.

Draslovka will take over full operational control of the cyanide business. Key feedstocks, utilities and site services will be supplied by Sasol on an arm’s length basis. Draslovka will use its expertise in the cyanide business to bring new technologies and capabilities to the process, and will invest a further $50-million into modernising the facility, expanding the plant and ensuring it meets global environmental standards. Sasol also intends to explore the potential for business development opportunities by Draslovka, which could result in further synergies at the site. DM/BM

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