Sasol Ltd (SSL) 2008 Q2 法說會逐字稿

Good morning and good afternoon, ladies and gentlemen, and welcome to the Sasol interim financial results conference call and webcast. Today's call will be hosted by Pat Davies, Chief Executive, and Christine Ramon, Chief Financial Officer. Following the formal presentation by Sasol management, an interactive Q&A session will be available. A copy of today's slide presentation is available on www.Sasol.com.

I would now like to hand the call over to Mr. Davies. Please go ahead, sir.

This is Cavan Hill, investor responsible for Investor Relations at Sasol. With us in the room today are the other members of our Investor Relations team, Pat Davies, Chief Executive; Christine Ramon, and several of Sasol's executive committee. We will go over the slides, which are on our website in case you don't have them already, and then we will take some Q&A.

But over to Pat to start for Pat and Christine to handle the presentation.

Thank you, Cavan. Good morning and good afternoon to everyone. We're delighted to have so many of you joining us today. It is always a pleasure to talk about results that are good. In today's presentation the theme of that is contained in the opening slide which talks about nurturing the foundation, delivering sustainable growth. And that is exactly what we're going to be talking about, a solid set of results from the existing business, the foundation in other words. And these really are excellent businesses and somewhat overlooked, overshadowed perhaps by the exciting growth opportunities that we have in GTL and CTL that usually command most of the attention.

Secondly, the presentation is about delivering on growth. We will be talking about Oryx and Arya Sasol polymers, Turbo and other projects that are delivering results.

And thirdly, it is about sustainability. That word sustainable growth is an important word. All we do must be sustainable, and we would like to report on progresses we are making towards some of those sustainability objectives.

If I could refer you now to slide number three, which is the strategic agenda or strategic framework that we have shown you before. Good results that we are achieving arise from having followed a particular strategic agenda. And while we are not going into too much detail on strategy today being the interim results, this is a useful framework to conceptualize what we will be talking about.

On slide three if you look at the top red block which speaks to nurture and grow our existing asset base, we will be focusing largely there. This is the set of assets that produced the record results. The next two blocks down are to do with sustainability, and we will be touching on that too.

But then the last block obviously important. We will talk about the delivery on the opportunities that the Company has, and these are growing opportunities given that we are in that energy hungry world looking for alternatives to crude oil, and of course, we and our projects can provide those alternatives, some of those alternatives at least.

Moving on to slide four, the results themselves, those record results, and Christine will be taking us through a bit more detail in a moment. But, as you can see there, operating profits up 15%. Importantly, Synfuels volumes up 4%, and that does not sound like a large number. But given the size and importance of our Synfuels business in our portfolio, this is significant. Of course, that is somewhat mitigated by the hedge that Christine will also be talking about.

Very happy with the progress that is being made at Oryx, and we will certainly be dealing with that in a little more detail later on. Share buyback has been going ahead. We're just below the 5.9% mark, and that has increased our gearing to 32%.

And that second last bullet on this slide, it is an important one. Because while we have had favorable market conditions, we have also seen the benefits of some very deliberate turnaround strategies that we put in place and in particularly a number of our chemical businesses a few years ago. I think here, for example, of the Wax business, the Nitro business and more recently the Olefins & Surfactants business; those are starting to yield much better results despite increasing feedstock prices due to the high oil prices. And generally we have had good performance across our energy businesses as well. So this is also having an impact, and the end is reflected in the results we see today.

Of course, as always, we have our challenges, and I will touch on a couple of those as we go forward such as the electricity situation in this country, such as the skill shortage and a few others.

Over the page to number five, slide number five, it is not just about delivering short-term financial results as important as they are. It is also about delivering on sustainability, and if you look at the bar chart there, you will see this reflects our recordable cash rate, which is a measure of our safety performance. We -- as an all-time record here too, we are just above the 0.6 mark. That is halved in the last two and a half years, so we're certainly reaching a world-class safety performance. These statistics also including all our service providers and contractors.

However, we must say that we still had two fatalities in the reporting period, which we deeply regret, and we certainly will not rest until we have eliminated these completely.

The second bullet on slide five speaks to the energy-efficiency, that drive that we have embarked upon. Pretty topical here in South Africa you can appreciate at the moment, and there are many things we're doing to improve our own energy (technical difficulty)--.

The second phase is the mining empowerment deal we announced some time ago, and that, Christine, will say a word or two on later.

And then skill development, and then this is about the second other than electricity, the second challenge that we face. That is a particular problem in this country. But, as you know, skills in this particular industry sector is an issue around the world.

We invest heavily in skill development, and while it remains a challenge, I believe with all the actions that we have taken we're responding effectively to that one.

Good, I'm going to move onto slide number seven, which is the last of the deliveries that I would like to speak to and before I start handing over to Christine, and that is delivering growth through project execution. And here it is appropriate to pause a moment and focus on the Oryx GTL project in Qatar.

We said when we last spoke in September that we would expect to make a cash contribution in this period. We have done better than that. It is making a contribution to operating profits. Despite several outages in the period for purposes of optimizing bits of equipment, we have achieved an average of over 9000 barrels a day for the six-month period. And to show you how the trend is continuing in December, the month of December, we achieved an average of 16000 barrels a day. We have had single days during the period which are where we have exceeded 20,000 barrels a day for particular days.

So the trend is clearly in the right direction here. But we must say there is a way to go. As one increases the loads, it is very understandable that other (inaudible) problems develop, and they need to be resolved. We are steadily and surely resolving those, but we have a way to go.

We said last time we had made dramatic breakthroughs in the production of fine material that was coming out of the Fischer-Tropsch reactor. That we -- while we had made progress, we needed additional equipment to help with this additional -- hope for this additional fine material coming out of the reactor. So that equipment will be installed in the full third quarter of this calendar year, and until that happens, there would be a certain constraint on the production capacity.

So the bottom line is, with good progress being made, still some challenges remain. I'm confident that they are going to be resolved in time.

Moving onto some of the other projects, and I'm dealing only with the ones under construction. Happy to deal with questions on all the other prospects that we have. The Project Turbo is nearing completion. We have been producing on spec products. All of the products have been on spec since late December last year. There is still some remedial action required to make sure that we can run at sustained fine loads, and we will be affecting those modifications later this year. So Project Turbo is delivering.

A success story has been the Arya Sasol Polymers project. If one thinks about this in global benchmark terms, its cost and its schedule have been world-class, no question about that.

The cracker -- it is a very large cracker -- is producing on specification. Ethylene, the polyethylene plants will come in in the second and third quarters of this calendar year respectively, and we will see the financial benefits of that one flowing through as well.

Not so successful a little more challenged is the Escravos GTL project. Chevron, as most of you would be aware of doing this project for us, for the asset owners, and it has become necessary to convert the contracting philosophy on that one or contracting approach from a lump sum one to a reimbursable one.

I guess that takes us into the third challenge I wanted to touch on, and that is still we have a very much overheated engineering and construction industry globally. There is more work going around. There is more work for the contractors than they have resources to cope with. So all of us remain challenged in this area, and I think that is certainly reflected into this Escravos project as well.

But we are studying now the impact of having changed contracting strategy or at least Chevron is. We are involved to some extent. And we are expecting capital costs to increase. We're also expecting the schedule to slip somewhat.

The project, I must add, remains an attractive project to us.

Last one on that particular slide, slide seven still is the beneficial operation of the 3rd Octene train, which Octene is a comonomer, as you know. It goes into the plastics industry. That is on track to start up in the first quarter of the financial year; in other words, the third quarter of this calendar year.

Getting closer to the financial results onto slide eight, just to set up Christine's part of the presentation. Some words on the macro variables, and I think there is no surprise to anyone here oil prices are up significantly. Obviously the impact of that is negated somewhat by the hedge.

Currency was not favorable for us. It was marginally negative because the currency was stronger in the reporting period. Chemical prices have done well. Certainly contrary to the signals we gave you in September and October, we are expecting them to come down. They have not gone down. In fact, they have gone up. So that has had a beneficial impact on us as well.

I must always point out, of course, on oil prices, not all upside. There are chemical businesses whose feedstocks are largely related to oil price have had to cope with those price increases and nevertheless done well.

So then in summary for my part of the presentation on to slide nine, which is a summary of the results, positive results. As we can see, all up 15% helped by the markets no doubt. But also by the delivery of our turnaround actions, by the general improvements of our business performance.

With that, Christine, I'm happy to hand over to you.

Good day, everyone. Likewise, it is my pleasure to share our reported results with you today. As Pat has said, the results have been achieved under favorable market conditions. The oil prices and chemical prices, but it has also been supported by the continued progress in the restructuring of some of our chemical operations and the improved operating performance of our energy business.

I will discuss the impact of the hedge in awhile.

Moving onto slide number 11, we see that our operating profit was up by 15% to ZAR14 billion for the half-year, and that translates into a healthy operating margin of 25%, which was in line with last year. This increase in the profitability reflects the growth and increase in volumes in our South African energy business with Synfuels volumes up by 4%.

Our Chemicals business, as we said, delivered better performance and reflects improved margins, and the highlight has been that Oryx has made the first contribution to operating profit.

On this slide you see that the impact of the hedge has been quite significant on operating profits. We see the impact of ZAR1.3 billion, and in terms of the accounting statements, we have had to recognize both the realized and the unrealized portion of the hedge in the half-year. So the unrealized portion as it is reflected on the slide is ZAR882 million, and if we are to break that down, the open portion of the financial year '08 hedge is ZAR1.1 billion, and last year's unrealized profit of ZAR200 million has been offset against that to give us the ZAR882 million that is reflected on the slide.

So for purposes of your modeling, it is important to note that the open portion of the hedge amounts to 9,125,000 barrels, which translates into the ZAR1.1 billion unrealized portion as we refer to it in the press release.

Our earnings per share increased by 18%, and so there you see the earnings enhancement impact of the shares that we have bought back to date if you compare that to the 15% increase on earnings.

Moving onto slide 12, our focus has been to contain cash fixed costs per unit of production by improving our operational efficiencies and the overall production rate. So referring to the slide, you see that the increase in normalized cash fixed costs is 6.9% if we exclude the growth initiatives that is reflected in the first set of blocks, as well as the impact of currency and the oil hedge.

Moving on, I will talk very briefly about the performance of our individual businesses at a high-level. We can see that mining has benefited from increased volumes and higher prices, even though mining production was lower by about 10%. This lower production has impacted the increase in cost of sales per ton in mining. The increase is 8%, which is in line with PPI. Actually it is lower than PPI as it currently stands.

Just a quick update on the second mining empowerment deal that we announced late last year. That deal is pending finalization of certain conditions precedent, and we're hoping to put that deal to bed in the coming months.

Moving onto slide 14, we see that our gas business has delivered continued growth, and that has been on the backs of higher volumes and higher margins if you compare the gas operating profits, excluding the non-recurring items from last year.

Moving on to slide 15, we see that Synfuels had improved plant stability and production efficiencies, and this has resulted in the increase, the 4% increase in production volumes. We see that Synfuels cash unit production costs were up by 8%, which is still lower than PPI as it currently stands, and the biggest portion of the increase in that cost -- in those costs are related to labor, maintenance and purchased cost of services. It, of course, includes the higher costs that is associated with growth, and the positive impact on those parts has been the production efficiencies that have come through.

So we see that the gains that have been associated with the higher oil prices in Synfuels were offset by the stronger Rand and the effect of the oil hedge, which has resulted in the 7% decrease in operating profit.

Moving onto slide 16, we see that oil has delivered excellent results as reflected in the significant increase in operating profit. This was primarily due to improved production volumes from refinery optimization at [Nitrol's]. They will also increase sales volume through growth in oil's retail market share, and we saw improved operating margins given the higher crude oil prices. We are expecting refining margins in the second half to soften, and that is in line with international trends, driven by additional capacity that is expected to come on stream.

Moving onto slide 17, FSI reflects investment for growth. Pat has spoken about the progress that has been made in Oryx, and we see the positive impact of Oryx contribution on FSI's results.

Moving onto slide 18, SPI reflects increased exploration activity in the first half if we note that operating profit before exploration costs were up by 8%, and this is on the back of increased natural gas production in Mozambique, and the effect of higher oil prices.

Moving onto slide 19, we see that polymers has benefited from higher margins off a low base, reflecting a significant increase in operating profits. We are expecting some softening in polymers margins in the second half due to higher oil prices and an expected slowdown in worldwide economies.

As Pat mentioned, the additional volume from Turbo and the Arya Sasol plants is expected to contribute to operating profit in the second half.

Moving onto slide 20, we see that Solvents has delivered solid performance, and that is on the back of improved margins and despite the higher oil-related feedstock costs. Pat mentioned that the positive impact of the production ramp-up of Octene 3 will be seen in the next financial year.

The restructuring at the Olefins & Surfactants business is well on track; I am on slide 21 now. And so we see the impact on the higher operating profits resulting from the benefit of the restructuring that has taken place in that business, as well as improved margins and cost optimization.

Moving onto slide 22, we see that Wax has benefited from actions taken a few years ago and has delivered -- continued to deliver a strong performance.

Slide 23, similarly we have seen Nitro's businesses have delivered excellent results. This business was not in great shape a few years ago, and so it is great to see the turnaround and growth in this business.

Slide 24, so we have seen strong cash flows that have been used to fund our capital expenditure. Our capital expenditure is estimated at ZAR12 billion for the full financial year 2008, and we have returned some cash to shareholders in the form of increased dividends, and we have advanced our share buyback program.

To date we have bought back just short of 5.9% of our issued share capital, and this has resulted in the increase of our gearing to 32%. We are now well within our target gearing range of 30 to 50%.

Concluding with the slide on the profit outlook, slide 25, we are expecting to see the benefits of the additional Arya Sasol production capacity and the production ramp-up of Oryx, as well as the additional volume relating to Turbo in the second half and into the next financial year.

We do make assumptions with respect to prices and currency. In terms of the Rand on the exchange rate, our assumption is ZAR7.15, and that ZAR7.15 is the average price that we have assumed for the financial year. In terms of what we have assumed as the average price, oil price, for the full financial year, it is a price in the mid-80s.

So taking that into account, as well as some softening in the chemical margins and refining margins in the second half and excluding the non-cash accounting effects of our BEE deal, we are expecting good earnings growth for the 2008 financial year.

So, in conclusion, our existing businesses have delivered strong results. Pat has spoken about the good progress in our capital projects, which together with our strong financial performance lays a good foundation for sustainable growth.

Thanks, Christine. We have moved onto a summary on slide 27, which is pretty reflective of what Christine has just said. A strong foundation of existing assets producing record profits. Delivering increasing value to turnaround actions and improved business performance. A pipeline of great growth projects and then delivery on making the organization a sustainable one, both environmentally and culturally.

On slide 28, back to the strategic agenda, and all of that fits nicely into that slide. I'm not going to go through the details of it, but it fits into our broader strategic agenda.

Sasol plays into an increasingly sweet spot in the energy world. I think there is fair consensus that crudes will remain in tight supply. Crude prices are likely to remain high. The world needs alternatives to crude. It needs all the alternatives from the renewables and including what we have to offer, and what we, of course, offer is a highly environmentally-friendly products, petrol, diesel, and others from the much larger gas and coal reserves that various regions of the world have.

Sticking to this strategic agenda and sticking to it in a way that is reflective of our values, which are very important to us, we are confident that we will deliver qualitative, sustainable growth to all of our stakeholders.

I think with that we can end the formal part of the presentation, and Cavan, I hand back to you to handle the questions.

We will take some questions now, but please could you limit your questions to one at a time so that everyone who wants to gets a chance to ask a question. If we have time, we can come back for a second or a third round.

Operator, could you please request and queue the questions from the telephone participants?

(OPERATOR INSTRUCTIONS). Gerhard Engelbrecht, Citigroup.

Just a quick one this morning. In the Australian newspapers, there was an announcement by Chevron that it was going to open an LNG plant using the Wheatstone gas in Australia. Would you maybe talk a little bit about your GTL opportunities in general, your GTL opportunity in Australia? I know that you were targeting the Wheatstone field. And maybe if you can comment about Chevron's leading GTL versus LNG, what is the feeling there or in Sasol Chevron?

Thanks. I'm going to ask Lean Strauss. As you know, Lean heads up our international energy cluster, and he will speak to this one.

Yes, I will be frank. This was a disappointment to us. We have been working with Chevron on the Wheatstone opportunity. I think we have signaled to you before that we will budget there with prefeasibility work on the project. We felt that we have come up with a fairly robust project in terms of execution and in terms of economics. But they have decided for their own reasons and (inaudible) economics and strategic reasons to elevate the project for LNG production.

So I don't want to speculate too much on their own strategy. I think this is something you should put to them. If I just can quote or comment from the press release is, we said they have been for a long time struggling to monetize any of their gas resources in Australia. They have been on the global LNG projects for many years now, and it seems that that relates to significant timing in the future. Maybe that has an impact on their decision. Maybe there are some other market commitments. But one has to direct those questions to Chevron. But it is a disappointment to us. We thought that the project was very robust.

But there is a lot of gas reserves in Australia, about 130 Bcf. We've got a business unit down there; there is also a Chevron unit business unit in there. We are looking at other opportunities in Australia. Mr. Ferguson has been very outspoken recently about his support. He has met with us twice in the last month to discuss with us what it would take to put a GTL project in Australia. So we feel that there are still huge opportunities, and we are looking at this very intensively going forward.

We are also looking at other parts of the world for opportunities like Alaska. We are looking at Indonesia. But we are still in the sweet spot, and we are exploring it.

James Twyman, UBS.

I just wanted to ask a question on Oryx. You say in the presentation that the second half losses in that international business will be similar to the first half. I just wondered whether that is being particularly conservative given the obvious ramp-up that we are seeing in the Oryx business.

There is quite a few impact on our profitability in the next six months. Firstly, we have just gone through an extensive shutdown. The gasfield, the [outer leash] gasfield, is due for plant maintenance, and that has given us -- that has, firstly, forced us to shut down Oryx, but also given us opportunities to do modifications at Oryx.

So the one train just coming to production again over the weekend has been down for six weeks, and the second train will probably be down for about eight weeks. So that impacts on our production for the year, for the next six months. We also have quite a few extra costs. The shutdown is costing us money. And then we might be planning another shutdown for one train during this six months. We've put in modifications which we are positive will give us good results, and as soon as we see those, we also like to implement them on the second train. So this all impacts on our profitability for the second six months.

But production on average would be higher than in the first six months. We anticipate higher production.

Yes, and I guess it is also true to say that if one is looking at SSI profits, which I think James is doing, that there are other impacts outside of Oryx such as the expenditure in China and other parts of the world too, which also will play a role on how that profit kicks.

Correct. But I think you will probably get questions business on China, but our activities are speeding up specifically in China. So, of course, they are also increasing rapidly in -- maybe at [Sider] we can give a little bit of a description of this. But that also impacts on the costs -- on the income for the next six months.

Bernie Picchi, Wall Street Access.

I wonder if you could give us an update on where you stand with your plans, which have been talked about regarding a major coal to liquids facility, a new plant in South Africa? And also where the coal would come from given the fact that what we hear is that the quality of the coal mines in South Africa are getting leaner. Would that coal come from some surrounding country?

Bernie, I'm going to ask Dr. Benny Mokaba, who heads up our South African energy cluster, to answer you.

Well, let me just indicate that the project which we have named Mafutha is on track. We are in the prefeasibility stage. That means we are looking at those options of where -- which reserves to use. At the Company we have two options, and one option is a free state, which is our oil reserve near [Asosalbit], and the second reserve is in the [water bank].

These are fresh reserves. They are not what you may call actually exhausted mines or exhausted area. But the choices for us are very, very wide-open. We have a very close cooperation with the government entity, the various state organizations that will be involved in this area have been very cooperative indeed. However, feasibility -- started prefeasibility studies are exactly that. It is for us to look as to whether the options and the project is feasible and doable. That is the quality of the coal, the right location, and of course, ensuring that we can enhance the profitability of the project.

If I can add to emphasize what you say, there is sufficient coal in this country in a couple of areas, and we're making the final site selection. This will not compete with coal that might be required by our (inaudible).

Jonathan Kennedy-Good, Deutsche Securities.

Just one quick question on the impact on the fledgling Synfuels business. It seems that costs remain stubborn and that you talk about feedstock costs up above PPI and then talk about other purchase services. Could you give us a feel for where those -- why those costs are persistent and how you see them developing over the next 12 to 18 months?

Certainly, we can do that. I will ask Christine, between Christine and Benny to speak to that. I can give you an overall perspective.

When we wonder around the world talking to industry analysts in particular, they are somewhat amazed by our low level of cost increase in our business. And I guess the reason for that is they are comparing us with our peers in the oil industry who have shown significantly higher year-on-year cost increases because of the dynamics out there and prices in our industry. Steel prices, the cost of labor, the cost of contracts and so on and so forth have increased significantly.

So that does not make us complacent about it I can assure you. But I think one needs to look at this also from a global perspective and compare us with our peers.

Christine, do you want to give a bit more on the specifics?

Yes. We saw in Synfuels the costs have increased by 8% as I said. And the bigger portion of that was attributable to the inflationary impact on costs, in particular labor, maintenance services, materials and other purchase services. And these are very real challenges. As you said, Pat, it is not only Synfuels that is facing it, these are generally challenges that are facing the business.

But important to note is that more than 3%, so 3 percentage points of the 8% increase in Synfuels costs is related to growth. And that is something that we have got to take into account for the future that we are investing in growth, so we are going to see the impact of growth on our future costs.

I think, Benny, do you want to add to that?

Yes. It is well to add on the balance you will see the profitability of your feedstock businesses, basically your coal or your mining business, as well as your gas business being more profitable. That is because the inflationary costs on the feedstock will then become the income on the mining side. So that is more a benefit of a joint or a linked business.

Caroline Learmonth, Macquarie.

Could you comment on -- obviously the Synfuels hedge had a significant impact on profits in the first half. I gather if I understand you correctly, you will be reconsidering what hedge if any to put in place over the next weeks and months. What is your long-term hedge strategy?

Christine will give you the details of the impacts this year. Our strategy has been, and started some years ago, looking at a hedge for the purposes of securitizing at least a proportion of our cash flows in the light of a fairly heavy CapEx program. That was the underlying reason and the way things have unfolded over the last couple of years. Sometimes we have done well, and sometimes we have not done so well. This year being a particular example of where we have not done so well.

So we will be giving this very serious attention, and we will continue to look at it on an annual basis. I think if one had to call it today, it is probably unlikely that we would go ahead with the hedge, but we need to look at the forward curve versus our own expectations of oil prices, and we need to see what our CapEx requirements are, and in the light of that, make a decision. So we would certainly be letting you know in the next month or two probably what the plan is there.

Christine, any details?

Thank you. I think it is just important to note that with regards to the hedge, we do not speculate. We have followed a consistent approach, and like you said, Pat, that is for the stability and the predictability of cash flows in our business.

With relation to the details of the hedge, Caroline, what is it you want me to expand on? I did say that the open portion of the hedge is 9.1 million barrels that still opens. And in terms of how the hedge would be settled is that on a month to month basis, until the hedge expires or comes to term at the end of May this year, so the 9.1 million barrels would then be spread over the next five months or taking January into account until May. And that all then the cash settled depending on what the average crude oil price is for the month against the cap of the hedge, which is $76.75. And so you can work the stems based on those assumptions.

(OPERATOR INSTRUCTIONS). Will Forbes, Credit Suisse.

I was just wondering if you could give us any guidance on your thoughts of the buyback, particularly given the current share price?

Will, we have permission from the shareholders to go up to the full 10%. We have obviously been in enclosed periods and will be until Wednesday sometimes I guess. Clearly the share price is performing extremely well lately, so we have got to take that into account. We've got to take into account what else we can do with this money. So we will have to keep you posted on that one I am afraid.

We have the permission as I say, but we certainly are likely to be buying shares back at the price that it is today.

Alex Comer, JPMorgan.

A couple of questions. Firstly, you sort of indicated that there is progress being made in China. Perhaps you could elaborate a little bit more on that.

Also, with regard to your feasibility studies on Mafutha, are you comfortable there will be solutions for the CO2 that will be produced by the CTL plant in South Africa?

And just if I might be taking one more question, Pat, you just said you would be unlikely to buy back shares at this price. Does that mean you think the share price is overvalued at the moment?

Let's start with the last one. I don't even know what the share price is. It was rocketing up the last time I had a look at it. We have to do a -- taking all the new assumptions into account, we need to relook at our evaluations. And I'm not -- obviously it would be rather foolish to disclose what we thought the fair value of the Company would be. We would like to see the share price going on up. Do you want to talk about China, and then we will talk a little bit about the CO2 and Mafutha.

Yes, thank you. In December of this year, we reached a significant milestone. Our Board approved that we can continue with particularly (inaudible) feasibility study. This is the (inaudible) international consultant. And we were able to take that decision because of reaching enough finality on the economic and other.

So we have made good progress over the last six months, and we have issued an invitation to bid through the national consultants, which we hope to conclude to a point by May, and we are planning to finish this feasibility study by the end of 2009. So we're making very good progress. We do feasibility studies on two projects, both for 84,000 barrel plants and one in the Ninxia Province and one in the Shaanxi Province.

Good. On the CO2 for [Mafutha], you would probably want to add to that. But we are working hard between your business and Lean's business, SPI. We're looking at the opportunities there, as you know. Making it carbon capture ready for a fairly large proportion is not particular difficult or expensive in our case, so we would certainly have that in place at least for a portion of the CO2, the concentrated portion, which is the majority portion of it.

But as far as sequestration is concerned, I think it is fair to say that we don't know the exact answers at this point in time, that we're working very hard at the number of opportunities that there are.

Yes, that says it well.

Okay. I think we will leave it there.

Keld Rasmussen, [Eval Research].

I noticed in the capital items, there was a loss on the repurchase of GTL participation rights. I'm assuming this is buying back the right to participate in Oryx 2 from Chevron, if you could confirm that? And if that is the case, what should we be interpreting about the relationship with Chevron and Sasol Chevron from that action?

Your interpretation is absolutely correct. We have bought back our rights or Chevron's right to participate in the extension of our Oryx or Oryx 2. That was a commercial transaction between ourselves and them. And, as we have indicated in the past, we've got a joint venture with Chevron, and we're working together, and from time to time, we will also reevaluate our relationship. This is where we currently stand.

Gerhard Engelbrecht.

Can you just elaborate on your capital spend? You guided that you would spend about, I don't know, 15 or ZAR16 billion a year ago, and you've have only spent around ZAR5 billion in the first half, and I expect you will still spend ZAR12 billion for the full year. What is the reason behind the split? And then are you expecting some large projects to kick off in the second half?

Yes, that is exactly right. We're expecting, Christine just told me a little earlier, that are a couple of big projects, including the gas turbines for Secunda, that come through the cash and does flow through in the second half, and that is a fairly big chunk. And EGTL costs are stronger in the second half than in the first half, and then the rest is made up of a lot of small projects that have where the cash is scheduled to flow more in the second half than in the first half.

I guess we generally are a little bit more optimistic than we should be where our businesses are and the way the cash is going to flow, but there is nothing more fundamental than that. So, as you said, about ZAR12 billion for the year.

Jonathan Kennedy-Good, Deutsche Securities.

Just one question on CapEx in Nigeria. Are we likely to see the possibility of amounts that have been spent in the past being revised upwards? So, in other words, are you going to see changes to the terms in these contracts just for amounts to be spent or amounts that have been spent as well?

To be spent. The amounts that have been spent are fixed. It is predicting what future cash flows there are going to be, and we will only know once we have done a little more -- or Chevron has done a little bit more, and we can communicate it with us.

James Twyman, UBS.

Could you give us an idea about what the stock gains were in the refining business please because that business obviously increased profits pretty substantially. I'm just wondering how much was that.

And also an idea about what your CapEx numbers are. You said what it was for '08, but going forward after that.

While we're getting and having a look at the stock gains on oil, our CapEx we indicated about ZAR50 million over three years at the beginning of this financial year. We still think that is a reasonable number to work on. We have not revised that one at this time.

Okay. so that means sort of ZAR19 billion per annum in '09 and 2010?

That is about right. It may be a bit on the optimistic side, but we have not formally revised that yet. And can we -- directionally you're absolutely right. On the stock effects of oil, that has had an impact, but we don't have a number at hand. If you do not mind, can we get back to you on that?

Great. Thank you.

Tassin Benn, Merrill Lynch.

A question regarding the Olefins & Surfactants business. It came through with quite strong results in the first half of your financial year, and you indicate that the second-half profit is expected to be slightly lower. That is despite the announcement of some price increases in your LAB business. Could you expand somewhat on a), why you expect that to be slightly lower, and secondly, if you do expect profits in this business to be vaguely sustainable given its poor history and current crude prices? So just got some indication on operating profit margins.

Yes, it is a complicated question. As far as the softening is concerned, there is nothing fundamental there, other than expected increases in the oil price, which has a direct knock-on effect on most of their business. So we're expecting the improvement we see to be sustainable.

Obviously this is a cyclical business, and it has various large commodities in that, and not all of them runs exactly the same cycle. So there will be a few ups-and-downs there, but we certainly are hoping our continued efforts on restructuring and cost reduction by working on the margins to slowly but surely continue to improve even above where we are today, but it is going to take some time. We will be subject to the normal cyclicality.

I think the encouraging part of this is despite much higher oil prices than we were predicting and I guess pretty much most people were predicting, that we have managed -- that business has managed to do pretty well. That indicates that it's perhaps a lot more robust than we first thought it was.

Marc McCarthy, Bear Stearns.

Listen, I have two follow-up questions, and I think one of them started to be asked. It relates to your three-year CapEx plan, the ZAR50 billion. I think the math was done, that it would be ZAR19 billion to be spent and maybe more if you do not achieve your '08 target. Have you changed your attitudes about acquisitions, and/or assuming that you don't meet that expectations of spending, what will you do with the surplus? That would be the first question.

The second question is, when do you expect the final investment decision on China?

Okay. Lean will pick up on the second one. Regarding the first one, yes, we confirm that the ZAR50 billion is probably a little optimistic, but we have not revised that at this time. So that does imply ZAR19 billion a year for the following two financial years.

Well, if it is 15 or maybe even ZAR20 billion too high, where --?

It certainly will not be that much too high. The plans are in place to spend the money. What generally happens is we are a little bit optimistic on the pace at which we can spend, but we would not see a significant deviation from the indication in the guidance that we have given you there.

So we do not see a massive surplus arising as you put it. I think, as we promised you, we would get our gearing into the targeted range, which we have done. And we see that gearing level will stay within the targeting range. We do not see it dropping down below that.

I think that more or less covers your first question, but please come back if it does not, and Lean, you are going to talk about what (multiple speakers) China, yes, that is right, the investment decision. Beg your pardon.

As I have indicated, we're planning to complete the feasibility study in 2009. In just explaining China, after a feasibility study, the Chinese government will take a decision allowing this project, and if you can go into the final investment decision, so we will make sure that the outcome of the feasibility study is comprehensive enough to allow for this.

Just a normal practice is first to do the front-end engineering and design. That can take another couple of years, but we are under extreme pressure to expedite this project, and we do everything to our ability to achieve that. So there will be some signaling during the first half of 2010 where we're going with this project, and we're going to ensure that we have enough information from the end of this feasibility study to make a significant decision.

Okay. Coming back to the first question, to the extent that there is a surplus, do you anticipate any changes in attitude toward additional acquisitions or acquisitions in general? Or instead do you anticipate continuing to steadily move the dividend up, or might you consider actual share buybacks directed towards minorities as opposed to the use for the BEE type of transaction?

Yes, I do not think we would directly share buybacks in the manner that you describe. But let's just pick up all the moving parts to this.

We have the permission on share buybacks, so that is one of the options that is available to us, and that is going to depend on market conditions. It is also going to depend on how we see the CapEx requirements, and it is going to depend on currency fluctuations and oil price. So it is a fairly complicated metric, and we have got to plug all that together and decide where we are, how does the gearing look, and what we would like to fund on that. So we do not have any particular plans there.

On the acquisition side, no, we do not plan to -- we plan to go organically not by acquisition. With the exception that we have signaled I think to you and to everybody is that if we find a nice acquisition to deal with natural gas upstream or the potential GTL plant, then we would certainly prepared to make an exception to our organic growth strategy and make an acquisition there. But we don't have any plans to review in that regard at the moment.

Just back to the overall CapEx, though, I think it is important to point out that ours is quite a chunky capital program. We moved Mafutha and China. We're starting to ramp up into fairly big chunks of capital expenditure over the next couple of years.

So I think our guidance on the CapEx may be a little optimistic, but certainly we don't foresee any big surpluses arising from under-expenditure there.

If I could just come in, James Twyman asked a question about the stock effects at oil. The net effect for the half-year was ZAR446 million. So you can see quite a material effect on oil's operating profits.

Thanks, Christine.

Operator, we have got time for one more question.

[Semanta Biswast].

This is Semanta from Polaris Capital in Boston. Two quick questions. One is on your Mafutha project. I was just wondering that what kind of constraints might you see when you will be ordering capital equipment for that project? You know, how long it might take.

And the second one on Oryx. When you guys started on Oryx, you had an IRR. And now with the timelag and the extra costs, what effect has it had on your IRR?

Well, regarding the Mafutha capital program, Benny, I think it is fair to say it is too early days yet to make a prediction as to how long our leadtimes are going to be on the ordering of capital equipment. Certainly that must -- we will have to play that into the schedule no doubt as we know the workshops around the world are fairly busy, and we will have to get into the queue in some places there.

So we're not seeing -- we're doing this as fast as we can, but we're not going to see a rapid development of that project, and we want to do very careful upfront work first so that we can study the impact of our schedule.

Lean, do you want to pick up the second one?

Yes. Based on all the latest assumptions and (inaudible), of course, I would like to remind everybody (inaudible) business response is just over $1 billion. Our IRR expectation has actually increased. It is prorated by 5.

Yes, luckily we have had the oil price moving the right way for that. Benny, anything else you wanted to add on Mafutha?

No, I think being at the previsibility stage, it is still early days to be able to talk about schedule for acquisition.

Good. We thank you very much for your attendance, thank you for your questions, and please come back to us if you have anything that you would like to discuss with us offline, and I understand we will be talking to many of you on Friday. Some of you we will be talking to you in New York early-ish next month. So we look forward to that engagement. Thank you very much, and have a good day.

Ladies and gentlemen, that concludes today's conference call. Thanks for your participation. You may now disconnect.