Johannesburg-based Sasol Ltd. has selected Chile’s Enaex SA as its preferred partner to negotiate the terms and conditions for the possible formation of a joint venture for its explosives and rock fragmentation business. Santiago-headquartered Enaex would take responsibility for the management and operation control of the new jv, should it be formed, Sasol said. The Chilean company is Latin America’s largest producer of explosive-grade ammonium nitrate.
Sasol began a detailed asset review in 2017 to ensure that all assets in its global portfolio deliver against “stringent” financial metrics. In line with that review, the company said Sasol’s explosives business was identified as having “tremendous growth potential” that could be “unlocked through collaboration opportunities,” including the possibility of partnering with a world-class explosives brand.
Sasol subsidiary Sasol South Africa Ltd. would be the participating entity in the proposed jv.
“Enaex SA would be the controlling partner of the proposed partnership, which would be formed by spinning off certain assets and associated activities within the current Explosives value chain of Sasol South Africa Ltd.’s Base Chemicals business into a new jv company, which will include the associated business activities in both South Africa and the rest of the countries of Southern Africa,” Enaex said.
The proposed jv with Sasol is part of the Chilean company’s strategic plan to continue strengthening its international presence in the most important mining regions of the world.
As part of the exclusive negotiations phase, the potential partner will be required to continue to ensure “reliable and sustainable” ammonia offtake for Sasol South Africa, Sasol said. The potential partner will also be required to maintain Sasol’s “leading safety record,” and to be in a position to offer existing Sasol explosives employees career opportunities, it said.
The incorporation of Enaex into the jv remains subject to reaching an agreement on the terms of the respective contracts to form the partnership and obtaining any necessary authorizations from public authorities.
Also this week, Sasol said it has written down the value of assets in North America and Africa by R18.1 billion (approximately $1.3 billion at current exchange rates), equating to around 9 percent of the company’s market value. The company said as a result of the impairments, earnings per share (EPS) for the year to June 30, 2019, are expected to plunge 46-56 percent (approximately R6.56-R7.99 per share) from the year-ago EPS of R14.26.
Adjusted EBITDA is expected to decline by between 4 and 14 percent, compared to R51.5 billion in the prior year, despite the 19 percent increase in the South African Rand per barrel price of Brent crude oil, it said. The drop in earnings is mainly attributed to losses at the company’s Lake Charles chemicals project in the U.S. and the impact of softer chemical margins.
Sasol said it has had to make “sizeable” impairments of relevant cash generating units (CGU) due to the softer outlook for global chemical and gas prices, the higher capital spend on the Lake Charles chemicals project, and lower expected U.S. ethylene and global mono-ethylene glycol prices.
The Ammonia CGU in the company’s Southern African value chain was impaired by R3.3 billion (approximately $237.2 million at current exchange rates), mainly as a result of a much weaker forecasted international ammonia sales prices.
Sasol said core headline earnings per share – which takes out once-off items, including operating losses from the Lake Charles project during ramp-up – are expected to increase 1-11 percent (approximately R0.36 to R4.0 per share).