Sasol’s shares plunge 14.7% on major cost overruns in US
The group has installed a new leadership team to strengthen oversight at the US chemicals unit
Sasol’s shares fell as much as 14.7% to R367.83 on Wednesday after the company said its chemicals project in the US could cost as much as $1.1bn (R15.9bn) more than it expected just three months ago.
The cost estimate for the group’s Lake Charles project in Louisiana has been revised to between $12.6bn and $12.9bn, which includes a contingency amount of $300m, the company said on Wednesday.
In February, Sasol said the project would probably cost between $11.6bn and $11.8bn.
When the project was first unveiled in 2011, it was expected to cost between $3.5bn and $4.5bn.
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Sasol said it had made adjustments to the February 2019 cost estimate of about $530m, while “additional events and remaining work” costing $470m had also been added to the previous forecast.
The group said the increase in expected costs “is extremely disappointing”.
“Executive management has implemented several changes since February 2019 to further strengthen the oversight, leadership for the project and frequency of reporting,” it said.
The new project leadership team had been “instrumental” in identifying and fixing issues with the project.
Given the increase in capital costs and the latest market pricing outlook, the forecast internal rate of return for the Lake Charles project had declined from 7.5% to between 6% and 6.5%.