Sasol, which shocked the market in May by announcing more cost overruns at its Lake Charles chemicals project in the US, said on Monday the second of seven production units at that plant has come online.

On May 22, Sasol said its Louisiana chemicals project would cost $12.6bn- $12.9bn, almost 45% more than its initial estimate of $8.9bn at the time the investment was announced in 2014.

That led to a sharp sell-off of the company’s shares, which were last traded at R366.59, versus R431 on May 21.

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Sasol said on Monday the ethylene oxide facility at the plant — the second of seven production units — “achieved beneficial operation” last Friday.

“Management continues to take actions to mitigate the impact of Lake Charles chemicals project’s revised capital cost on the business, whilst ensuring these actions do not adversely impact Sasol’s long-term sustainability,” it said.

Sasol still expects peak gearing in financial year 2019, with net debt to earnings before interest, tax, depreciation and amortisation (ebitda) remaining within the 2-times to 2.3-times guidance range.

It said the net debt to ebitda covenant applicable to its $3,9bn revolving credit facility has been amended from 2.5-times to 3-times.

Anchor Capital investment analyst Seleho Tsatsi said Sasol’s recent updates show the Lake Charles project “is struggling to cover its cost of capital”.

The project’s earnings contribution in financial year 2022 will probably only be R12 a share, versus initial estimates of R18 a share, Tsatsi said.

Sasol’s existing business is expected to generate earnings worth R41 a share based on an exchange rate of R14.40 to the dollar and an oil price of $60 a barrel.

Using “a very conservative” valuation of R72 a share for the Lake Charles project, this suggests “limited downside” at Sasol’s current share price unless energy and chemicals prices decline significantly in the short to medium term, Tsatsi said.