SASOL LIMITED (SSL) Q2 2021 Earnings Call Transcript

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SASOL LIMITED (SSL -1.40%)
Q2 2021 Earnings Call
Feb 22, 2021, 8:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Fleetwood Grobler -- President and Chief Executive Officer

Good day and a very warm, welcome to our FY 2021 Interim Result Call. Thank you for joining us. I hope you and your loved ones are keeping safe during these unprecedented times. I'm today joined by Paul Victor, our Chief Financial Officer and Members of our Group Executive. I would like to point out that our results for the six month period ending December 31, 2020 was published on our website earlier this morning. For the purposes of this conference call, we will highlight the key salient features only. For the reporting period, COVID-19 continued to have a material impact on the macroeconomic environment and market demands. We also had to contain with operational disruption caused by significant weather events in the US Gulf Coast.

Despite these challenges, Team Sasol demonstrated remarkable resilience by stabilizing the business and achieving a first rate performance on our comprehensive response plan. Having already bagged more than $1 billion in cash conservation in our last financial year, we are well on track to deliver in excess of a further $1 billion in this financial year, all without compromising safety, compliance or asset integrity. As a result, normalized cash fixed costs were 10% lower against the prior period. And our capital expenditure of ZAR8 billion was 65% lower. Our working capital ratio was 14.9% compared to 14.6% for the prior period. A significant progress on our asset divestment program, as well as the more encouraging macroeconomic outlook has mitigated the need for us to do a right issue.

It is also most heartening to report that we had no workplace strategies for the first six months of the year, and I'm pleased with the positive trend we see in the state of the decline in high stability injuries and safety incidents. We remain committed to reduce the impact of the Global COVID-19 pandemic on our employees and operations. We have therefore taken a number of exceptional measures resulting in infection rates among our employees remaining below those of our regional communities. Against this backdrop of significant global downturn and market volatility, team Sasol managed to deliver a strong overall operational performance.

To highlight some of our operational performance, Secunda Synfuels operations production volumes were 1% higher compared to the prior periods and achieved utilization rates above 100% November and December 2020 as those trends reached full operational capacity. I'm also pleased to announce that subsequent to the LDPE unit reaching beneficial official operation in November last year the necessary licenses of performance of that have been successfully completed. This route sales achieved 100% completion fully operational and ramping up steps. Following the announcement of our joint venture with LyondellBasell in October last year the Louisiana integrated polyethylene joint venture came into effect on 1 December 2020.

Our North American operations achieved 5% higher production volumes for the period with the ramp up of new assets unfortunately constrained by hurricane Laura and Delta. You may ask what the impact of the recent extreme weather events in the Gulf Coast was and I can report that often most viewed has being down in the first week, start-up operations commenced over the weekend and we hope that in the next 7 to 10 or 14 days we could be back online. Looking at our business performance our base chemical sales volumes increased considerably, with a 9% increase in sales supported by increased demand, despite softer market conditions precipitated by COVID-19 restrictions notably in the automotive industry, performance chemicals sales were only 3% lower we recorded a 11% lower liquid fuel sales in our energy business as a result of the COVID-19 impact on transportation fuels with jet fuel demand remaining under pressure.

Turning now to our expanded and accelerated asset divested program, we have progressed divestments to the value of $3.3 billion since March 220 and I'm confident that we will receive up to $3.8 billion of divesting proceeds by December 2021. These divestments allowed us to take a very significant step forward in deleveraging our balance sheet. Further updates on other disposals will be provided as and when appropriate. Central to future Sasol and our strategy these progressing toward holistic climate change response. We are pleased to see that our plans to deliver on our 10% greenhouse gas reduction target for our South African operations by 2030 is progressing well. Work is currently under way for the 2050 outlets for our US and Europe Asian operations.

Partnerships will be essential in our de-carbonization ambitions, not just for Sasol, but also to enable South Africa's immediate transition. We have to restrengthen our existing partnership with Air Liquide to further reduce our greenhouse gas emissions at our Secunda operations. In addition, Sasol and Air Liquide will collaborate in the procurement of renewable energy. Together, we will procure 900 megawatts of renewable energy by 2030 in our Secunda complex, significantly increased from Sasol's original 600 megawatt commitment. Gas feedstock transition is also progressing with final investment decision approved for the production sharing agreement, license area developments in Mozambique.

This project will entail Mozambique in-country monetization of gas through a 450 megawatt gas-fired power plant and an LPG facility. The balance of the gas produced will be exported to South Africa to address the near-term decline in our Pande and Temane gas fields and sustain our operations. We are moving with seed to make the chemicals and energy business much more effective by criticality assessing them against the best-in-class and introducing changes where there are opportunities to do so. As we look forward, the pathway to a sustainable balance sheet, allocation and resumption of interim dividends looks increasingly within our grasp. But for now, we need to take one step at a time.

I will now hand over to Paul to discuss the balance sheet and decision on the rights issue in greater detail.

Paul Victor -- Chief Financial Officer

Good afternoon. [Indecipherable] which is really a strong sales results in the context of the [Indecipherable] we face. This was the delivery of all of our [Indecipherable] that really made the difference. [Indecipherable] need to deleverage the balance sheet and the [Indecipherable] taking to keep our position to [Indecipherable] around $6 billion from the response [Indecipherable] that as you now can see if you [Indecipherable] and without [Indecipherable] 2.6 times according to the bank definition, which is now below the current of 4.0 times agreed with our banking group. In addition our free cash flow has significantly improved and have reached a cash flow inflection point in the first half.

Looking forward [Indecipherable] quite positive cash generation which we will seek to [Indecipherable] rights. We are also well position to take this advantage on the positive impact at the current rates and we would also remain six months of the financial 2021 results. This has also have a very positive impact [Indecipherable]. Turning now to the key decision criteria for the rights issue that was set out in December, with six main criteria for the decision and the first one obviously was the confidence as in meeting and beating the covenant of three times par at June 2021. In fact we were able to significantly exceed our earnings free cash flow while achieving this milestone down in December 2020 although we were helped by the translation of the U.S. dollars denominated as a result of the close of -- stronger close of exchange rate.

Nevertheless with the healthy safety margin by December, a strong run rate during the year especially in the last six months and the [Indecipherable] implies which is result of our leasing program -- it's highly confidence on our side [Indecipherable] toward June 2021. Our liquidity position has also improved consistently with our acquisition our remaining parts shown right through this very challenging time. We'll continue to actively manage the liquidity [Indecipherable] and also primarily focus on our debt maturity profile over the next few years. In terms of the outlook, the other key factor is [Indecipherable] and also the confidence remain very quiet high that we will accelerate and deliver on those results.

[Indecipherable] in the program in the future is good traction to see the gains and as to see the gains the results coming through in this year and especially in the next financial year. The next factor was also the asset divestment and we currently talked about those and the [Indecipherable] so a little more to do until the end of the calendar year but so far so very good. It's also important to mention that after June we do not expect additional contribution of -- the asset divestments will decline significantly as we moved back and certainly into our usual ongoing business portfolio. The final factor to consider the macroeconomic outlook and this is probably the area in which we are most concerned given the unprecedented circumstances of the past couple of months.

Given the positive momentum [Indecipherable] protection that we have in place to extend the volatility [Indecipherable] on which we operate really gives the confidence that that the actions we're taking are sufficient to mitigate the move for the rights issues. In conclusion, we will of course continue to monitor the situation quite closely but at this stage I'm really delighted that we can focus all our attention now delivering Sasol 2.0 and our ambitions with that and focus on our core strategic objectives.

Thank you. And we can now open the call for the questions and answer session.

Questions and Answers:

Tiffany Sydow -- Vice President, Investor Relations

Good afternoon all participants on this call. My name is Tiffany Sydow, and I'll be facilitating the Q&A this afternoon. Thank you for the questions already submitted. And we'll continue to capture more as they come in and the questions will be grouped into themes. So we will try and cover two to three questions at a time to make this call more efficient. The first question comes from Golf [Indecipherable] Group. And it goes around, please -- to please provide further color on the large increase in working capital, higher receivables and lower payables during the period. And what can we expect? Can we expect this to unwind in the short term? That's the first question for Paul. And the second question goes around cash fixed costs in the second half and into FY 2022. Doesn't this guidance of cash fixed cost with inflation in FY2021 imply a big step up given that cash fixed costs were down 10% in the first half that question comes from Chris Nicholson at RMB.

Paul Victor -- Chief Financial Officer

Good afternoon, Gary. And thanks for the question. So firstly just look at the trend of working capital and as you will see M&A book our working capital thing since 2019 has been round about 14% at the end of this -- at the previous financial year that dropped to 12.5%. So what they manage us to deployed all the same was due to the fact that the government in South Africa did give us a special dispensation in deferring some of the payments especially on duty at source and those are quite significant payments so around about ZAR3 billion to ZAR4 billion per month and the government did allow us to buy those two months later than the due date. So we had that growth impact from June to July and effectively you will see that -- that impact on working capital.

The same issue is being also as we dispose of our assets all of our assets held for sale is being also kind of shown as current, and if you look in absolute terms of working capital level that's actually 30.7% taking that into account. So we do believe that longer term our absolute working capital range for the company should be between 30% and 40% and we have seen over the past reported periods how we diligently drive it down to those 14% levels at this point in time. It has created normally during the past six months that we had that rollover of the regulator's approval on that. And then also what you will see is as we completed the LCCP that the capital accruals also started to come down as we settle those payments.

I think looking forward in the next six months things looks much more you know stable, so those you know -- those kind of movements and we are forecasting more roundabout a 14% working capital to turn over dispensation toward the end of the year if that answers your question. So we did pull some kind of disproportionate allocation to payables in the first six months but nothing untoward in the way that we effectively managing our working capital. To the second point, hi Chris, hope you're well, we ultimately had an excellent run in terms of cash with Sasol from the first six months to the point that on the normalized cash stock decreased by 10%.

Looking at the next six months what can distort the picture a bit is that a lot of the -- what is taken into account in our absolute guidance to the market is the payout of the severance packages and termination packages as a result of Sasol 2.0, so that ultimately from a cash flow perspective will be reflected in the number as well as is the odds that is provided for at the end of the year. So that in itself was a kind of imbalance between savings for the first six months versus the second six months, but I can assure you that all the baseline improvements in maintenance cost, in labor costs, in other services [Indecipherable] does ramp up will continue, maybe we are a bit conservative in our guidance and you can read if you maybe as much as you want but we feel quite hopeful that we will definitely all in all include our cash cost relative to $60 billion as an absolute -- sorry ZAR60 billion as a absolute number for cash used cost for the year inclusive of those numbers.

Tiffany Sydow -- Vice President, Investor Relations

Thank you Paul. The next question is also for you. The question is could you please provide some more -- some indication of the exit rate profitability for base chemicals in the energy business. That comes from Thomas Wrigglesworth at Citi.

Paul Victor -- Chief Financial Officer

Thomas that will be a very hard question to answer at this point in time. I think what we will try to do is as we optimize and finalize our targets on Sasol 2.0 we will be able to provide you that guidance during the end of the year when you're getting guidance out in terms of what we expect from the business most notably in terms of chemicals and energy. I think it's safe to say at today's run rates -- and the barrel prices sits at close to a ZAR1,000 a barrel those do change on a daily basis, we plan our planning cases more toward the ZAR700 So we have seen in January that our EBITDA run rate especially in the biochemical also in performance chemicals as well as in the energy business has stayed that point considerably in terms of what we see in October, November, December. So our current run rate indicate a very strong EBITDA performance in the next couple of months as a contribution of Sasol 2.0 as well as the contribution of better macroeconomics, so that the signal will be better as long as this continue. But toward the end of the year when we figure out you know rather give you a better of where the actual numbers are going to be in a $45 barrel at Sasol 2.0.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Paul. The next question is around what if any is the financial impact from the current cold snap in Texas, how long will it take for production levels to normalize, and this question comes from Thomas again at Citi. We're going to ask Brad to answer that please.

Brad Griffith -- Executive Vice President: Chemicals

Hi, Thomas. Thanks for the question. Yeah. We did see an extended cold map really low temperatures that we haven't seen in decades in Texas and Louisiana so as Fleetwood mentioned earlier we did successfully keep our crackers running including the JV cracker over that period but we are still working to restore operations for the derivative plants. And as Fleetwood said we expect that to take place over the next 7 days to 10 days for some of the plants but maybe more over the 10 days to 14 days for some of the more complex units where we do face challenges trying to get them warmed up and you know assessed for any damages. So it's too early to give indications on the financial impact and but we do expect to see production restored in the next 10 days or so.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Brad. The next question perhaps you can also assist with please. Can you please provide an update of the impact on the cold weather, you've already addressed that. I think the next question is for Fleetwood around Mozambique LNG and the question is will that be fully covered within the ZAR20 billion to ZAR25 billion capex over the next few years and how long does it extend the plateau of production for? That's from Henri Patricot at UBS.

Fleetwood Grobler -- President and Chief Executive Officer

Hi, Henri. Thanks for the question. I think Brad covered sufficiently the LCCP operations impact now with the cold weather. With respect to the Mozambique LNG I think the short answer to that is yes we are affected in this capital project in terms of our range that we've provided and of course that -- that plays out over the next three, four years and it's included in the guidance. So in the second part of your question you referred to the point around how long does it extend the plateau of production for. So in our estimation, well, first let start, there are a number of other measures we are taking to extend the plateau. We are currently busy with infill well drilling, drilling that that well drilling will continue with over the next couple of years and we believe that will have a positive impact on extending the plateau. In addition to that, the PSA would at least give us another three years of extension of that plateau. So I believe that that gives us a site of the 2030 before the plateau then starts to kick in. So that is our best estimation and of course this is all based on a mid-case of our gas and the gas assumptions rather instead of any other extreme side of the reservoir potential.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Fleetwood. The next question from Gerhard Engelbrecht with Chronux Research. Can you talk about prices in performance chemicals? And are you seeing higher prices for your products? Can you identify weak market segments? And can you divert products from weaker segments into more into stronger segments?

Fleetwood Grobler -- President and Chief Executive Officer

So thank you Gerhard for that question. I'm going to ask that Brad just comment on the more essential key part of the business. We are currently seeing that there is price expansion in terms of our margin then per se in our mid-cap [Indecipherable] range. That is primarily driven by [Indecipherable] that is increased in pricing over the last months already. So, yes there we are seeing price increases. We to some extent can focus on more profitable segments in terms of the demand as it returns specifically in our performance products area. And so that is part and parcel of how we would look at it. The softer market segments at the moment is more in automotive, and I believe that as debt returns we believe also that we will see stronger demand and therefore stronger uptakes in the pricing. Brad is there anything there that you would like to add?

Brad Griffith -- Executive Vice President: Chemicals

Yeah. Fleet, I think you covered the essential care space I mean we're seeing continued very strong demand in the areas of detergents, home care, fabric care, personal care products. I think we are seeing prices buoyant as you said from the oil and natural oil prices. At the same time, we at Sasol are working to make sure that we can restore our production following the hurricanes, the freeze impact, et cetera. So we're hopeful to be able to see that materialize then in the second half of the year.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Brad and Fleetwood. The next set of questions is around financial EBITDA questions. I'll start with the first one for Paul. Can you please unpack the operating losses from LCCP and outcomes from [Indecipherable]. Also a question from Alex Comer at JPMorgan. The second question is around how should we think about the timeline to LCCP reaching steady state EBITDA? And the third question is how -- what is the guidance for the LCCP and do you guide in 2021 for the full year? And do you still believe Secunda's assets life is till 2050. That's also from Alex Comer.

Paul Victor -- Chief Financial Officer

It's an awful lot of questions. So let me tackle them one by one. So ultimately we did talk about cut back. We are in future going to disclose Sasol from America as a statement after the disposal of the 25% stake as well as the LCCP units, so I'm not going to provide separate guidance from LCCP. But in terms of the core refinery earnings per share, we did give you indication of how much that we've adjusted core refinery earnings as a result of the losses that we experience on the LCCP. And I think what is quite important is that the LCCP complex or the North American complex has reached according to a full assets has now been completed.

And they are geared up to its full run rate. And I think that's been a whole issue sometime I should say. So we do anticipate that we will be generating much more cash flows and positive EBITDAs in the next six months as a result of the generating much more cash flows and positive EBITDAs in the next six months as a result of the contribution of that investment and the process [Indecipherable] for sure it look more positive. I think we have to keep a close eye on the street between ethane and the ethylene prices and post the -- kind of the methane and also now the -- I think registration. At this point in time we are not going to give you specific guidance on the LCCP data cycle for the second half, but that is taken care I think we have to plan to run the plant at close to nameplate capacity on the PE side as well as ramping up the ZAC units and we do anticipate that those -- the trajectories toward a run rate of at least $30 million per month and at current stock prices should be achievable in the next couple of months.

Then the question brings as we begin -- so we do plan that in the next couple of months as we get to a full production and as Zach you know it's also kind of takes to the improvement of this proposed production that the run rates that envisaged between financial year 2022 to 2023 to come to fruition. We still very much on that that guidance given the year that you say price ranges between $0.25 and $0.30 that we said in the past as well as a i.e. and $850 per ton price market for polyethylene that still -- we can still move to walk set that 700 -- $650 million to $750 million of EBITDA run rate. But we obviously don't need to update that as the prices in the market gets updated which happens quite regularly.

I think this guidance needs to caveat a big caveat that buying volatility in the markets I think we are quite nervous about the volatility in pricing and if given prices maybe go down this year obviously it will affect this guidance but this is kind of we think about it. In terms of 2050 I think it will be an important question that you raise Alex. As this for the time you know based on our assumption of the future, so I'll be contributing some way or the other if there's no reason to believe they will not 2015 however we are all busy updating the strategy as far as the Capital Markets Day like this year and all things seem perfectly unfold in terms of how we want to utilize the asset into that what the answer will be that will buy our 2015 system. But this -- at this point in time there is no reason to change the game and I thought we had finished the work on the strategy that is really change in that decision.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Paul. There are two questions from Adrian Hammond from SPG. The first one is what is the group's normalized sustaining capex? And the second one is around the CARES -- the US CARES Act. So have we -- have you received any funds you provided for relating to the U.S. CARES Act regarding special dispensation for COVID?

Paul Victor -- Chief Financial Officer

Hi, Adrian. So basically on the sustenance capital, obviously this year financial '21 we have provided the guidance our sustenance capital spend will be in the range of $18 million to $20 million which is historically in real terms compared to previous years, but that is because we have optimized the flow stream opening which is in the previous year. So this gives us a lower rate because of that -- the total previous year considerations of the previous year as in the past. In terms of our guidance going forward we are working in the range that we have said in the Capital Markets Day of targeting between of capital spend and mostly sustenance compliance with environmental capital.

We have said that that's the range in which we anticipate to execute our capital portfolio into 2022 I think for now we have to work on that. If that change to the better or to the higher we will inform you in time. But based on our planning that's what we believe we should be focusing on that and basically is part of our base case planning to include that. Again when we emphasize that -- a development that we have announced today as being catered for in that specific incident. And typically the -- acquisition is fortunately we have to see the amounts relating to the case and those have been deposited in our bank account and if you could do that short term debt or receivable as now been signaled by the US government.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Paul. A question from [Indecipherable] Capital. How should we think about Node marketplace opportunity in terms of product placement? And if I could target that one to Brad please.

Brad Griffith -- Executive Vice President: Chemicals

Sure. Thanks, Becky, for the question. We're very excited about our collaboration with Node.com. So this is a store front marketplace opportunity for producers and sellers in the chemicals and related application space to really then make connection for sharing of information, gathering of technical data and product data. And really Node has an ambition to convert that into an actual marketplace for transactions. They're supported by a very strong investor base, including Sequoia Capital. And so we continue to develop our relationship with them. And if you take a look at node.com and look at the Sasol storefront, you'll see thousands of products and applications and formulations and work that we're doing with our customers. Thanks.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Brad. The next question comes from [Indecipherable]. Please could you provide a breakdown of the capex by ESG, carbon capture efforts, maintenance and growth both in this half and over the next two years? I could ask Paul to answer that please.

Paul Victor -- Chief Financial Officer

Yes. We have disclosure in our Analyst Book. I think we believe that we provide enough detail in terms of our various capital components in terms of our sustenance capital. There you can clearly see most of the capital is sustenance capital. A very small portion relates to growth capital, for growth capital is really that go in stream of the LCCP as well as the small amounts that we still earn in Canada. The reasons mostly in mining centers and we do provide a breakdown to that. I think [Indecipherable] a little bit too much for us to share with you on positive on the mark.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Paul. The next theme is around asset divestments, I'll start with perhaps two questions in this category; given its strategic value to your gas supply from Mozambique. Is there a possibility that you would consider not divesting ROMPCO? That comes from [Indecipherable] Group. And the second question is, what other assets are for sale as for slide 12 of the presentation? And that's from Adrian Hammond.

Fleetwood Grobler -- President and Chief Executive Officer

Yeah. Thank you. Thank you, guys. I think we far down the road with the ROMPCO asset in terms of our dilution of shareholding and so I think we are definitely not going to now retrack on the process that we have followed with diligence. We are not yet ready to make the announcement in terms of the details that is going to be in the next month or three. It is for advance in terms of the commercial discussions and therefore I don't want to pre-empt anything further. Suffice to say that the dilution of our ROMPCO shareholding is for progress.

And Adrian with respect to the assets as for slide 12, I think that you need to see that there are a number of asset reviews that it looked in terms of our focused strategy. So they may be smaller asset but I think we are also not yet ready to make any further detail available around those so bear with us. I think we would announce those as and when appropriate and once we've reached that point to share more details. So that is really still ongoing process and as we say we come in basically to the end of our focused asset divestment program and we hope that that would be the interning by the end of the year in terms of our normal asset review that we will do as part and parcel of running the ongoing business.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Fleetwood. The next question is what is the total amount of asset sales so far and how much cash is already received from those asset sales? How much and when will those proceeds be used to reduce gross debt that comes from [Indecipherable]. And the second question is around what is the holdup in finalizing the $8.5 billion in divestment proceeds from the ASU that comes from Wade Napier, Avior.

Paul Victor -- Chief Financial Officer

Thanks, thanks for the question Wade and Alexander. So let me take us back to '17 when we announced the asset disposal program since 2017, '18, '19 and '21 we have banked -- meaning cash to the bank in terms of concluded transactions and closed to $2 billion, $3 billion of assets. Obviously most notably that the two biggest assets -- was the LCCP disposal which M&A disposal. But then also there are a couple other sources such as [Indecipherable] enhancement joint venture, and a Malaysian joint venture of [Indecipherable]. So since 2017 with the largest focus in financial 2021 we sold close to $3 billion of assets. Moving to the end of this financial year and maybe slightly longer in the next couple of assets will probably be in the vicinity of another $700 million to $800 million.

And as we know the [Indecipherable], which I will speak to just now we probably make up the largest share of, but then we also have a couple of other smaller assets such as CTRG our new dock properties the Gabon asset that falls in that group. So this is another which we believe are very highly -- high chance of 90-plus on banking closing these deals. And that will take us to $2.7 billion -- $2.8 billion in total. Then the next tranche of assets as you know that [Indecipherable] and some of the others that we've identified that will then probably push us close to $4 billion and slightly there over at least a couple of assets that we are still pushing in that direction with good marketing if it's beyond thing.

So we still feel quite positive for all the assets that we identify as part of our asset disposal program that doesn't have a real and obviously fit with our strategy and will improve our focus that they do contribute significantly in getting that data balance down, but also help the company to focus on its key strategic objectives. The second question, what's the holdup with ASUs and I think sometimes you can be equally as hopefully appreciate our frustration that we've actually concluded the deal in America at a much more -- shorter space of time and comply to ASUs and fortunately we sit with some regulatory hurdles which you need to complete in terms of the Competition Commission as well as DTI items of making sure that we complete all the requirements.

I think we between ourselves and [Indecipherable] reach now a point where we have made our final submissions to the DTI that will ultimately by legislation also informed the Competition Commission process and hopefully by the end of March we will be in a position to close all of that draft. So I think monthly couple of weeks still, but yes, we want to keep close this sometime back, but unfortunately a lot of hold up on their side, nothing to be concerned about that though. I think both parties will get us there over the line, but that is used in March and the then through that as much as possible before that or slightly thereafter. So we may prepare this, and I feel quite comfortable that you know this will make a significant difference in getting out the balance to the $6 billion.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Paul. The next set of questions is around the theme of our operational and LCCP. The first question being please comment on the extended force majeure of the LCCP alcohols plants. That comes from [Indecipherable] and if we could ask Brad to please answer this question?

Brad Griffith -- Executive Vice President: Chemicals

Thanks for the question, Garth. Yeah. Sasol regrets any time that we have to declare force majeure because it means that we've run into some form of operational or supply impact that requires us to work with our customers to allocate product. And with the nature of the extension of the force majeure for alcohols in the US really goes back to the hurricane. So you know we were busy with ramp up, technical ramp up and operational ramp up of the Ziegler alcohols, alumina and Greens Bayou plants and those are more complex plants, that's why we've always described to you that the ramp up plans for those are longer in nature. And because of the setbacks with the hurricanes and the need to get most of the other units prioritized you know those alcohol plants have been longer and getting back to full stability. And we were really getting to that point when we got to the latest freeze that I commented on earlier. So we do hope to release the force majeure and the allocations within the next month or so, but it's too early for me to comment on the timing until we've had a chance to fully get the units back. Thanks.

Tiffany Sydow -- Vice President, Investor Relations

Thanks, Brad. We received a question on lessons learned from LCCP, I'll read the question. And if I could ask Fleetwood and Paul to please jointly answer this. What lessons have the LCCP delays toward the management team? And does this mean they would be too conservative going forward? Or how has capital allocation decisions changed? That comes from Ricardo Michaels at Denker Capital.

Fleetwood Grobler -- President and Chief Executive Officer

Thank you, Ricardo. I'll start off. I think that the first item that we would like to clarify is that the project and the size of LCCP we've already indicated in 2017 that for such a large project and such a high capex number we would in future really not do that on our own and we will seek the right partnerships to execute that. Then, on the other hand it is a very, very complex integrated technology array of forms that we also executed there in Lake Charles. So we have to take note that you have to make sure that you understand and get your minds around all the complexities that that brings to the commissioning and start-up phase which I think we have. The other item is the way that you would go about putting your project team together.

And I must say we've done it 100% right when we really put the project on the final execution and sort of track since February of 2019 and that worked well. And I think we delivered the project within the cost guidance and we delivered the various weapons we've made. And so I think all of that specifically that lost part where we got to it, right, all of those would of course be incorporated. We have not only looked at the LCCP we've looked at all the projects we've executed in the last 5 to 10 years and we really took that to heart both into that program of all the learnings which we are now applying to all our capital projects that we would be executing and we have actually started to apply it as of last year for more projects that we will be executing including our clean fuels program as well as the PSI project that is ahead of us. So I think many lessons learned. But I think we also got good, good experience and learnings that we would incorporate going forward. In the capital allocation, I'm going to hand back to Paul.

Paul Victor -- Chief Financial Officer

Thanks Ricardo for the question. So ultimately quickly that explained the way that you want to [Indecipherable] and manage risk on significant projects and we have shared our growth to you in 2017 as well as in the investor update. In future what our thinking is about capital allocation. So first and foremost the way we define ourselves now will be especially to reduce the -- on the balance sheet and to [Indecipherable] all available money first toward [Indecipherable]. I think that is the priority and until such time with the balance sheet being sufficiently delivers the minimum dividend -- the dividend income lies 36% payout ratio dividends and then after we would then balance the capital available between further dividends as well as growing the company.

So at some point the reinvestment in our future in terms of a growth projects will be -- will be quite important. But I think we will be going in the way that we will be quite frugal about where we spend our money. We need to make sure that the risks that we take and the delivery that we're going to achieve from the capital invested [Indecipherable] to our objectives in terms of capital returns and that it will be kind of more measured focused investments in partnership with others to utilize the sufficient and major growth like for our business. We are not immediately going to jump to investing heavily in any government project soon so as I said first of all the assessment the second priority [Indecipherable] paid dividends and they versus further dividends so we are very much on the -- what we've said to you before.

Tiffany Sydow -- Vice President, Investor Relations

Thank you Paul. The next theme is around balance sheet management and the decision on the rights issue. I'm going to read maybe two questions at a time. If that's OK. The first question what are the required conditions to reinstate the dividend. Would you reinstate dividends in June if net debt to EBITDA drops below two times and is there a chance that you could restart dividends before '23, '24 as guided in December that comes from a number of participants on this call Thomas Wrigglesworth at Citi, Adrian Hammond, Vladimir Dorokhov at AIG and [Indecipherable]. The second question with the faster than expected recovery in the balance sheet could you consider accelerating some of the initiatives required to achieve Sasol of the future thinking of things like dividend IG credit rating and value accretive investments that comes from Wade Napier at Avior.

Paul Victor -- Chief Financial Officer

Thank you for asking the questions. I think all of them are absolutely at play at this point of time. So in fact that let me just remind us of the fact that we haven't taken a decision to achieve [Indecipherable] us in a situation we still need to pay a considerable amount of debt. So ultimately our debt is sitting now slightly lower as we speak you know an $8 billion and worth additional proceeds as I indicated from Day Hughes as well as these other assets that we have been talking about, we will be targeting toward the end of the year to give you that range of $6 billion or slightly higher than that. That's the immediate focus and it's $6 billion market. So ultimately at current run rates and ultimately at those debt levels, this the date on the balance sheet will start to dip below 2 times debt to EBITDA but I think we find ourselves as the industry is that -- my cellphone is operating of the -- so we are currently looking at a range of 1.5 times to 2 times negative EBITDA also looking at absolute debt levels and looking a little bit farther down the line in terms of cash flows and alphabet issued with ultimately the level before we will reintroduce the dividends. I'm so having received that that come from at current rate the default rate to a delivery balance sheet seems much quicker as long as that kind of the benefit of Sasol 2.0 but introducing the dividend needs to be sustained and we will need to make immediate decisions in terms of that I think but importantly any student should use it -- at the appropriate time we need it. In terms of the win so ultimately as I've said if you look on the Somalia, a 1,000 In terms of the win so ultimately as I've said if you look on the Somalia, a 1,000 [Indecipherable] battle obviously through the trajectory can come much sooner than you look on the trajectory at the of the [Indecipherable]. I think the scenarios in which you modeled your cash flows and your balance sheet leveraging and how much you get from your asset disposals will ultimately form that decision. At this point in time we are not going to stick to giving you an affirmative date of deliverable entities by the end of the year or by the end of the calendar year but we will use that criteria of a sustainable [Indecipherable] people below two times the EBITDA with actually [Indecipherable] labels -- quite manageable to absorb shocks as the critical guideline of reintroducing the dividend. However we will not invest in growth projects at the expense of a dividend. So in our capital allocation sequence I did explain to you that all the sustain capital dividends to income. So we will not change that although. But give us time until the end of this year you know that our dividends will be declared by the end of this financial year, I can firmly state that is our plan to do so. But as you start to navigate and move beyond that toward December and you look at the condition of the balance sheet and run rates, we can then reconsider that decision. I think we really need to make sure that our balance sheet risk is [Indecipherable] of such a nature that it can actually absorb a future shocks because both they most are happen. And ultimately the second question is more a little bit different than that is the kind of looking at dividends and the IG ratings as well as accretive investments, so [Indecipherable] spoken about it the dividends, dividends as I said it's a principle that will be paid and the balance sheet can afford it. The balance sheet is in a decent risk level. It can be sustainable. That's the criteria. When it comes to IG rating I think things get a little bit more difficult on the IG rating obviously our focus and drive is to restore our investment grade rating. But I think one of the investors have asked me in the past at what cost meaning that if we line up in a situation where the South African sovereign is rated at two levels lower than that investment grade then the rating agencies or even us at kind of we showed our balance sheet risk not potentially at investment grade due to the fact that we have the South African exposure and the South African sovereign as well as the industry still kind of we see as high it is and the Standard & Poor's did indicate that the sustainability aspect and also relating to especially for oil and gas companies will be a key criteria going forward. So ultimately, what we would do is, we will try how best could be investment grade rating in terms of the criteria of the rating agencies in terms of how much cash flow we generate, how much debt we carry on the balance sheet. But it will also be subject to the kind of this sovereign rating as far as the industry ratings. And within that limit we need to navigate. It doesn't mean that if we have such investment grade that we will see significantly worse borrowing rates. So to say we can get our house in order and such that in future lenders won't look in terms of how you can finance with such certainly and we believe that we can make sure that we will still be able to competitive rates and deliver a decent average cost of capital. And certainly if I can just step back and see the loss benefit question that is then ultimately getting to a value accretive investments. So what we have value accretive investment is GBP74.0 million, very little capital it will be super high but we also know in terms of utilizing further gross margin opportunities, the team has done great work to identify investment opportunities that that small amounts of growth capital with a quick payback and give us a decent cash flows. Our immediate focus will be to go after those things. Also the organic improvements in the business, debottlenecking of assets as those opportunities exist. Those would be things that I think can be quite value accretive. And as the balance sheet opens up, we will really start looking at those things to say what levers can be pull in the balance sheet analysis. So we have started to think about it already. We have already started to think about it and we didn't stop. And there may be -- will be more on the offensive side as on the defensive side, but again as [Indecipherable] on the capital allocation principles actually.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Paul. A few more questions on the balance sheet management side of things. Now a question from at Barclays. I see the availability of the $3.9 billion RCF will be falling in 2022 and 2023, what is the reason for this and what is likely to happen to this facility at the maturity in 2024? Could it be rolled over? The second question is, are there any circumstances which would cause Sasol to relook at a rights issue, and are there any significant debt maturities next 12 months to 24 months? How will these be managed from Peter Kornberg.

Paul Victor -- Chief Financial Officer

Thanks for the questions. Yes. I mean where we find ourselves now is and we've said over the past many times that our debt maturity needs to be smooth out, we don't have immediate risk on our debt maturity for the next two years. And we've got the $1 billion bond by the end of next year November that needs to be serviced, but we've really got the plans in place to see how do we retrace that, and with the cash flows we don't see that as a risk of honoring that. When we negotiate the -- we had a kind of 5 plus 2 or 5 plus 1 plus 1 scenario and negotiated with the banks, we would ratchet down the 3.9 to a kind of a more level of $2.8 billion and then effectively refinance the facility over the 5 plus 1 plus 1 years which was something new which can only be bank debt or can be in the form of a longer term fixed mature date such as bonds.

So ultimately the spot of the negotiations with the banks that we've checking and as being negotiated nothing untoward that's how these facilities work. This facility has been in place for some time and ultimately as that kind of the -- we will then replace with new sales [Indecipherable] that is just related to mange it. I would say that the 23 24 25 period is specifically where our focus will go and do not and will either go to the big markets on regular intervals and then raise data and refinance that or will use our cash flows to do so. Then the conditions for rides I think we've done a lot enough now to at least put you in five you're not going to get the balance sheet to a decent space I keep getting the cash flows up and on.

And I think -- I think I noted to this as well is right issue which to pay due purpose in the long term sustainability of the business as shareholders do want to see if you want to raise capital what value it will bring and in circumstances where you have investment that you need to show is to invest but can really make a significant difference in the sustainability and returns for a company which probably if you do it under the balance sheet maybe too risky or too onerous. And you can't go out and -- then of course one can discuss that with shareholders. But in the next foreseeable future, unless something significantly until what happens on the macroeconomic front, we don't see a scenario where we will return to shareholders to raise capital, just to suspend our business. Like I say, we can only approach shareholders with max gains and as part of the future of growing the business add more value, which then exits for basically to detect that risk.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Paul. Our last question is are there any covenants or by the waiver we should be aware of and how long to get to below 2.0 on the current guide, so that's from Gerald [Indecipherable] at Investec.

Paul Victor -- Chief Financial Officer

So there's obviously smaller debt agreements that we have with our banks that is on the margin update that goes very unique requirements with those in terms of covenants. So most of our covenants are only due to the corporate 3 times negative EBITDA. So we manage it more broadly in terms of that. And in terms of how long do we get to the 2 times, we're hopeful very soon. At current run rates, maybe just give you indication as I state at the current run rates our January EBITDA has been substantially more compared to what you see in November and December. And we expect simply to be even better with the processes. At the current trajectory, it would not seem strange from the next 8 months to 12 months to dip well below the 2 times covenant. But again, our strength is the help only of macros being at current levels. So anything about 1 and above for us in terms of macro economics for us in terms of better economics will do us quite good in game as to -- those levels indicative of two times and below -- over the two foreseeable future.

Tiffany Sydow -- Vice President, Investor Relations

Thank you Paul. We have a follow-up question from Stella Cridge at Barclays. And perhaps if you could take this question and another one after that. The follow-up is you said there is already a plan in place to address the 2022 bond. What is it? And then if I could ask you to shed some light, what is the cost? What cost did you incur for carbon taxes and what are the expectations going forward. And that comes from Mishal Imran at Apex.

Paul Victor -- Chief Financial Officer

So in terms of the plans that come in place, in terms of SEC rules, I'm not obliged to share guidance with you at this point in time. And when we announce any the issuance or refinancing or we decide actually just to use our cash flows to pay both we'll update the market and we do so from time to time, and the board obviously has approved our refinancing and debt maturity profile strategy and within the confines of that in the ICC rules we will make these three announcements in due course. But you can take comfort that you've got a new robust plan behind us. We have missed one or two windows as a result of the issuance of results and the market volatility that we experienced over the past couple of months I think that that I think our debt maturities would have been in a better safe than what it is currently. Nothing to panic about at this point in time. So we are definitely now going to focus on a lot of [Indecipherable] on that. In terms of our carbon taxes so that the carbon tax being introduced we saw roughly the in terms of just slightly over ZAR1 billion of carbon taxes on annualized basis. And that's what we've built into our modeling and obviously it's tax deductible so after-tax number ZAR700 million on an annualized basis.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Paul. I think if we could move over to the next set of questions around our PSA FID approval. The first question is could you provide further detail on the amount of surplus gas you expect to be available for export into South Africa from the PSA? That comes from Chris Nicholson. The second question what annual production rate are you looking for at for oil in Mozambique in 2024 and at what breakeven costs? That's from Adrian Hammond. If we could please ask Priscilla to answer these questions.

Priscillah Mabelane -- Executive Vice President: Energy Business

Good afternoon, colleagues. Hope you're all well. In terms of the first question in terms of the excess gas that we expect to bought to -- bring back into South Africa we're looking at 293 Bcf and as Q2 as you just mentioned this is actually based on our mid-point from a realistic use in the -- they are different scenarios but we're also looking at just likely to increase that going forward.

Tiffany Sydow -- Vice President, Investor Relations

Priscilla the second question around oil production rates in 2024 and breakeven costs if you could also address that one please?

Priscillah Mabelane -- Executive Vice President: Energy Business

Oil as part of the PSA, I'm assuming when you say since 2024 it's what is the -- so for us this is such a residual value of the PSA agreement we are in total expecting about 2 million barrels of applied oil starting back in 2024 for the duration of the development.

Tiffany Sydow -- Vice President, Investor Relations

Thank you Priscilla. I have the next question. The new guided range of gas and oil reserves in Mozambique, are they much different from the previous estimates you had previously saying reserve estimates were at the bottom of the expected ranges. Is there any new information here from [Indecipherable].

Fleetwood Grobler -- President and Chief Executive Officer

Thank you for that. I think we have started this project already in the timeframe of 2014-2016. We had initial fuel development plan for the PSA which was submitted. And of course we did some further exploration drilling to validate the commercial you know sort of outcome of what we had in the first fuel development plan that actually informed us that the volumes that we targeted in the first development plan were much higher than we could commercially check with the additional wells that we dilled and therefore we have resubmitted the full development plan that now calibrates to the ranges that we've given and which was substantiated with our wells that we drilled, as well as the seismic work that we've done. So these -- these ranges that we give now and the values are what we validated with normal preproduction estimates that we could do on a well drilling and with this seismic interpretation.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Fleetwood. There are some questions on some of the themes we've already covered. As I'm going to just go back a little bit. Another question from [Phonetic] Herbert Are there projects excluded from the longer term capex projections such as sulfur emissions, mitigation and Natref fuels? Paul, perhaps if you answer that please.

Paul Victor -- Chief Financial Officer

Yeah. Thanks, Herbert. So ultimately we've always said that the Natref fuels capex is not part of our gene to gene capital assessment. If it's too close work on the is taken in period in that address. We're still in our due diligence basically value add to which forms we do follow in terms of dealing with a lot asset, meaning that we are -- if you are willing to invest in Natref, what are the returns going to bring for us, they're going to put us over and actually want to continue holding the assets base and we will probably in the next couple of months need to make that decision because we cannot debate inevitably and there's enough process down that so that portion has now concluded. In terms of our compliance, note that in terms of clean air, where we have agreed with the multiple environmental phase and have to do with us getting to clinical decisions with our capital projects will be included in that and there is one area that we still need to do more work on that margin -- on those capital instruments have also been incorporated to impact over the batch.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Paul. We have a question, you've cut 2,176 jobs, how many more are safe to go from Alex Comer.

Fleetwood Grobler -- President and Chief Executive Officer

Thank you, Alex. I first of all need to just put in perspective what's the movement in numbers so we transferred about 1,000 employees out of our base chemicals to our in-house joint venture in the last calendar year. We also in December transferred about 400 people out of our US operations into the new LIP joint venture and over the course of the period we also had a normal turnover and we didn't fall vacancies with the advent of our cash conservation program and crisis response plan that was also in the region of just over 500 positions. program and crisis response plan that was also in the region of just over 500 positions. So you would see that the numbers quickly, quickly adds up.

What we have shared with you in the December investor update is that we do target a range of cash fixed cost savings in the region of ZAR8 billion to ZAR10 billion, of course there are no numbers that we have say specifically for job cuts. We are in negotiations and engagement with all our labor entities across the globe. So that is due consultation that would be ongoing. But we have however, the majority of the costs that we will be able to deliver is not necessarily on labor but on many other aspects as for example as we said how we procure, how we go about to run our normal operations and maintenance and how we do that more efficiently and many other aspects compared to just on focusing on the job number. So I think that is part and parcel of our Sasol 2.0 approach and that we will deliver on that as planned.

Tiffany Sydow -- Vice President, Investor Relations

Thank you, Fleetwood. The last question that we received. Could you please indicate the length of the offtake agreement, which will apply when you sell the air separation units from [Indecipherable] and to be Farrell Creek? Thank you, Paul. I see there are now more questions coming through the platform. If there are any further questions, we'll give you a minute or two just to submit them. If nothing is received, we'll then close the call. Thank you very much everybody for your time and listening to the Q&A this afternoon. With that, I will now close the call.

Fleetwood Grobler -- President and Chief Executive Officer

Thank you, everyone.

Duration: 68 minutes

Call participants:

Fleetwood Grobler -- President and Chief Executive Officer

Paul Victor -- Chief Financial Officer

Tiffany Sydow -- Vice President, Investor Relations

Brad Griffith -- Executive Vice President: Chemicals

Priscillah Mabelane -- Executive Vice President: Energy Business

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