Sasol Limited (SOL) Earnings Call Transcript & Summary

Good afternoon to all participants on this call. My name is Tiffany Sydow, Vice President of Investor Relations at Sasol, and I'll be facilitating the session today. A quick introduction to the management team on the call this afternoon. We have our President and CEO, Mr. Fleetwood Grobler; our Chief Financial Officer, Paul Victor; our Executive Vice President for the Energy business, Priscillah Mabelane; Executive Vice President for Energy Operations, Bernard Klingenberg; and our Executive Vice President for Strategy, Sustainability and Integrated Services, Vuyo Kahla. I'll now hand over to our CEO, Mr. Fleetwood Grobler, to quickly make a few opening remarks before we head into the question-and-answer session of this call.

Thank you, Tiffany. Good day to all participants on this call, and thank you for joining us. We are deeply disappointed to share the news relating to our operational performance at our Secunda operations in South Africa today and downward revision of our volume guidance for the financial year 2022 as part of that. In our communication to the market in October, we have highlighted some operational instabilities, which impacted our Secunda operations, both at Mining and the Secunda facility. Subsequently, we have largely resolved the operational instabilities at Secunda operations with significant improvements in the gasifier and boiler availability achieved. Starting in October, we unfortunately experienced a few major safety incidents at mining, one of which resulted in 3 fatalities at the Bosjesspruit mine. These incidents together with some adverse weather conditions and the slower Fulco ramp-up resulted in productivity rates decreasing to below 1,000 tons per continuous miner per shift. Consequently, our coal stockpile levels fell to below our targeted safety levels. This was further exacerbated by our external coal suppliers ability to provide us with our contracted offtake quantity. Given these impacts and the current stockpile levels, we have decided to reduce production rates at Secunda until such time that our mining productivity rates increase, and we have built and rebuilt our coal stockpile to well above our threshold requirements such that we will supplement our production shortfall by purchasing coal on the open market. Consequently, we have revised our forecast of our Secunda operation production volumes to between 6.7 million to 6.8 million tons and mining productivity rate to between 950 and to 1,040 tons for continuous miner per shift for the financial year 2022. Looking at our actions going forward, as a management team, we have prioritized 3 areas over the coming weeks. First, to really embed safety and operational discipline as the bedrock of our operations and to ensure that the right behaviors are being practiced across all our operations to prevent any further loss of life. Second, to increase our coal feed stockpile level to a healthy level. We are targeting to be at a healthy level between 1.2 million tons by the end of quarter 1 of calendar year '22 and 1.5 million tons by the end of quarter 2. Third priority is to maximize fuel gas feed to the Secunda facility and optimize coal quality in doing so. In addition, we've also recently concluded an in-depth review of the effectiveness of the Fulco system, and we'll be making some adjustments to some elements of the Fulco model, a dedicated task team is responsible for rolling out solutions and learnings throughout our mines as soon as possible. We need to set ourselves up to approach financial year '23 from a position of strength supported by safe, stable and sustainable operations. A further update of our production and sales volume outlook will be provided in January 2022. I thank you, and I now open the floor for questions to be facilitated by Tiffany.

Thank you, Fleetwood, and thanks for the questions that have already been submitted. We'll continue to capture your questions as they come in. I'll try and cover 1 or 2 at a time to make this call more efficient. The first question comes from Wade Napier at Avior. And his question is directed to Paul on the financial impact. What is the impact on the mining unit cost for financial year '22? I believe previous guidance was around ZAR 430 per ton. The CapEx allocated to the mining business unit has been decreasing since financial year '18. Is Sasol under -- investigating in the mines, which potential constrains the ability to implement Fulco? And I think the second question comes from Alex Comer at JPM. At $75 per barrel, how much is this going to cost you? My estimate is between USD 6 billion to USD 9 billion, is that right? Can you please break down the volume effects in fuels and chemicals and the cost of the extra coal? Can you reassure us that the issues are not related to costs or CapEx tax? I'll pause there.

Thank you for the questions, Wade and Alex. So let me deal with the first question that Wade asked. Wade, we are still working and finalizing the kind of the numbers. As you can imagine, we have put out a range in terms of production volumes. And it's also kind of important for us to state today that the base plan in terms of these volumes that was issued to the market really constitute the plan as what we think realistically possible is. However, none of the potential improvements have been factored into this plan and we're fully committed to it. But when we approach the market now, we would rather commit to something that's realistic conservative and then rather build it up from that level. So having said that, ultimately, the scenario of the plan of today in the sense versus a potential improved trajectory based on factual data going forward, will, in fact, impact kind of the cost per ton. So what we will do is during our half-year end results release and also with the upcoming trading statement, that's not so long from here, somewhere by the end of January, provide you with an update on how these things do play out on these cost per ton numbers. And I'll get to Alex's comment just now in terms of what the potential impact. So just be a little bit patient with us as we work these impacts up. In terms of the purchase goal, I think we can say that if we do go for the full volume, it has an impact of between ZAR 700 million and ZAR 900 million. Hopefully, we'll try to manage it towards the lower end of that spectrum in terms of buying in additional coal. But what we've also done is when we saw the coal prices going up, we did take out some coal hedges. It was quite opportunistic in terms of trying to take some benefit of the high prices that we saw from China in the international markets. And those have actually been quite positive. So it will have a dilutive impact on the cost of coal or the cash outflow. And we need to marry all these different moving parts to you to give you a clear sense of what that would be, that there will be significant upward pressure on this number, comes without a doubt. But again, currently, the mining operations are unstable and ultimately, it will result in a higher cost per ton. But let us work it up. I think the number that you don't have is the quantum of additional coal purchases. And there I have provided some guidance, but with the provisor that in the half year, we'll give you some further updates. When it comes to, have we underinvested, we believe definitely not the case. When you make the mining upfront investment, we have put the ZAR 15 billion down a couple of years back, I think, 4 years back. And that is what we believe was quite sufficient to enable the start-up of those mines. And then you have the normal development and mining costs which we do believe that we haven't underinvested in terms of that. Where we will invest more, and that's more on the OpEx side, is in capability building and capacity creation amongst the team in [indiscernible] mining, and Bernard will later on refer to that. So we don't believe that we have underinvested. We do believe that this is a managerial systemic problem or process problem that we can resolve in time. It does take us much longer than what we anticipated and there were a couple of unfortunate events here that kind of resulted us in being where we are. But we do believe that we can manage ourselves up and none of this indicates towards an underinvestment in terms of any of this. Later on, we can talk a little bit more about Fulco, but we do believe that Fulco is still in line with industry benchmark, the best practice to go for 24/7 type of operations. We must just embed it and make it work for us, and we do believe those efficiency gains will be significant. In terms of how big this quantum is, Alex. So there are many different moving parts. And we assess this impact between kind of the 2 ranges as between ZAR 3 billion and ZAR 5 billion. But that will take into account obviously on the negative -- well, on the negative side, the loss of production, which may in value-wise, exceed this range. But then ultimately, we did go through the cost analysis. And we do believe that there are costs that we can optimize . Also at enterprise level, there are costs that will reduce as a result of the underperformance of the company, which we ultimately need to take into account and also the balance of the working capital ultimately will also have a -- kind of a specific impact. But further on our own estimates do take into account much lower macroeconomic numbers than what we currently see in the market. And we do believe that if you take all those factors into account compared to our own forecast, I mean, obviously, you expressed this in terms of your forecast, but in terms of our forecast assessment and assumptions, we believe it more to be in this range. I do want to kind of extend the same courtesy as I have extended to Wade. As we want to work these numbers up, we want to see kind of where kind of the potential upside or improvement in terms of our plans that can mitigate the quantum of this number. But we believe at this point in time very high level that our exposure is more within that range, but it was undertaking to come back and confirm those numbers during half year.

Thank you, Paul. Before we go to the next question, I would like just to provide a bit of further context in terms of the people or the analysts on the line in terms of how do we think about this forecast? Because it's important to understand that we have certain priorities that we need to deal with first before we can look at all the upside that we are, of course, also working hard at. So the first thing is really to focus on operational discipline and safety. That's the bedrock of a predictable operation. So that is our first priority as a management team and also the leadership team in mining. The second thing is that we have put forward in this forecast, a very realistic number with a high probabilistic outcome in the range that we've provided. And we have not included all the possible upsides because we have taken the view that we want to demonstrate recovery before raising the upside. And that will be given as we develop and implement these plans that we have mentioned. And so in January already, we will give you an update on how we are doing on any recovery on the upside. But at this point in time, our forecast is not including any upsides because we want to demonstrate the recovery before we project that going forward. The third thing is really to make sure that we've got flexibility to create headroom. And the only way to create headroom is for us to get the stockpile to a level that we then from there on, can optimize the blending with respect to coal quality that we can feed maximum rates to Synfuels. And then through the last bit of coal quality optimization, we can even increase those gas rates there in Synfuels because of optimized coal quality. But you can't work with that if you don't have the headroom on stockpile. And so therefore, the priority is operational discipline, safety. Secondly, it is -- demonstrates recovery before we conclude any upside. The third thing is making sure that we increase our stockpile to the targeted levels and then the step thereafter is really to maximize fuel gas to Synfuels through maximum rates to -- [ field rates ] to Synfuels as well as the optimization of quality. Of course, we try our level best to optimize quality of coal every day, but you've got just more headroom and more flexibility to do a better job of it when you do have adequate stockpile levels. And I think that is just as a contextual -- context that I would like to leave that with the callers.

Thank you, Fleetwood and Paul. I have 2 questions around our mining operational performance. One -- the first one from Gerhard Engelbrecht from ABSA. A number of years ago, several other mining companies have tried to implement continuous mining operations, but with little success. How is Fulco different from these attempts? And why do you think you will be successful with Fulco? That's the first question. The second question comes from Brendan Ryan at Miningmx. Why were your external suppliers not able to supply you with coal? How much coal are you looking to buy in? And are you sure that you'll be able to get it given your previous problems with external suppliers?

Thank you. I'll kick off with the first question and then ask Bernard to deal with that question as well as the second one with respect to the external suppliers and the context of that. So first of all in terms of the Fulco, Gerhard, the majority of mining companies in South Africa does the majority work on the Fulco system. We're not the first company that is implementing Fulco. All the implementations with the Fulco has been a bumpy road, but many have succeeded and are running well. When we did our analysis to the value potential of introducing Fulco, we did quite a number of benchmarking. We have employed the right expertise to help us to implement it. But in terms of the whole change management process, that is quite complex, and I think we need to do more work to deal with it. And that's also what [Audio Gap] the whole implementation of such a big program, the change management and the aspects of that is paramount to achieve the success that we target. So we believe there's big value still in Fulco. We believe that it's done by other companies that was bumpy. We need to address those areas. We've identified those areas and we've got quite a dedicated focused team to help us to deal with them and then in terms of the full value to unlock the outcome of Fulco over time. But our focus today in the next week or 6 weeks is not Fulco, it is to restore operational discipline safety, it is to build the stockpile, it is to optimize then the coal quality and then make sure that we get the Fulco from thereon implemented to its full value. So that's the sequence of activity that we focus on. So Bernard, I might now hand it over to you to anything you may add and then address the supply issue?

Thanks, Fleetwood. Thanks, Gerhard, for the question. And maybe just 1 or 2 additional comments on Fulco. So as Fleetwood said, extensive benchmarking was done and we believe that the basic design was sound. We reviewed that from the beginning of September. We started -- you remember the first implementation of Fulco was in January. In September, we did a review, and there are some changes that we're going to introduce to further optimize on that. We saw over this period some periods of really good performance. Our job now is to make sure that we get that to be consistent. And that will be the focus, as Fleetwood says, after we've resolved or dealt with safety, operational and building a stockpile. So the thing we might have mentioned as well that we have established a multidisciplinary task team that's supporting the different collieries in these efforts. First of all, obviously, the whole safety and operational discipline, we've augmented our change management capability as well. So we're convinced that those efforts will deliver results. The question around the external suppliers, the one, let's call it, external supply Isibonelo, which is a mine that's linked to us via a conveyor belt, is an open-cast mine, and they're the external supplier that would normally supply between 20,000 tons, 25,000 tons a day, which is a significant portion of our daily utilization. And they had significant difficulties in November with some of their equipment, but also November was the worst rain month in the last 19 years, they tell me, for the Mpumalanga area. So we had -- for November this year, we had 281 millimeters of rain. Last year as a data point was just 111 millimeters. I mean by December 12, we had 92 millimeters already. Last year, the whole of December, we had 99 millimeters. So rain and open-cast mining is always an interesting mix and quite a challenge. So our external supply, if you -- Isibonelo, who are linked to us with a conveyor belt system, they had the difficulties then in November, and that really on the back of the other incidents we had caused the difficulty with the stockpile. The other external suppliers, we already have in place commercial agreements that -- and have been able to supply up to 15,000 tons a day. They're all mines in the Mpumalanga area, not too far from our facilities. There are, by and large, open-cast mines. So some variability is introduced wherein rainfall patterns are prevalent. But as we move through December and January, clearly, the rainfall should [Audio Gap] will be okay. We are in the process as we speak of also augmenting or adding additional supplies to that value chain so that we can ramp up to 20,000 tons, and even higher 30,000 tons a day, if required, that's happening as we speak. The last point I'd like to make on that is that traditionally, we've brought external coal, meaning purchased coal, which comes in via road into our stockpile or Secunda coal supply services area. We've used one of the mines that's no longer running [indiscernible] to bunkers, where we can introduce a second point of coal that's already functional. We can do up to 7,000 tons a day there. So today, as we speak, we have a capacity to bring in 22,000 tons of coal, and that bunker is being modified or changed in the next 3 to 4 months -- 3 to 5 months, that capacity will go up to 30,000 tons a day. So we are set to be able to import coal from external suppliers over and above Isibonelo. And we believe that, that infrastructure is going to serve us well.

But just perhaps on Isibonelo to really put it in context, I think the -- If I'm not mistaken, the impact from Isibonelo supplying coal to us that we normally would have had, but that we didn't receive over the last 6 weeks was quite a significant number that impacted our supply.

261,000 tons source of supply. The -- but as we speak, they're running again. Yesterday, it was a heavy rain day in Secunda, which is why yesterday they didn't produce, but over the weekend, they did in excess of 20,000 tons a day. But this is why it's so critical that we build stockpile because the stockpile must give you that buffer and capacity to deal with these small anomalies that are part of everyday life.

Thank you for that, Bernard, and Fleetwood. A few follow-up questions on mining and then moving over to Secunda operational impact. On mining, just to get a context -- just to get context on your stockpile targets for next year, what are the stockpiles sitting at currently? That's from Karl Gernetzky at Business Day. And then I think another question from Gerhard Engelbrecht from ABSA. Has there been any production interruptions at Synfuels in this quarter that were not related to the mining issues?

Thank you, Tiffany. So with respect to the first one, the stockpile targets, our experience has shown that the 1.2 million to 1.5 million tons, give us that headroom to optimize and to take some unforeseen events without impacting our supply to Synfuels. The stockpile as if it is today, Bernard, help me. The latest number that we have is just over 700,000 tons. Can you just confirm that?

So thank you, Fleetwood. So the stockpile declined last week to 681,000 tons at its lowest point. And it was at that point that we decided to cut back the factory in order to protect the stockpile from the declining further. Over the last 4 or 5 days, it's grown back to 755,000 tons yesterday. Today, we gained another 16 tons. So it's in the order of 770,000 tons today, Fleetwood, and growing. Intention is to get to [ 1, 2 million ] tons in February next year is what we put out in the sand as far as I know.

Thank you. So Bernard, can you also elaborate then on Gerhard's question on Synfuels. So Synfuels has not been impacted through any of their own doing. I think we've indicated that our gasifier availability has been restored. The boiler availability has come back to where we wanted to be. I'm not aware of any others except the mining issue. Bernard, please elaborate on that.

In general, the Synfuels complex or the Secunda operations complex has been reasonably stable over the last quarter. There's been no major interruption since the startup after the September shutdown.

Thank you, Bernard. I think the next set of questions comes from very similar from Herbert Kharivhe at Investec, and Alex Comer from JPM. Asking for clarification around which product streams are most affected for the full product slate equally? And then a follow-on to that is, can you give the volume loss impact on fuels and chemicals at this stage?

Okay. I'm going to commence with just saying the value chain is affected equally on output of fuels and chemicals. So the slate is not differentiated through the lower coal supply. The factory still produced with that coal supply an equal distribution of what it had done before between chemicals and fuels. So there's no difference there -- And I think, Paul, is there anything you would like to add on that side?

No, I really think, Fleetwood, I do believe that ultimately that kind of the equal misery will be at play. However, if [ P&O ] will do it, utmost efforts, coming back to the question that Alex asked earlier, how can we mitigate, and to mitigate is ultimately to look at high-margin opportunities for the slate mix as much as we can optimize to -- also to supply our customers as best as possible given our contractual agreements. And within the ambit of that, the volume will be optimized. But as you say, we have limited flexibility to swing the slate too much in Secunda.

I think there are a few follow-up questions on the financial impacts. A follow-up question from Karl Gernetzky of Business Day. Can you please clarify whether the estimate on the effect is revenue or earnings? And then another question from Alex Comer, similarly -- similar to this, is your [ 3.5 billion ] impact, what oil and rand assumptions are you using? Paul, if you could please address those.

Yes. I mean, obviously, if one has these impacts where you cut volume, is going to have an impact on your revenue and it's ultimately going to have impact on your earnings . So Alex commented -- raised the point to say that this will be a kind of a significant impact on our earnings. However, again, I want to caution that the volume cut is not linear in that kind of goes down to our earnings. As I said, there are some cost items that move quite positive as the performance of the company is down as well as we can optimize in other areas. So it's definitely not linear. And hence, we can -- we will definitely look at how we optimize it. But the fact that there is an absent loss in volume, as we indicated from the previous guidance of that you put out in the market in October versus now, it will have that impact on earnings as well as on revenue, but not in a linear impact. And then the second question is, is that -- can you just maybe repeat that for me again, Tiffany?

Sure. The 3.5 billion impact, what oil and rand assumptions are we reassuming?

Yes. So we are still using the kind of the assumptions, Alex, that we have provided to the market when we did our previous release. But all in all, it is round about our own assessment in that ZAR 1,100 a barrel kind of scenario. We currently -- we know that kind of the values are much higher. And then I think the big benefit for us come also that we've been quite conservative in our diesel differentials, fuel differentials and especially on our chemical margins in our product slide, where we have seen actually those margins holding up much better compared to what we've internally forecasted. So it's given in that backdrop that we effectively believe that ultimately, it's more in that range. But again, as I've said, these things are not linear. I think your number is more a linear number. My guidance is definitely giving the indication that it's not linear, but please allow us to work through these numbers and come up with a much better guidance, taking all these factors into account when we then do the half year-end trading statement update, which is a couple of weeks ahead of us.

Thank you, Paul. A question from Gerhard Engelbrecht. How will these events at mining impact your Sasol 2.0 cost savings targets? And then I think another question in a similar theme is from [ Sepol Insanye ] at RMB. As part of the CMD presentation, Sasol outlined the 2023 financial year plans . How has the lower production volume forecast impacted these plans? And what plans have been put in place to ensure that issues related with poor quality and interrupted power supply are mitigated against in the future. And then relating to safety, considering the safety fee incidents contributed over 50% of the coal production shortfall, can you elaborate a bit more on the actions implemented to prevent these incidents? And how are these different from what has already been done?

Thank you, Tiffany, and thank you for those questions. So I'm going to kick off in terms of that, and I'm going to ask that both Bernard and Paul come in as required. So the impact on mining with respect to Sasol 2.0 targets. As a matter of fact, our 2.0 targets includes the Fulco implementation, which we have factored in over a period of time. So that implementation as we look at it now in terms of realizing the benefit is anything up to 6 months delay. We'll have to confirm that as we give the monthly update in January, but at least the Fulco implementation is now under a schedule pressure because we would probably not realize the full benefit in the early period as we have planned because of these priorities that we've articulated today. The 2.0 targets in the rest of the organization in Synfuels in our global operations, I believe that all of those targets that we have set and the initiatives that is in place to deliver that for 2022, are still tracking. And therefore, I don't think that this event will impact our 2.0 targets for the rest outside mining organization for the 2022 time frame. So if I go to the next item, which is really around the '23 plans, and I'm not sure what is that plans on the Page 25. Maybe we can just clarify that. Okay. So whilst we're getting the specific question of the plans in '23, we can deal with that question because I don't know which page is referring to in what part, I don't have that here with me now. So the plan that was put in place to ensure that the issues related with coal quality and interrupted power supply against -- is mitigated against in future. So the poor coal quality, as we've indicated when we did the market call in August, we said at the time that we will be able to address the quality problems in the next 3 to 6 months. We have been seeing some green shoots in the September time frame of how to improve, and we've seen improvements in the coal quality. So I believe it all goes around the flexibility that we provide ourselves with stoneworks, the deployment of sections in the 5 collieries that we mine and to optimize that and also the coal blending once it's on the stockpile, how to blend that for optimized quality that you don't get a week of bad quality and a week of good quality. You need to have a ratable blended quality improvement. We believe we can do that if we get the flexibility on stockpile and the mines producing the plan that we will be able to optimize the coal quality. So that, I believe, is in our vision and in our plans. Given the priorities today, that will still play out as we get flexibility with the stockpile. The uninterrupted power supply, I'm not sure if you refer to the incident we had from Eskom specifically. Of course, in those cases, we are engaging with our utility supplier. We're looking at root causes of such an event, and we are addressing that as a joint team to see how we can mitigate that going forward and how it can be addressed to take that out of the equation in terms of interrupted power supply. The third part that you ask is the safety incidents. So in this case, I would like to share that we have had an in detailed investigation in terms of the last number of safety incidents . We've taken all of those recommendations, and we have got a big and a comprehensive remediation plan that's already been kicked off at all our collieries. So we have taken all the learnings out of the events in Shondoni and in Bosjesspruit. And we have got a comprehensive program to ensure that in all the collieries these are addressed, and not only that, but that we also bolster our focus on safety, daily safety, availability of supervision and leadership underground, making sure that we have got all the necessary focus and attention so that we don't repeat these incidents that we've seen in the mining lately. And these are comprehensive efforts and plans going forward. Bernard, might there be is anything you would like to add on those 2?

Thanks, Fleetwood. So just to support what you said, there's sort of 3, let's call it, time frames that we think about what we did immediately after the last incident and the previous ones, the direct causes we go and do a survey across all of our mines to make sure that those direct causes don't exist elsewhere. So we're comfortable that we've been able to do that first pass and make sure that there's no other issues similar to what just happened to us. Then over the next 3 to 6 months or in the 2- to 4-month period, we are then revisiting the assurance processes that we use to make sure that the operational discipline elements that have been identified in the investigations are addressed in the beginning. And we're in the process also of [ where is ] helping us to bring in a third-party assurance mechanism, which we will then introduce early in the new year, which will also give me and the whole management team an additional lens of assurance, obviously, for the Board and the whole GEC as well in terms of operational discipline, adherence to standards, which is something that's really going to be important. So it's just about additional concerted effort, and we've already spoken about the importance just of change management and the upliftment in terms of capability upliftment, which are all going to support us in this effort. So it's a holistic approach to really get our teeth into it and make sure that we improved the safety performance.

Thank you, Bernard. Thank you, Fleetwood. Just as a follow-up to the question about Page 25 of our CMD presentation. This relates to some of the Sasol 2.0 targets, which we've put out. So we put our 2025 targets. And next to it, we put our 2023 targets up which gave some -- build a ramp-up to the plans for our -- across our 4 cost buckets of targets. So this relates to the cash fixed cost target gross margin uplift capital and working capital, which is now being questioned. And again, to repeat the question, how have the lower production volume forecast impacted these plans and what plans have been put in place to ensure that the issues related with coal quality and power supply are mitigated against in the future?

Thank you, Paul, can you weigh in on that?

Thanks, Fleetwood. So ultimately, again, let's take the perspective of our financial year '22, Sasol 2.0 target. So it doesn't take away that ultimately, if you look at the baseline, the baseline will erode as a result of the significant of the impact of not being able to supply Secunda Synfuels. However, if I'm looking in terms of the Sasol 2.0 optimization efforts in themselves on capital, we're still very much sticking to our guidance of [ '22, '25 ]. On working capital, we're still sticking to our guidance on working capital that we provided to the market and very much sticking to our cash fixed cost. The area where we will have the impact, as Fleetwood says, for Financial '22, is the ramp-up of Fulco in the sense that we buy more coal, and that ultimately depletes the kind of the value that we signed on gross margin for -- as a result of these events. But we do believe that as we then kind of resolve these issues around Fulco and mining, that ultimately, we will get kind of the operations back on track as we kind of envisage them in terms of Sasol 2.0. If one is anticipating what -- how that will flow over in financial year '23, is and we've all kind of reconfirmed those targets again at our current financial year end as we usually do for the year ahead. We don't anticipate on any of those levers, inclusive of gross margin that we will renege on our financial year '23 commitments for Sasol 2.0. We do acknowledge that this is a big obstacle in the road that we need to overcome, and it will have a baseline erosion impact for financial year '22. It's too large to mitigate in total for financial year '22. But as I've said, what will potentially soften the blow is the macroeconomics, that can actually, on an earnings basis or cash flow basis, neutralize this impact. But for financial '23, we are still very committed. I think the one thing that we must do, and that comes back to the point that Bernard and Fleetwood made earlier, is as we update you on the progress that we make with regards to solving these issues at mining, those will ultimately have an impact, especially on the gross margin aspect in -- for mining for financial year '23, and we need to update you on that. So that will probably be the one item that we need to really watch for. But for the rest of the value chain, as Fleetwood indicated, we have no reason to believe why we will not be able to achieve our financial year '23 Sasol 2.0 targets. Fleetwood, are you in agreement with this?

Thank you, Paul. Yes, I am.

Thank you, Paul. To go back to our mining operations, there are a few more follow-up questions. This question comes from Gerhard Engelbrecht, again. Why did the stockpile diminished by so much in the first place and was this part of your efforts to reduce working capital as part of the response plans? I think another question related to mining. At this stage, do you anticipate mining productivity to be fully restored for FY '23? Do you see a need for additional CapEx to fix these issues? And that comes from Henri Patricot from UBS.

Thank you for those 2. Bernard, would you like to kick off on those 2, please?

Thanks, Fleetwood. Thanks, Gerhard. So first of all, the stockpile, it was absolutely not part of the effort to reduce working capital in response plans. The stockpile issue is related to the incidents we had. So just to provide a bit of a time line. In September -- end of September, the stockpile was [ 1.1 ] million tons, and that was up from the previous month. Then after the BPM went out, we had the first incident in mid-October, Shondoni, which cost us 280,000 tons production loss. It was up for, I think, 15 days. Then earlier -- late October/early November, the Bosjesspruit incident where we had the tragic fatalities, production resumed on the 8th of November. That cost us 195,000 tons. Then the Isibonelo items in November up until early December, another 260,000 tons. So that's why the stockpile declined and it wasn't related to the efforts to reduce working capital in that regard. In terms of the other question -- sorry, just the other question. The mining productivity. So at this stage, we're forecasting that we'll be around the 1,000 ton mark. I think, Fleetwood mentioned the number of between 950 tons and 960 tons and 1,040 tons for the rest of the year. And it's, in fact, part of the building process towards ramping up and starting the new financial year with healthier productivity numbers. So we think we will be in better shape, certainly in financial year '23 and all the efforts that we're going to expand over the next few months with the task team and everything else that we're doing is aiming at achieving that. So we think that we will certainly be able to up the productivity numbers. The productivity issues are essentially related to organization capability upliftment and are not CapEx constrained. So in some cases, we'll have to augment some of the equipment, but that's part of normal maintenance. So there's no additional CapEx to fix the issues related to productivity per se, no.

Thank you, Bernard. I think there's one final question on the chat group, and we are -- it seems like we've reached the end in terms of receiving questions. A final question from Alex Comer. Just to confirm the 3 billion to 4 billion impact, is that EBITDA or net earnings or is it cash flow after working capital, from Alex. Perhaps if Paul could just address that question, please?

Yes, on EBITDA.

Great. So that's on EBITDA. Thank you. I don't see any more questions coming through the platform. So I think with that being said, that concludes the call for today. Thank you very much for taking the time to dial into this call. I'd just like to hand over to Fleetwood, if you have any closing remarks before we close the call.

Yes. Thank you, Tiffany, and thank you, everyone, attending this call. I think we commit to you to bring you up to speed the soonest we can in January with our normal communication on the outlook and the BPM. So we'll give you an update on how we are tracking on our plans. And then at half year results, we will, of course, again, check in on all of these matters. We believe we've got a high probabilistic outcome in the spread that we've proposed. We believe that there is upside. We haven't factored that in year. We're working hard to demonstrate first and then to bring those upsides in, but we will keep you up-to-date as that develops, and we will work from this. So we're confident that the plans we've got in place will take us through this really difficult spot, but I believe our plans will achieve the results that it intends and we'll work from there to restore normal delivery of our coal system to Synfuels. Thank you very much.