Good morning, and welcome to Sasol Limited's financial year 2023 interim results presentation. Thank you for taking the time to listen to our announcement. Our speakers today are Fleetwood Grobler, President and CEO of Sasol, Hanré Rossouw, Chief Financial Officer. In today's presentation, Fleeta will cover the business performance. The financial performance will be covered in more detail by Hanré. Fleeta will conclude with a brief update on our ESG progress and future Sasol. You will have an opportunity to ask your questions in our Q&A session which commences afterwards. I'd now like to refer you to our forward-looking statement, which is summarized on the slide. This contains important information regarding statements that are made in this presentation. Please have a look at it in your own time. I will now hand over to Fleeta to commence the presentation.
Good day, everyone, and welcome to our interim financial results update for 2023. For the past 6 months, we again been living through a period of extraordinary volatility. During that time, we've had several key factors, notably the oil price, that have continued to be supportive. However, other factors such as feedstock costs, chemical prices, and slowing demand, created substantial headwinds. We've also faced ongoing challenges in our South African business, both within and beyond our control. All of these factors combine for a complex picture and a mixed set of results that is important to unpack in some detail, which we will do today. This changing environment also calls for a revised operational mitigation plan, which I will elaborate on.
Looking at our future Sasol aspirations, I am particularly delighted by the key advancements made in our decarbonization journey, reflected in several renewable energy Power Purchase Agreements recently concluded and many others are at an advanced stage. The first 6 months of 2023 has been a challenging time, I'm confident that Sasol has gripped the challenges that are within our control. I would like to recognize our people for facing these issues head-on as we continue to stabilize and improve our performance. Before we get into the detail, I would like to start by covering some of the key developments across the people, planet, and profit framework over the last 6 months. Safety, as ever, is our first priority, and I'm pleased to say that we have been fatality-free since October 2021.
We also sustained a recordable case rate of 0.27 for the period, which has remained flat compared to the financial year 22. There is no room for complacency. We continue to keep safety at the core of our people's focus. We remain mindful of our responsibility to be a good corporate citizen and have invested ZAR 780 million on socioeconomic and skills development programs. On our planet pillar, the first half of the financial year has seen some key developments. In South Africa, we have concluded a total of around 550 MW of renewable energy power purchase agreements, a significant increase to the 289 MW announced earlier this year, paving the way for large-scale renewables integration into our value chain.
Meanwhile, in Mozambique, our gas drilling campaign is continuing ahead of plan, which gives us more feedstock flexibility up to 2030. These are critical steps towards meeting our 30% greenhouse gas reduction target by the end of the decade. On the profit pillar, it's been a mixed performance as a result of a combination of macroeconomic and operational factors. Our focus is twofold. Firstly, to improve the quality and stability of our coal supply in our South African operations and secondly, to make the business as efficient as possible in order to navigate the areas that are seeing pressure from pricing and reduced demand. Despite considerable volatility over the period, the board declared an interim dividend of 7 ZAR per share, in line with our dividend policy. Capital allocation discipline remains a key priority for us. I will now further unpack our half- year performance for 2023.
Turning to safety. Here, there were no fatalities for the first six months of the financial year. We have made good progress in embedding our safety principles across operations during this period. We all recognize the need for a relentless commitment and focus on safety. The need for that ongoing focus was highlighted by two high-severity injuries. Although we have seen the 12-month rolling high-severity injury rate decreasing from 16 at the end of June 2022 to 7.6 at the end of December 2022, we must keep striving to get this to zero. We also saw an increase in the number of lost workday cases in the period resulting from elevated risks which are playing out across our business.
This mainly includes the number of security-related incidents related to movement of product and mining operations, which is something we are taking very seriously. Another important safety metric we measure among others is the occurrence of fire, explosion, and release incidents. For the six months, we had one major incident which is related to the fire at the Lake Charles Ziegler unit. Our on-site emergency response team responded swiftly, and the fire was contained with no injuries or reportable releases to the environment reported. We are also seeing a reduction in the number of environmental incidents in our operations. This is a pleasing trend for the business, given the complexity of our operations and the high number of activities, particularly during the total shutdown period in Secunda operations.
The recent total shutdown was a major planned maintenance event, which historically takes place every four years on each side of the facility, involving nearly 50,000 workers and contractors on site doing extensive inspections and maintenance work. Congratulations to the Secunda team for completing this year's shutdown safely, on budget, and with minimal schedule delays. Overall good progress on safety, but there remains work to be done. We will continue to strengthen our safety culture, review leading indicators, and revise asset management strategies as required to reduce risks. As I said at the outset, during the past six months, Sasol has faced a number of material factors that have combined to create a challenging operating environment.
Looking at factors within our control, our South African value chain experienced operational variability, including lower productivity and coal quality in our mining business, as well as the plant Secunda East factory shutdown and unplanned outages. I will cover this in more detail a bit later. In the US, utilization rates were impacted by planned and unplanned outages, as well as the recent downturn in cracker rates to mitigate the effect of negative margins in a very challenging market environment. Establishing plant stability and ramping up towards full potential remains a key priority. Looking at external factors, the weaker macroeconomic environment also had a very significant impact on our performance, with lower demand across many products and correspondingly lower chemical prices. Many of our customers focus on deliberate destocking in December to a level not seen in recent years.
We also continued to experience disrupted supply chains, high inflation, and elevated energy and feedstock costs, which materially impacted our chemicals business. In South Africa, persistent load shedding, infrastructure constraints, in particular, the poor performance of the national provider of rail and port logistics services and regulatory uncertainty continue to have a significant impact on our business as well as our suppliers and customers. The pending decision by NERSA on our gas prices has a significant financial impact on our energy business. Despite facing a challenging external environment, we remain committed to stabilize and improve performance of our own business by focusing on the areas within our control. With that context clear, let me talk through some of the key elements of business performance. The energy business had a 28% improvement in gross margin resulting from higher oil prices, refining margins, and improved demand from our direct marketing channels.
This was partially offset by the coal quality and productivity issues in the mining business, which required increased external coal purchases as well as utility cost increases. Productivity of 930 tons per continuous miner per shift was 5% lower than the first half of 2022. This was due to safety and operational stoppages to ensure we maintain a safe working environment. In order to improve productivity, we are now implementing the first phase of our Full Potential Programme, which I will unpack in the next slide. In Mozambique, the drilling campaign is continuing ahead of plan with no safety incidents recorded. Secunda operations production for the first half of 2023 was 2% lower than the first half of 2022, mainly due to the planned total east factory shutdown and a few unplanned outages in this period.
This included a factory outage for several days in November 2022 following unprecedented rainfall. The chemicals business recorded a 12% decrease in gross margin, mainly as a result of higher energy and feedstock costs. Total sales volumes were 5% lower, owing to a macro environment and divestment of the wax business in the prior year. Continued supply chain challenges as a result of the flood damage in KwaZulu-Natal in quarter four of financial year 2022 and strike action at Transnet rail and port services in the Q2 of financial year 2023 negatively impacted the performance of Chemicals Africa.
Responding to weak demand, we reduced operating rates in the US and Europe to match market demand and manage working capital in a low pricing environment. Looking at operational performance in South Africa, we successfully worked to maintain a healthy coal stockpile well above our target of one and a half million tons. Our mining safety remediation program is progressing well on all the prioritized interventions. We experienced unplanned outages on two of our reforming units in Secunda in November last year. One reformer is back online, which provides an opportunity to utilize additional natural gas available. We expect the second reformer to be back online before the end of the financial year, which will further improve our operational flexibility of the total reforming fleet.
Coal quality and productivity are the key issues we are facing in South Africa. Our Full Potential Programme has been designed to provide a sustainable solution following a deep-rooted investigation into the underlying causes. This program will be rolled out in a phased approach at our Secunda Collieries over the next 18-24 months. The first phase commenced in January 2023 at our Syferfontein Colliery and will run for 6 months. The focus areas to improve productivity include prioritizing training initiatives, improving cutting time for each shift, and reduce engineering breakdown times. This will be assisted by onboarding peripheral support teams to make our efforts well coordinated. We are seeing a changing landscape within the mining industry in South Africa in general, as we must contend with increasing regulatory pressure, aging mines, and more complex geology.
Sasol has always been aware that we mine in challenging geological reserves, gradual deterioration of coal qualities can be expected and need to be planned for. In the previous decade, we installed additional oxygen gasification and reforming capacity in Secunda operations. What we observed after bringing new mines online since 2019 is that the impact of coal quality is not a linear trend, an inflection point has been observed in both the ash content and the % of sinks in our coal, specifically over the past year or two, resulting in a detrimental impact on gasifier performance. On coal quality, our understanding of the issues has evolved significantly over the last few months as part of the work we are doing now, we believe there is potential to turn this around with the right solutions implemented.
We are focusing on the following levers to address this over the short to medium term. Firstly, quality of coal mined to ensure that the right quality is targeted to get the optimal blend as feedstock to the Secunda facility, which includes options such as mechanical interventions to assist the continuous miner operator with horizon control, which will limit the cutting of stone in the roof and in the floor of the coal seam. Secondly, to improve coal blending by maintaining a high stockpile which minimizes variation of quality of coal to the Secunda factory. This is done through a combination of purchasing higher- quality coal and enhancing our productivity. Thirdly, we plan to enhance the quality through destoning process options. We will conduct trial runs at our facilities before full implementation. This has potential to significantly improve the quality of our own mine's output.
Lastly, implementing in-situ controls at the mining coal face will assist in managing the contamination during the mining process. In the longer term, in order to address the issues, we have a robust pipeline of studies and projects which are at different engineering stages, and we will provide more clarity when milestones are reached. Furthermore, the appointment of executive leadership positions for mining was the right thing to do, and we are seeing the benefits in terms of operational learnings and a much higher level of transparency. In summary, we are optimistic that by implementing the appropriate solutions and upholding our pledge to prioritize safety, there is potential to turn this around. For Secunda operations, we are focusing on initiatives to improve reliability or online time of the facility as a whole to maximize profitability of the SA value chain.
This includes innovative engineering solutions being implemented in our gasifiers, improvements to our cooling water circuits, and a few other initiatives. We are actively progressing all opportunities to maximize the use of natural gas in the factory. Looking at operational stability in our international locations, Oryx GTL's performance for the first half of 2023 was impacted by the delayed startup of Air Separation Unit 2 following a fire in June of 2022. The startup of train 2 was achieved in December, with stable operations achieved on both trains. We are also proactively reducing our operating rates and spot sales in our US and European businesses in response to weaker market demand and pricing pressures. We will continue to manage operating rates in an effort to mitigate financial losses until we see a recovery in the market.
It is anticipated that the performance of all our US units will improve in the second half of the financial year, driven by a modest uptick in demand and the absence of unplanned downtime. Lower energy and ethane costs is expected to have a positive impact on our integrated margins, though some adverse inventory effects may still occur in the Q3 of the financial year. We anticipate the Ziegler unit to reach 100% available capacity by the end of quarter three, post the implementation of the repairs in the legacy unit, leading to a substantial improvement in volume and margins within the Chemicals America segment. In Europe, we continue to elevate and evaluate buy versus make decisions for certain intermediate products, and where feasible, substituting own production for a cost-competitive purchase product. As an example of this is in the...
in Italy, where we have purchased external intermediates and feedstocks to support the ongoing production of key products within the Essential Care Chemicals division. We are also progressing actions to reduce our dependency on natural gas, which includes switching to alternative sources of power generation, such as renewable and green sources at the Brunsbüttel and Augusta sites. We expect to see an increase in volumes, mainly in the Essential Care Chemicals division, due to the improved demand resulting from lower energy costs now in Europe, the absence of customer destocking, and the reopening of China after the change of their zero-COVID policy. Given the factors I've outlined covering both internal and external dynamics, I will touch on just a few financial metrics before I hand over to Hanré, who will expand on the detail.
Our EBITDA increased by 1% to around ZAR 32 billion, while cash generated from operations increased 5% to ZAR 21 billion. This is mainly due to higher oil and refining margins offset by higher energy and feedstock costs. Core headline earnings per share increased by 9% to ZAR 24.55 compared to the prior period. In line with our commitment to maintain shareholder returns, as I've already mentioned, we declared an interim dividend of ZAR 7 per share. On that note, I will now hand over to Hanré to take us through the detailed financial results for the reporting period.
Thank you, Fleetwood. Good morning, ladies and gentlemen. In summary, we faced a combination of macroeconomic challenges as well as our own operating challenges in this half, which resulted in a relatively flat financial performance, which is below what we would expect to deliver in this pricing environment. I'm confident that through the actions and initiatives that Fleetwood shared, we will recover business performance across our SA and international assets. I'll start with the macroeconomic environment. The ongoing volatility in the global market continues to present both challenges and opportunities for our business. Despite favorable oil prices and refining margins, we were faced with higher feedstock and energy costs, higher inflation, and weaker demand growth. We continue to benefit from the increases in the oil price and the weakening of the exchange rate.
Brent crude increased by 24% to average $95 per barrel, with the rand weakening 15% to an average of ZAR 17.33 for the first 6 months of the financial year. However, the weaker exchange rate negatively impacts the translation of our US dollar-denominated debt, which I will talk about later. We saw our commodity chemicals prices decrease due to poor demand, as evident in a 20% decrease in polyethylene prices compared to the previous period. A significant increase in input costs brought a further squeeze to margins in our chemicals business, as seen in the 27% increase in the US ethane price, with a similar impact seen in Europe. With the recovery of natural gas storage levels and lower seasonal gas demand in the United States and Europe, we expect to see a continued normalization of natural gas and ethane prices.
Looking forward, we expect the volatile global economic environment to continue weighing on prices and demand in the short term. The outlook for the energy and chemicals market depends largely on cost and availability of feedstock and global demand growth. The South African economy is faced with underlying structural constraints, which are further exacerbated by ongoing disruptions from Eskom and Transnet, affecting ourselves as well as our suppliers and customers. Notwithstanding these challenges, we strive to remain agile and focus our efforts on managing to market demand as well as maintaining our cost and capital discipline through our Sasol 2.0 Transformation Program. Turning to the financial results, we have seen a mixed set of results in the profitability of the group.
Although cash generation and profitability, both at an EBITDA and EBIT level, remained relatively flat, the diversification benefit of our portfolio is evident in the EBITDA pie graphs, highlighting the changes in contribution from the various business units. Note that our usual EBIT comparison by segment is somewhat distorted by a number of non-cash adjustments for this period as well as the comparative period. My next slide discussing EBITDA performance will provide better insight. Non-cash adjustments for this financial year includes a net loss of ZAR 6 billion, mainly on remeasurement items resulting from impairments and reversals, mostly impacting our Fuels and Chemicals Americas segment. In our corporate segment, the most significant item was a ZAR 5.1 billion hedging gain.
Core headline earnings of ZAR 24.55 per share increased by 9% compared to the prior period, supporting sustainable returns to our shareholders with an interim dividend of ZAR 7 per share declared. We remain focused to generate sustainable returns to our shareholders. Let me now turn to the segmental highlights, starting with the Energy Business. In our Mining Segment, adjusted EBITDA decreased by 4% compared to the prior period. This was largely due to a combination of lower productivity, which resulted in higher external coal purchases to ensure a healthy stockpile and coal mix to our Secunda operations, as well as lower export sales due to ongoing operational challenges at Transnet. Engagements with Transnet are ongoing as the industry works collectively towards finding a sustainable business solution.
Adjusted EBITDA for our gas business was up by 3% compared to the prior period, supported by higher intersegmental gas prices from Mozambique linked to higher oil prices. Our fuel segment delivered a strong performance with adjusted EBITDA increasing by 92%, benefiting from higher crude and refining margins and weaker exchange rates. The business was negatively impacted by a combination of factors, which included the scheduled Secunda shutdown as well as other operational challenges. Turning to our Chemicals business, our Africa segment was impacted by a combination of production challenges and supply chain disruptions, which affected the export of our chemical production products as well as our ability to get certain products to local customers. The average sales basket price for the financial year was 5% higher, which supported a 10% increase in EBITDA.
In our US chemical segment, adjusted EBITDA decreased by more than 100%, mainly driven by the significant margin squeeze resulting from higher ethane costs and lower prices where inflationary pressure and weaker economic growth negatively impacted base chemicals demand. This was further impacted by planned shutdowns as well as the unplanned outages on the Ziegler and polyethylene units. Chemicals Eurasia, with adjusted EBITDA down 34%, continued to be impacted by the high energy cost as well as feedstock costs as a result of the war in the Ukraine and China, and the China lockdown. Operational rates were also lowered in our Eurasian business to match weak market demand. Looking next at the outlook for the financial year.
In mining, we expect productivity to remain between 900 to 1,000 tons per continuous miner per shift as we focus on ensuring the safety of our workforce while implementing the Full Potential Programme. In our gas segment, we recently increased the volume guidance to 111 to 114 billion standard cubic feet as we are seeing the benefits of the drilling campaign. The impact of potential power outages on external customers and demand can, however, affect our production volumes. Secunda operations will continue to be negatively impacted by lower- than- expected coal quality for the remainder of the year.
Taking these factors into account, we reiterate our recently adjusted Synfuels production forecast of 6.6 million-6.9 million tons for the year, with our South African liquid fuel sales volumes to range between 52 million-55 million barrels. Sales volumes for the Chemicals Africa business is expected to be 0%-4% higher compared to the prior year following the recovery from supply constraints which we experienced. In Chemicals America, we expect sales volumes to be 5%-10% higher than the prior year, which included the ethane cracker shutdown. Weaker demand following higher inflation and recession fears remains a key challenge for this business. Chemicals Eurasia sales volumes are expected to be up to 20% lower than prior year when normalized for the wax divestment, given the volatility and uncertainty in the external operating environment.
We anticipate that this volatility will continue throughout the rest of the financial year, which may have a negative effect on our operations and outlook. Our priority remains to effectively manage the elements that are under our control and ensure that we work closely with all stakeholders to mitigate these impacts. We remain dedicated to delivering our Sasol 2.0 transformation program. So far, the achievements from this program has given us some headroom to withstand the inflation impact on our business. Looking at our performance for the first six months of the year, we realized ZAR 2.7 billion in net sustainable cash fixed cost savings towards a full year target of over ZAR 5 billion through the implementation of the new operating model and reduction of external services, which continues to de-deliver sustainable benefits.
We also realized ZAR 2.3 billion gross margin improvement, progressing well towards our target of ZAR 3.5 billion. Given the high inflation environment, there is some risk in meeting the 2023 guidance on both cash fixed costs and gross margin. Our commitment to the financial year 2025 targets remain steadfast. Our capital expenditure is currently within the targeted range of ZAR 20 billion-ZAR 25 billion in real terms. We continue to embed the recently developed risk-based capital allocation approach in accordance with our capital allocation framework. We have revised our working capital target to move from a period-end target of 14% to a more sustainable measure of 15.5%-16.5% on a rolling 12-month basis.
This decision was made in light of the volatile macroeconomic impacts on stock valuations and ensuring healthy inventory levels throughout the year to mitigate supply chain risk. Our average monthly capital- to- turnover ratio for the 6 months to date was slightly above this target. We continue to drive delivery of the financial year 23 targets with a focus on potential risks and mitigation actions, which is key for the success of the program. Our capital expenditure continues to be guided by our disciplined capital allocation framework as we evaluate capital spend to maintain our license to operate whilst ensuring the safety and reliability of our operations and meeting our transformation goals. Our year-to-date maintained capital expenditure of ZAR 16 billion includes the total east factory shutdown, as well as progressing the PSA project execution, which remains within its overall approved budget and schedule.
To date, minimal growth capital has been incurred, with spend mainly towards progressing the Sasol green hydrogen pilot project, which aims to produce first green hydrogen by the end of this calendar year. Our capital forecast for the full financial year remains within our guidance of ZAR 27 billion-ZAR 28 billion, but given the high inflation landscape, there remains some risk in meeting this forecast. In conclusion, I would like to emphasize 3 key points in our capital allocation framework. Firstly, we remain balanced in our capital allocation process, focusing on safeguarding shareholder return commitments, de-leveraging the balance sheet, and selective growth investment. Maintain and transform capital continues to be prioritized with all growth opportunities and shareholder returns assessed to ensure optimized risk-weighted returns of the portfolio.
I'm pleased to announce the launch of Sasol Ventures, a new corporate venture capital fund with a targeted investment of a modest EUR 50 million over the next five years. This will complement our internal research and technology capabilities to pursue compelling new investments in startup companies developing technologies for sustainable chemicals and energy solutions. Secondly, a key priority remains sustainable returns to our shareholders. I'm pleased with the declaration of the interim dividend, as I mentioned earlier. We are committed to maintaining a dividend which is sustainable going forward and stepping up cash returns to shareholders as we reach our net debt targets. Lastly, we continue to proactively manage our balance sheet, ensuring we maintain robust liquidity and optimize our debt maturity profile.
As at the thirty-first of December, 2022, our liquidity headroom was $4.5 billion, which is well above our out-outlook to maintain liquidity in excess of $1 billion. This provides us with great flexibility around debt maturities in the coming years. Maintaining a balanced debt maturity profile remains a key focus for us. We successfully refinanced our 2022 debt maturities. We are assessing all options to proactively address our 2024 maturities. Our current net debt of $4.5, excluding leases, increased slightly compared to the comparative period. We continue to work towards our goal of further reducing debt levels. Thank you for listening. I will now hand back to Fleetwood to conclude.
Thank you, Hanré. With our greenhouse gas emission reduction goals firmly embedded in our future Sasol strategy, I am delighted that we have progressed several key milestones to realize our 2030 target. This includes the conclusion of Power Purchase Agreements for around 550 MW of renewable energy for our South African operations. Once these projects are operational, they could reduce our Scope 2 emissions by approximately 1.8 million tons per annum. This is comprised of 69 MW of renewable energy supply for our Sasolburg operations with Msenge Emoyeni Wind Farm and 4 long-term PPAs for supply to our Secunda facility together with Air Liquide. Enel Green Power will supply 220 MW, and TotalEnergies and its partner, Mulilo, will supply 260 MW of wind and solar renewable power.
The Sasolburg renewable power is key in supporting the first production of green hydrogen at the site. We are also working hard to conclude significantly more agreements this year towards our goal of 1,200 MW renewable energy procurement. These signed PPAs remain subject to standard conditions precedent, which could impact the financial close of these projects. In our chemicals business, we have concluded a further three PPAs for Italy, amounting to an estimated 18,000 tons per annum CO2 emission reduction by 2026. In the USA, virtual power purchase agreement negotiations have progressed following the stabilization of solar panel imports post the market and supply chain disruptions in 2022. Further, Olefim and Sasol Chemicals have expanded our collaboration to develop and market sustainable surfactants.
Since March 22, Sasol and Olefim have collaborated on research and development onto accelerating innovation to help meet the growing demand for sustainable solutions in primary surfactants. Looking at enablers to unlock our 2050 net zero ambition, I'm excited to announce that Sasol and Topsoe signed a memorandum of understanding with the intent to establish a 50/50 joint venture. This joint venture will focus on opportunities related to SAF production, with the JV's main purpose to develop, build, own, and operate ventures producing SAF from non-fossil fuel feedstock based on Sasol and Topsoe's technologies. The long-term impact the JV will have in offering solutions to decarbonize the hard-to-abate aviation industry is truly exciting and aligns well with Sasol's purpose, innovating for a better world. As Hanré mentioned, we have also today announced Sasol Ventures to advance Sasol's decarbonization and 2050 net zero ambitions through venture capital.
In line with our green hydrogen emission, three of our programs, namely Sasolburg Green Hydrogen Production, HySHiFT Study to Produce Sustainable Aviation Fuels in Secunda, and the Boegoebaai Green Hydrogen Development Program, were gazetted as Strategic Integrated Projects by the South African Government in December 2022. This designation enables the program's implementation to be expedited, demonstrating South African Government's commitment to supporting the private sector in developing the new green hydrogen economy. For the half year, we have invested close to ZAR 780 million globally in socioeconomic and skills development, a clear affirmation of our commitment to remain a catalyst for positive change in our communities around us. A few highlights I would like to showcase for this period are Sasol TechnoX, Sasol Bridge to Work, and the Inhassoro Training Center.
Celebrating its 20th anniversary, Sasol TechnoX is one of South Africa, if not Africa's, largest career guidance exhibition, bringing science and technology to life through interactive workshops and exhibition stands. Our first ever virtual Sasol TechnoX was a resounding success, attracting over 35,000 learners from all over South Africa and neighboring countries. In August, we launched Sasol Bridge to Work, a multi-project program that intends to reduce unemployment in our communities of Mpumalanga, Free State, Gauteng, and KwaZulu-Natal. The program focuses on providing training in critical skills. In November 2022, Sasol handed over the Inhassoro Training Center in Mozambique, which has begun operating from this facility comprising of five classrooms and three large workshops for practical lessons in mechanics, electricity, and industrial welding. A residential block composed of six houses for training staff is also provided.
120 trainees will complete their training at this facility in the financial year. For us, the focus remains reaching our future Sasol ambitions. Growing shared value while accelerating our transition is our key objective, while always making sure that we have safe and reliable operations. We will continue our pursuit of zero harm, maintaining our cost and capital discipline, and improve our operations at mining. Unlocking the full potential of Lake Charles and value uplift remains an important priority. Through these efforts, we intend to enhance cashflow, which will support both disciplined growth investment and deliver competitive and sustainable shareholder returns. As we progress plans to meet our 2030 greenhouse gas reduction targets, we build the foundation for achieving our 2050 net zero ambition.
We are reporting on a period when we faced a number of operational challenges and headwinds which have held back performance. I am confident, though, as I have outlined, that we have gripped these challenges and are making progress in addressing them. At the same time, Sasol must transition to a lower- carbon future in a responsible manner, balancing the interests of our different stakeholders. I am pleased with the progress we are making, which places us well to meet our stated targets, underpinning a sustainable future for Sasol. This concludes our results presentation for today. Hanré and I thank you for watching. We will now take a 5-minute break before we commence with the question and answer session. Thank you.
Good morning, and welcome to this question and answer session for our 2023 interim financial results. My name is Tiffany Sydow from Investor Relations, and I'll be facilitating the session today. With us in the room are the other members of Sasol Group Executive Committee. To my left, Rian Vredeman, EVP of Mining. Priscillah Mabelane, EVP of the Energy Business, and Brad Griffith, EVP of our Chemicals Business. Also participating online, we have Simon Baloyi, Charlotte Mokoena, Marius Brand, Vuyo Kahla, and Hermann Wenhold. Your questions can be posted online via our online streaming platform. On the right-hand side of your screen, you should see a dialog box, which should allow you to type questions. Alternatively, you can also dial into the Chorus Call link, where you can voice over your questions once prompted.
I will be toggling between the two platforms to give everyone a fair chance to ask their questions. For now, we'll start with the questions on Chorus Call. Operator, if you could please allow caller number one to ask their question.
Thank you. First question comes from Christopher Nicolson of RMB Morgan Stanley.
Operator-
Hi. Good morning.
-online.
Hi, team. It's Christopher Nicholson here. Can you hear me?
Okay. Let's perhaps progress with some of the online questions as a start.
Oh, okay.
We've themed the questions make it more interesting.
Chris, please remain online.
I'll start with the first two questions around the financial results and balance sheet management. The first question comes from Pierre Muller, from PSG Wealth. Could you possibly shine some light on how the zero-cost collar derivatives profit and losses originate when the Brent crude oil price is trading between the floor and cap? Are we within the range of Q3 and Q4 of FY 2023? For Q1 and Q2, we were outside the range where the caps were around $83 per barrel. This relates to the realized losses. I think the question relates to the losses. The second question is from Sashank Lanka, also related to the dividend payout ratio. The dividend payout ratio is 36%-40% of core HEPS. The first half dividend was a 28% payout ratio, which is slightly lower than your guidance. Any reason for this?
Thanks, Tiffany. It's always great to start with the financial questions. I think in terms of hedging, it's important that we maybe just take a step back looking at our change in approach to hedging. I think given the deleveraging of our balance sheet, we've significantly scaled back our hedging, so we've dropped the coverage of our hedges, especially the oil hedges, from around 50% for this past financial year to now around 25% going forward. I think important then to also note that the approach has changed. After the conclusion of this financial year, we've implemented swap contracts, so effectively not giving away upside in the use of zero-cost collars, which is still in existence till the end of this year.
Important that the mark-to-market of the previous ones would drive the recognition of unrealized and realized gains and losses. Those gains that you see on the balance sheet is then the previous unrealized gains at the end of the previous period, where oil was trading well above $100 a barrel, that have now translated into gains. That just over $5 billion gain that you see is effectively a paper gain on the mark-to-market of that. One aspect, though, that you would see, and we can talk about that in further detail later, is the cashflow impact of the previous year's hedges. We did have to settle that in this 6 months. There's a ZAR 8 billion outflow of cash that came through in this period.
Important, though, that this year's remaining zero-cost collars are very comfortable in the collar. In terms of the Q3 , the ceiling there is $98 a barrel, and for the Q4 it's $123 a barrel. We would actually be happy if oil price is above that, then we do give away a bit of opportunity cost, but at the moment, the forecast is that we wouldn't realize further gains on or losses on those specific hedges.
Just in terms of the question around the dividend then. Let's just go back to the dividend policy. We've highlighted that the dividend will be declared on a payout ratio of 2.8 times cover, effectively relates to 36% payout ratio. We would step up the dividend to a 2.5 times cover, which effectively is a 40% payout ratio if debt then drops to below $4 billion sustainably. In the payment of an interim versus a full year dividend, we guide it at the full year results that will use a 40/60 split. Effectively, the cover at the half year would be scaled back to allow then for the full year cover to be a bit of a catch up. That 40% payout versus 60 full- year results in a 3.5 times cover rather than the 2.8 average that we're aiming for the full year. Thanks a lot.
Thanks, Hanré. I think the next set of questions is around our mining and Secunda operational performance. The first question comes from Shashank again from Bank of America. In terms of operations, the last 12 months have been challenging. Is it fair to assume that things should be more stable in 2023? Is the coal supply issue a structural one with no near-term fix for this? I think the second question also around our operations. How has your declaration of force majeure on the local supply of ammonia during November played out? Has the supply normalized yet? If not, when do you see it normalizing? Does it affect both Secunda and Sasolburg or only one of these sites? That comes from Keith McLachlan at Integral Asset Management. Keith is perhaps on the phone with us.
Yeah. Thank you, Tiffany. I'm gonna ask Brad to weigh in on the ammonia situation and force majeure. Sashank, thanks for the question. We have seen that our mining operations has been under pressure, mainly because of quality and productivity issues. We've also seen that our major supplier, which we've got a contract to deliver 4 million tons of coal, is also under pressure and hasn't deliver the volumes per the contractual agreement that we planned for. To bolster that shortfall, both from that long-term contracted as well as our own, we've engaged with a short-term supply of additional coal that is delivered to our facilities in Secunda. We believe that this is a short medium-term measure, which we will not be able to sustain in the long term.
Therefore, our focus now, after we have assessed very thoroughly the impact of coal quality on our Secunda operations, we have now come up with a plan to bring us back to a blended quality over time where we know we will have optimized value out of the Secunda value chain. The key thing here, Shashank, is that it comprise a number of measures. Internally, I will touch on two or three measures that we are really focusing on with vigilance at this point in time. The first is, of course, everything is built on our safety remediation program, which we indicated last year is our priority. This year, our priority is now to build from that bedrock and start to increase productivity.
That means we will have more coal available, mitigating some of this purchase coal that we have to, which we had to implement to bridge. It is about how to get better quality of the existing coal in our mines to Secunda. Two things I've mentioned is that, one, is if we have increased productivity, the volume to our mines gives us more flexibility in the blending of the feed into Secunda. It helps us to get just a better output from our gasifiers in terms of the gas it produce.
Our other short-term measure, and I've alluded to that, we are very excited to look at destoning options on our own mining complex or our own mines to see how that can help us to reduce sinks and ash, such that, again, the quality that we feed into our Secunda operations can be optimized. Now, longer term, there are many more options that we are solving for. It's a equation with multiple solutions, with border conditions and other boundaries that we have to consider. I would like to really engage on this roadshow for you to understand and get better context on that as we dimension it.
What we believe is that the first initial program to get Full Potential, we've implemented now that at the first colliery, Syferfontein, that will be running for the rest of this financial year. After that, we will implement another two collieries, and six months later, the last two collieries. In FY 2023, we believe that this Syferfontein implementation will help us, when you compare the first half to the second half, that we will see better output from our own mines in the second half, and we will see an improvement in the quality that we bring to bear. That's where I would leave the short-term context and what we are doing right now to address that and why we are confident. Brad, you wanna address the ammonia?
Yes, happy to do that. Keith, thanks for the question. The majority of the issue for the force majeure is actually related to Transnet Freight Rail supply of ammonia rail cars. you know, Transnet is the only provider of ammonia transportation in the country at the moment. This problem that we saw back in November did materialize, and so we have been constrained on being able to supply ammonia to our rail customers. Customers that are taking ammonia by pipeline have not been affected. We continue to work with Transnet. We've received a number of additional cars back from m aintenance, still not to the full supply, and we continue to work with them also to get additional rail cars into the fleet so that we can recover that. That will be sometime later this year.
Thank you, Brad. Thanks, Peter. If we could switch over to Kara's call for the first caller on the line, please.
Thank you. That is from Gerhard Engelbrecht.
Good morning. Yes, thank you for the opportunity to ask questions. A couple of questions. You spoke in December about the aging mines, Bosjesspruit and Twistdraai. My question is more longer- term when it comes to mining. Can your current mining portfolio deliver enough coal for Synfuels in the longer term, so before 2030 and even after 2030? Do you need to allocate capital in future to ensure sufficient supply of coal? A second question: What are your views on the Kinetiko project, which is very close to Secunda? Could it be a sizable gas resource that you can access? Have you at all engaged with that project?
Third question quickly: How much influence do you have in the operating decisions that Limedale makes at Lake Charles JV with regards to cutting back production? Are they cutting back production at the other US operations at the same rate as they are at Lake Charles? Thanks.
Thank you, Gerhard. I would start off with the coal, and I'm al-gonna ask Riaan to weigh in on that one. With respect to the specific project you mentioned, Kinetiko, I'm gonna ask Priscilla to weigh in on that, and then, of course, the operating input in Lake Charles, Brad will help us with that. Suffice to say, as we go into our coal deployment strategy, Gerhard, our own mines have always been supplying in the region of around 34, 35 million tons per annum. Currently, we do have a long-term contract on Isibonelo that supplies the 4 million tons going forward.
If we look at the time to 2030, of course, we need to think about how to replenish the contract that comes to an end from Isibonelo, which is by 2025, 2026, which we are in discussions with them how to mitigate that. Of course, our own reserve is ample. The question is: How can we get the right quality out of our reserve, and how can we get the right volume to then supply in this need to 2030? In addition to that, what other sources could be at better quality coming into Synfuels that is warranting maybe an increase in cost compared to our own, but that will unlock more value in the Secunda value chain?
If you ask in terms of your second part, before I hand over to Riaan, in terms of capital allocation, we have always planned that Alexander Block needs to be operationalized towards the next year or two, so we are considering that project for a final investment decision in this calendar year, so we will have to consider that. Of course, if we're looking at destoning options, we need to consider the capital outlay for that. That will be done on a full-fledged business case, considering the benefits, the unlock of value, and the quantum of capital. Riaan?
Yeah. Thank you, Fleetwood. Good morning, Gerhard, thank you for the question. I fully support what Fleetwood has said. If I can just add, going forward, it will be safety first. As our CEO has said, safety is not negotiable in any one of these decisions. Secondly, it will be optimization between productivity, cost, unit cost, and then obviously capital. We believe that there's sufficient and effective alternatives on the table to cover the longer term. Fleetwood, thanks.
Thank you. Moving to Priscilla on Kinetiko.
Thanks, Fleetwood. Gerhard, thanks for the question. I think there are quite a few opportunities that we are seeing in South Africa, and we are assessing those, and our team have been working on it. Our view is for both opportunities, they are going to be able to complement the South African market from a demand perspective. The volume is quite low for the demand we're looking for. Secondly, our expectations is that this will actually be charged at global competitive prices for this very small volume as well. Until there's clarity on the regulatory framework from a certainty perspective to ensure that the gas market is sustainable, it's going to be quite challenging to engage on these opportunities to understand the value proposition for South Africa.
Thank you, Priscilla. If we move to Brad on LYB.
Yes, Kara, thanks for the question. Yeah, we do participate in operating decisions. We have a joint management committee that sits monthly to look at operating rates, and each partner nominates the rates that it's looking for over the period. For the most part, these rates are aligned in terms of running. In fact, we ran full rates until we started to see the margins collapsing during the August-September timeframe. During that period then, we both agreed to cut back operating rates for the polyethylene units and the cracker. Of course, you're familiar with the situation around the LDPE, where we mentioned in our results that we had numerous operating problems and mechanical issues that slowed bringing that unit back to market. It...
You know, in the case of the 3rd and 4th quarters, actually, Sasol nominated higher volumes of ethylene for our market 'cause we saw margins starting to open up, and we wanted to move some volumes of ethylene while Lyondell operates certainly a much bigger network, and they have to make their own decisions on the volumes. Thanks.
Thank you. Could we move to the second caller on Chorus Call, please?
Thank you. The next question comes from Christopher Nicholson of RMB Morgan Stanley.
Hi. Good morning, team. Thanks for the opportunity. Couple of questions from me. If we just look at the feedstock into the South African value chain, it looks like some kind of rough back-of-the-envelope calc that you're still buying in coal at about a 15% or so premium to what it costs to mine. Would that be a valid assumption going forward? I do remember maybe you mentioned a slightly lower target price for purchased coal, if you could confirm that. Secondly, on the feedstock side of things, the gas in South Africa, you're talking about potentially bringing in additional gas to Secunda Synfuels. Could you maybe talk to kind of where that gas comes from? 'Cause your guidance from Mozambique is unchanged.
Where would you be looking to take that additional gas from or prioritize it from to Synfuels, and what type of impact or offset could we see against kind of the coal volume shortage? Just a final question. Obviously you've put through quite a material impairment to Secunda Synfuels in the half. Could you confirm under those impairment assumptions, do you have Synfuels returning to the 7.6 million tons that it's historically ran at over the medium term? Thank you.
Thank you so much, Chris. I'm gonna start off with your last question first because this is the big focus that the Sasol executive has, is really to think, "How do we get ourselves back to a higher output in Secunda operations?" I think what we have now ascertained and what we have done in our assessments is that we believe we understand the impacts and the required building blocks to bring us to a better output in future compared to where we are today. Now, Chris, it's very difficult to give you an exact number.
Suffice to say is that we do want to get back to the number that we historically have seen as the potential, I would only be able to give that as a clear target once we've done our assessment of these options, the quality sources, the deployment, all of that. Hopefully, we would conclude by this year, and then we must have a very clear pathway of where we're heading in the medium to longer term with respect to that question that you ask now. Rest assured is that if we look at the impact of gas and the shutdown... Let me just put that in perspective.
The additional gas that will come from Mozambique out of our PPA fields that we will use on a very short call basis, if there are any reduction in throughput on a gasifier, and we can make it up through natural gas and reforming, there is reserve in Mozambique that we can push through the pipeline to mitigate that impact. In the past, we have seen the benefit of having ample gas from Mozambique could unlock anything between 100 and 150,000 tons in the Synfuel operations value chain. That just gives you a sense. That is historically, we've seen that unlock through ample natural gas from Mozambique. Up till December, we didn't have that option to tap into that lever to mitigate any other impacts.
As of December, now we've got those in full well drill that we drilled is flowing and that means that we've got access to that gas, and that helps us a lot. The other aspect that we have to consider is that the total shut that is now happening every 4 years, but it's gonna be on a different frequency going forward, is also impacting to the extent of about 100,000 tons. If you just look between that 200,000-250,000 tons, that is immediately within our grasp in the near term to restore.
On top of that's where we're now gonna build the right quality of coal and volume that we need to bring into Secunda operations that will take us back to the historic type of output. That output number we can only share with you once we've done proper homework, done proper due diligence on alternative supplies, done proper assessment on how destoning may or may not help us, as well as all the other interventions that we are running in parallel at this point in time. I'm gonna ask Priscilla if there's anything on Mozambique gas and then the cost of coal, Hanré, to conclude with.
Thanks, Fleetwood. I think in a way you've answered it, but just to bring some data into the room. We've actually increased our well stock from 19 to about 24 by the end of the first half of the year. We are also on track to commission two more wells as well for PSA. This is the flexibility that Fleetwood is talking about in terms of opportunity going forward. All of those wells are performing in line with expectations, some slightly surprising us, and we see this as positive news for us.
Thank you, Priscilla.
Thanks. I think just on the question around the price for our purchased coal, Chris, I think you're in the right ballpark. I think important to note, though, that all coal is not created equal. Certainly price versus quality is important, so we are buying for quality to enhance the quality. It's perhaps not fair to directly compare the cost of our own produced coal with what we purchase externally. I do also wanna give some sympathy to Riaan's buying team that we are amidst a global energy crisis where coal exports have shot through the roof, coal prices are very high. Of course, that also has a knock-on impact on lower- quality coals that we're trying to procure.
We do expect, as our productivity levels improve, as Isibonelo perhaps also steps up performance, that we will buy less coal, and of course, the prices will then normalize for that purchased coal.
Thanks for those set of questions. I'm going to go back to the questions online. There are a few financial questions, perhaps for you, Hanré. Please, can you give some more details on the refinancing plans regarding the upcoming bond and loan maturities in 2024? Do you plan to partly refinance in the bond market, and what timing did you have in mind? That comes from Alex Comer at Barclays. Then I think just another question on the overall gas price increase versus the prior period and versus the half 2 in FY 2022 from Herbert Kharivhe at Investec.
Thanks, Tiffany. In terms of refinancing, a critical aspect for us, of course, is the revolving credit facilities that mature in 2024, as well as the $1.5 billion US debt. We've already proactively engaged with our banks to look at the refinancing of those facilities and the bond, as I've stated in the presentation. I think important for us is that we will start with the facilities. Facilities do give us flexibility in managing liquidity. We've got $4.5 billion of liquidity headroom. We only have about $3.2 billion of debt that we need to refinance. We're very comfortable in that.
I think to that extent, the facilities are an important first step in making sure that we can flexibly refinance those maturities. Certainly in terms of the bond, the $1.5 billion, plan A would be to go to the bond market. I think we've highlighted previously that we will consider other options as well. I think it is certainly comforting to see that the bond market is reopening. We've seen recent issuance, and kind of rates do seem to be coming down. That would certainly be a consideration. Thanks. I think in terms of the gas prices market, I suspect it relates to our domestic gas prices. There, as you might have seen that we've not had a determination from NERSA to for new prices, so we have just rolled last year's prices, and those discussions remain ongoing.
Thank you, Hanré. Some more questions on the operational and business outlook. Can you please talk about the chemicals business outlook in the US? Your peers have highlighted for an extended through period due to high inventories and weaker demand from Sashank again, and from Bank of America. From Faisal at Goldman Sachs, how has January and February demand for chemicals shaped up compared to fourth quarter 2022? Are market trends so far this year better than what you had anticipated, and which geographies have surprised to the upside? Fleetwood?
Thanks, Tiffany. I'm gonna ask Brad to weigh in there. I think suffice to say that there is, in the industry, a general estimation that there is a slight recovery that is being building up, but let me hear Brad's context on that.
Yeah, Sashank, thanks for the question. I think building on Fleetwood's point, we're seeing some mitigation in the energy and feedstock prices in the US, we still see tepid demand as we enter calendar 2023. You know, when we look at this versus our outlook, we're still confident in our outlook on US volumes. I think margins then is going to depend on how we see, you know, the progression of the energy, especially the ethane price, and the ethylene and polyethylene prices in terms of the large base chemical segment. Of course, for our US operations, Ziegler is another key factor, we're expecting to restart the remaining capacity by the end of this quarter, so by the end of March.
We'll start to see those volumes also being placed. We still see that weak demand as a potential risk, volatility. If I take Faisal's question, thank you for the question about this current quarter. You know, it's quite mixed. I think if your question was around are there any geographies that have surprised to the upside? I wouldn't say that there's any geography that has surprised. I think, you know, one of the reasons why we saw such a drop-off in the fourth quarter was December itself. We saw major consumer goods companies, automotive manufacturers, catalyst producers, so abrasives producers, cutting back to almost nothing of demand while they were destocking during that period.
As we had indicated in our trading statement, back last year, we've been adjusting our production to meet demand so that we were avoiding building up working capital at the end of the year. That also meant then that we weren't seeing a lot of sales volumes out of inventory during that period. We are seeing, you know, the rebound of volumes, but to our outlook. No, I wouldn't say that anything is surprising to the upside, and we continue to monitor it. I think we also commented that in Asia, where we often see the price points start to inflect one way or the other, we are seeing a bottoming out of pricing, especially as we see China starting to come back into the world economy with demand and production. We continue to monitor that.
Thank you, Brad. I think following on from the questions on chemicals, the results show challenges on the offshore operations and what is Sasol's strategy on offshore operations to sustainably mitigate the negative impacts we have on the results from Bongani at Proconics? Then perhaps a question on fuels. What drove the fuel segment variable costs higher, apart from not ref crude oil purchases and external refined fuel purchases from Garth Barry at Nedbank?
Thank you. Priscilla, please weigh in on the second question. I think on the first question with Bongani's re-request, what are the challenges offshore operations? Yes, I think very much so. If we look at the varied impacts of energy and the disruption of that high cost in Europe, vis-à-vis the whole US play with demand and cracker rates, I mean, it's two different stories that unfold there. We believe that it's not structural, but that it is gonna correct itself, so those businesses will turn around. It is not only that we wait for that to happen, we're actively managing the business to make sure that the potential that's there to mitigate the red numbers, where we can mitigate that, we'll do that.
That also puts us in a very good position when energy prices recover, when demand recover, we will have the firing power immediately to ramp up back into those suppliers. I think therein lies the actual outlook going forward, is if we can master that, I think those businesses will perform very well going forward again.
Thank you. I think on the variable costs, earlier on during the presentation, Hanré's covered a lot some of the drivers with regard to feedstock, particularly on the coal side. Again, invariably, we are seeing quite a substantial increase in terms of utility costs. There's no doubt that the energy costs that we're paying to Eskom as well is impacting our variable costs. At the same time, we've also last year indicated that we have closed out on the air separations, the ASUs with Air Liquide. As part of that, we are now paying for those oxygen trains. We are seeing the cost coming through our variable costs, versus previously when it was actually depreciation. It's multiple factors, but those three are probably the most prominent cost drivers in our variable cost. We are continuing to look at opportunities to reduce our costs.
Thank you, Priscilla. A question on the Mozambique drilling campaign from... Two questions from Thobeka Bikha at Nedbank. What does Mozambique drilling campaign is progressing ahead of plan actually mean? When will we get an update on the actual numbers regarding resource replenishment? I think the second question also from Thobeka on the operational mitigation plan. We'd like to understand how is it different from what we've already been doing to manage the 1.5 million ton coal stockpile? Is it a question of the stockpile not the right spec for your operations? A little bit of understanding on the quality of the stockpiles and the intended use.
Yes. Thank you. I'm gonna ask Priscilla to deal with the Mozambique drilling campaign because it's a couple of aspects that is always blending in, but I'm sure we can unpack that for you.
Let me start first with the original plan. As you'll recall that we started with the drilling campaign predominantly looking at few wells, about 3 of those which were work over wells, as well as new wells, to ensure that we restore the plateau going forward. That has been completed timely, and that goes back to the reference that Fried had made to say that we are seeing additional well stock and more gas going forward, which give us flexibility for our business. In addition to that, we started with the PSA program, which also includes well drilling.
We have so far drilled about 6 wells. Most of those are actually in line with our expectations. We are progressing with the flow lines to connect those to our processing unit. In addition to that, we have originally indicated few more opportunities that we're exploring but are either at an FID level or at gate 3 or 4. Those are also progressing according to plan. Our plan is that as we get into the year- end, we'll be engaging with the auditors. If you'll recall that there is a difference between resources and reserves. The reserves confirmation follows a very rigid audited process that we'll go through with auditors as well based on our submissions.
One of the encouraging factor that we'll be taking into consideration is that by the end of June, we are on track to submit our P50 analysis for PSA to Mozambique. That would be a key factor for consideration. The data has been analyzed, and we are now busy with the report and also validation and auditing of those results. That will give us another lens in terms of what can we book as reserves versus resources, and we'll make all of that information available to all our investors.
Thank you, Priscilla. Coming back to Thobeka's question from Nedbank on the operational mitigation plan. Thobeka, I think to just give context on the stockpile, why do we have a stockpile? Mainly, there are two reasons for it. The first is to make sure any upset at our operational mines are mitigated such that we can keep the Synfuels operation running. You can imagine we are running about at a feed of 100,000 tons per day into Secunda operations, which means you can do the sum. If a stockpile is a certain level, then you deplete that quite quickly. We have, through the decades of experience, have set that minimum stockpile to mitigate risk in terms of supply from our own mines and others at the 1.5 million tons.
The additional benefit for that stockpile, and you need to imagine that it's not one big heap of 1.5 million tons. There are an east and a west factory. There are five collieries. There's the Isibonelo, you know, coal that comes in. Each one has got its own unique quality of in terms of fines, ash, sinks, and those parameters. What we do is that we put that together in the right mix such that what Synfuels see is then average better quality.
You can also then imagine if your stockpile is higher, your flexibility, if one mine is now down that's producing good coal, and you've got stockpile of that mine that's now fallen away, you've got flexibility to then blend from that existing stockpile to make up for the good mine that has now fallen away for two or three days. That is the flexibility we talk about, is to get a ratable quality by mixing. It's like baking a cake every hour with the best ingredients that you've got. It is about optimizing that on a continuous basis, and your flexibility is enabled by the stockpile. When we go forward, I think we are also thinking about how can we even increase that 1.5 million ton, that even will provide greater flexibility in getting a better input of the blended quality into Synfuels.
For the time being, I think we are managing it, as we say, and as we sit here today, we are well above 1.7 million tons of stockpile.
Thank you, Fleetwood. I think before we move over to Chorus Call, there's perhaps another question on relating to coal. Are you considering developing another greenfield coal mine? From Shoaib Bayat at Athena Capital.
Riaan, please.
Yeah. Hello, Shoaib. Thank you very much for the question. My understanding of greenfields and brownfields is the following. If we look in the definition, Alexander project would not be greenfield, it would be brownfields, although it is a reserve belonging to Sasol Mining that's not been exploited yet. Why we see it as a brownfields operation, we will be using existing infrastructure. Remember, we have a mine, Syferfontein, in that area where Alexander is, and also close to Alexander is the infrastructure of Isibonelo. We will then also look at the mining of that reserve. As Fleetwood had said earlier, we'll probably look at FID by the end of this calendar year, and part of that would be what would be the best economical way to mine it.
In all probability, we will have a look at the contractual contract mining for that reserve. Yes, it's not a greenfield. It is a development, but in definition for mining, it would be a brownfields operation. Thank you.
Thank you, Riaan. Maybe just one aspect to add. As far as other options beyond, you know, our Alexander Block is concerned, is also being assessed. I mean, that is subject to due diligence that we need to look. Those could be new suppliers that has got excellent quality coal that we would like to, you know, work with in future.
Thank you, Fleetwood. Chorus Call operator, if you could please direct the next question.
Thank you. The next question comes from Adrian Hammond of SBG.
Good morning, Fleetwood and Hanré. A couple of questions for you and your team. I've got four. Firstly, just on the Sasol Fuels division, you touched on the high variable cost increase. I'm just trying to understand a bit more about why the increase in the cost of crude that you allude to was not captured in higher revenue via the BSP. How does that pricing mechanism? Exactly where and why is the stock movement not being managed in that regard? Secondly, on the Mozambican gas, Fleetwood, you mentioned extending gas to 2030. What exactly do you mean? Does that mean the plateau is extended? Does that just encapsulate the PPA with the PSA providing upside? How does that then affect the LMG strategy?
Thirdly, for Riaan, we've spoken about coal quite in-depth already, but just sort of simply, what flexibility do you have to increase volumes to offset lower quality coal? Why not just throw a bit more CapEx at the problem? Lastly, for Henri, you spoke about refinancing debt next year. How will you think about another convert or a shift to South African- denominated debt? Thanks.
Thank you so much, Adrian Hammond. I'm gonna start off, and I'm gonna ask Priscillah Mabelane to weigh in on the fuel price, the crude oil, and then the margin in the fuel itself. With respect to Mozambique natural gas, and the flexibility of the volume, I will start off in terms of the positioning there. What I've said in terms of the gas from Mozambique gives us more flexibility towards 2030 with respect to options. I did not say we've extended the gas plateau to 2030. As a matter of fact, we have indicated that we have confirmed the extension of the gas plateau to 2028, and that we are currently working on other options to see whether we can increase that even further.
Those are work in progress. As we have clarity of those assessments, we may make further announcements that the plateau is indeed further extended. We're working hard to achieve that. We have not reached that point yet, but it's all in the making at this point in time. With respect to the flexibility that volume will bring to offset coal quality, I'm gonna ask Riaan just to give you a very, very simple, you know, sort of high-level explanation of how that may play out. Then I'm gonna ask Priscilla to weigh in on the fuel part question you had, Adrian. Thanks.
Well, thank you. Thanks, Adrian. In terms of flexibility and output, we are focusing on both of those. Output, Fleetwood have explained that we've started with the productivity improvement exercise program at Syferfontein mine, and very glad to say that we are seeing immediate, we're seeing green shoots, so we're very positive there. As Fleetwood has explained, we will roll this program out at the rest of the operations as well going forward. As far as flexibility is concerned in mining, I will keep it short. I promise Fleetwood I won't talk deeper. What you need to have a look at is creating pit room.
What pit room means is if you have an area where there is not sufficient or there's some geological surprises that you were not aware of, that you can move that production unit to another area. We are busy with that and to fast-track some of that, we had to really improve our what we refer to as our stonework resources underground. We are really doing that. We're making very good progress there. Obviously the other one that we had to make sure that we're in time with is the so-called ventilation shafts to create in areas where there is coal but not sufficient ventilation. That will help us with the so-called pit room. Your last comment about capital.
Obviously, the board, the Sasol Mining board and the Sasol Limited board has not limited us on sustenance capital. Where capital is needed and it makes sense, it is approved to help us, Fleetwood.
Thank you, Riaan. I think the additional flexibility, Adrian, also comes back to what I've explained earlier. If the productivity for your best quality mine increases, you can increase that stockpile and use more of that to mitigate some of the other mines that don't have that output, and to blend that bad quality away, if you wanna call it like that. So I think that's also another level of flexibility if we get the best productivity and volume output from the better mines vis-à-vis the ones that has got lower quality coal. So it's all in that blending volume flexibility that also comes into play. Priscilla?
Just perhaps, Fleetwood, to explain a bit more on the gas, as well. You have to look at gas in three phases. One is the PPA, and we've spoken a lot about the drilling campaign and the restoration. The second element of that is tranche three. That is already on track, that we're planning to take FID in the next few weeks. Thirdly, we're then going to be looking at PDoP, that FID will come through next year. All of those combined with PSA at P50 is what we've communicated that extended our plateau to.
2028. We are busy looking at opportunities, the near fields, which is the third element that we have licenses, and we're engaging with Mozambique government to see whether we can find good opportunities. As part of this drilling campaign, as we move forward, we'll probably be testing a few of those wells to see whether there could be opportunities to extend that plateau to 2025, sorry, to 2030. In addition, depending on the outcome of the PSA, because the assumption is on a P50, if that is slightly higher than the P50, then there's a third opportunity as well that will contribute towards that FY 2030. At this stage, these are opportunities that are in our funnel that we're working hard on and on track in terms of meeting the different stage gates and ensuring that they're economically viable.
That's just a nutshell, in summary for where we are on gas. In terms of the good question that has been asked in terms of the BFP. What we've actually seen is that as our production was slightly lower in terms of our volume, in order to meet some of our obligations, we had to import. The import parity prices for the first half of the year were extremely higher than BFP. We've seen at some stage some of the cargos ranging between ZAR 0.80 and ZAR 1.50 above what we will get from a BFP perspective. That had a margin erosion on its own. At the same time as well, we have seen that some of our crude prices have been substantially high, particularly West Africa crudes.
They are coming slightly higher in terms of spread to what we've seen in the past. We have now reviewed our crude strategy and is trying to look at whether we can find partners to broaden our sourcing strategy and approach to be able to mitigate the resource. Our scale and capacity does not warrant prices that we can negotiate, especially during a high demand and supply period, where we're seeing that there are a lot of disruptions and increased demand for that West Africa crude. We are equally also continuously having discussions with our partners from a Saudi perspective to see how we can also reduce the spreads from that. Our hedging position as well has been increased to ensure that we cover ourselves for any uneventualities in terms of the macros. I hope that answers the question.
Financing.
Thanks. Can I jump on-?
Refinancing.
Just on the refinancing, I feel a bit like a card player that's been asked to show his complete hand, but I'm happy to show you some of my cards. As noted, the plan is certainly to lead with the renegotiation of our debt facilities. In terms of refinancing the dollar bond, plan A, as I've mentioned, is issuing a US dollar-denominated bond. We've got plan B, C, D, E, and the rest of the alphabet as well. In terms of the other options, certainly convertible bond ranks much lower. It's not a preferred option for us. I think, given the market conditions, as we noted last year, in the last financial year, it was only option available for us in terms of refinancing the 2022 debt maturity.
That remains an option, but certainly not preferred. Certainly as you highlight, another option is to refinance into rand. That would help us in terms of our longer term focus to reduce the dollar-denominated debt. Still to that point, we've got a total of $6 billion of dollar denominated bonds or and debt. That's about 97% of our total debt. The focus is to, over time, reduce that. The availability of and the depth of the South African rand bond market, availability of DMTN as an option and potentially use of cash would all flow into the consideration of such aspects. Thanks for that question.
Thank you. Thank you all, and thanks, Adrian, for the set of questions. Turning to a different slant slightly around our Sasol 2.0 initiatives and headcount related information disclosed this morning. Two questions from Herbert Kharivhe from Investec. Headcount has increased by 194, with mining accounting for about 190 of that. Is this part of the turnaround planned Fulco for mining? Did previous restructuring initiatives cut into the meat and the bones a little bit? The second question from Herbert: How does the headcount increase align with the Sasol 2.0 program?
Thank you, Herbert. That is a very key metric that we are looking at. As part of Sasol 2.0, we had a significant decrease from the 31,000 to the 28,000 people that we have as full-time employees. In terms of our Fulco justification at the time, it was required that we would increase headcount to man up for that 24/7 operations. As part of the Fulco program, we have employed around additional 1,100 people in that process. The number that you referred to there is part and parcel of our ramping up for the Fulco operations. We still need to then, on top of that, deliver the full business output from the Fulco justification. That means this full potential per section, per mine.
That means to get the productivity and volume output up so that it can pay for this additional FTEs that we had to employ, as well as that we need to also deliver on the mining committed Sasol 2.0 targets that will start to play into delivery towards 2025.
I think I've touched on it does align with Sasol 2.0. We had sight of it. We had the business case, it's part and parcel of the numbers that we look at.
Thank you. I think there's one last question on Chorus Call. Operator, could we please move to the caller online?
Thank you. The follow-up from Gerald Engelbrecht of Bernstein.
Thanks for the opportunity. I'm just sitting here and you're talking about production issues, and a very uncertain macro environment. You're de-gearing much slower than I would thought you anticipated. How do you think about the dividend? I mean, is it worth distributing money to shareholders via dividend in this very uncertain environment?
Thanks, Gerald, for that. I think in terms of our capital allocation framework, Gerald, the first allocation of capital, the first order is certainly just in terms of maintaining the business. As we outlined in that commitment, though, after we've applied cash back into sustaining and maintaining our business, it is to return the cash to shareholders. That's in the form of the interim and the final dividend. That is not under discussion. That's a firm commitment to shareholders. We've outlined the dividend cover of 2.8, stepping up to 2.5 times cover, in terms of de-gearing the balance sheet. I think that commitment remains firm, and we believe that we will continue to be able to de-gear the balance sheet even with this volatility.
I've gotta say, in terms of the six months that we've just experienced, I think there's been some concern around net debt levels increasing from $3.8 billion at the beginning of the period to $4.5 billion at the period end. One has to recognize that this is a pretty unique first half, given the full shutdown that we've had. In terms of the guidance of Synfuels, we've got 3.2 million tons in the first half. Full year guidance, of course, 6.6 million-6.9 million tons, up to 3.7 million tons in the second half. That has a significant impact on cash generation second half.
Of course, also the movement in net debt covers the payout of a full year dividend, so we distributed close to ZAR 10 billion in cash to shareholders. Also, the last bit of hangover from the hedging, that we did have to settle ZAR 8 billion of hedges losses that we incurred in the previous period. There is certainly some aspect that I think one just needs to clarify in terms of the movement in net debt. Certainly there's no question around our commitment to not only the base dividend but also in stepping up the dividend as we expect to see further de-gearing in the balance sheet.
Thank you, Hanré. I think one last question that we have online, which I think Priscilla has already given quite a lot of color on, but perhaps there's if you could just clarify. Do you have an update on the previously proposed LNG procurement? This comes from Siya Mbatha at Fairtree.
CEO, thank you. I think as we've indicated previously, we are continuing to work with partners to look at opportunities. At this stage, we still believe that for Sasol's own demand, we don't necessarily need LNG before 2028. We're also encouraged by the opportunities that were mentioned earlier that we're seeing in the South African market. Our ability to be able to understand how those will complement from a customer demand and how we support South Africa in terms of additional LNG from 2026 onwards is ongoing work. We are concerned, again, to reaffirm about the affordability issues that the customers have put forward and given the fact that this prices of LNG for customers will come at market-related pricing. Thank you.
Thank you. One last question perhaps for you, Hanré. Is there potential to look at a buyback as well as part of the returns to shareholders along with dividends from Chris Reddy?
Thanks, Chris, for that question. In terms of further returns to shareholders, definitely in terms of mechanisms to return further cash, other special dividends or buybacks would be considered, further than this, just the step up of the dividend, as I've mentioned, from 2.8 to 2.5 times cover. Definitely would be on the cards.
Thank you all. I think with that, we'll wrap up the session. There are no further questions online or via Chorus Call. On behalf of Sasol, we'd like to thank you once again for your participation today. We wish you a safe and wonderful day further. Thank you.
Thanks.
Thank you, everyone.