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Gold/Mining/Energy : Gasification Technologies

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To: Dennis Roth who wrote (1620)	6/9/2011 8:56:17 AM
From: Dennis Roth	of 1740

Credit Suisse initiates coverage of Sasol with an Outperform rating and a target price of ZAR457 Sasol Limited (SOLJ.J) (SSL - NYSE) INITIATION A potential play on gas/oil price disparity 32 pages, 34 figures Download Link: sendspace.com first page: We initiate coverage of Sasol with an Outperform rating and a target price of ZAR457, 32% above the current share price. We believe Sasol represents a strong combination of short- and long-term opportunities. Investment case: Sasol looks well positioned to leverage the price difference between low gas prices in the US (which we believe is sustainable) and high oil prices through its proprietary gas-to-liquids (GTL) technology. We believe the announced acquisition of shale gas assets in Canada and a potential joint venture with Talisman Energy to build a GTL plant in Canada should pave the way for a successful introduction of Sasol’s technology to North America. Longer term, we believe a successful exploration of shale gas opportunities in South Africa, whose recoverable shale gas reserves are estimated by the US Department of Energy at 485tcf, is key. Sasol’s GTL technology is, in our view, the easiest way to monetise these assets at the company’s existing facility. Furthermore, Sasol’s shares have underperformed Brent by 20% YTD, and with a 92% historical correlation over the past five years between Sasol’s share price and oil prices, we believe this creates scope for possible short- term arbitrage. Catalysts: News on the progress of the feasibility study for a GTL plant in Canada and first results of the shale gas exploration in South Africa. Valuation: Our DCF-derived TP of ZAR457 is based on a WACC of 11% and a terminal growth rate of 2%. Our TP suggests 32% upside potential from current levels. At our TP, Sasol would be trading at 10x 2012E earnings, which we believe is fair in the current oil price environment. We are 10% above consensus 2011E EPS and 15% above 2012E consensus EPS. ==== Disclosure: I've been long SSL for a long time.

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