SEC Company Response from SASOL (SSL) — Sep 8, 2006
SASOL LTD
Date: Sept. 8, 2006 · CIK: 0000314590 · Accession: 0000947871-06-001513
AI Filing Summary & Sentiment
Referenced dates: April 13, 2006, August 9, 2006
Letter
Ms Jill S. Davis Branch Chief Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 September 8, 2006 Sasol Limited Form 20-F for the Fiscal Year Ended June 30, 2005 Filed October 26, 2005 File No. 1-31615
Dear Ms Davis
We refer to the Staff's comment letter dated August 9, 2006, relating to the Form 20-F of Sasol Limited (the "Company") for the fiscal year ended June 30, 2005 and our response letters dated April 13, 2006 and July 21, 2006. Set forth below in detail are the responses to the Staff's comments, which have been provided in each case following the text of the comment in the Staff's letter. The Staff is referred to the definitions contained in the Form 20-F for the fiscal year ended June 30, 2005.
1. We note your response to our prior comment number four, which indicates the Company expenses mine development cost incurred subsequent to the establishment of the main asset. Please tell us the nature of the development costs you are expensing as incurred. In addition, please tell us why you do not believe these mine development costs have future economic benefit.
Response -------- Underground mine development costs incurred after the main asset is ready for use, includes the installation and upgrade of underground infrastructure. Underground infrastructure includes conveyor systems (belting, structure, idlers and drives), power- and water reticulation, telemetrics, substations and dams or seals.
Due to the nature of the Company's mining activities continuous underground mine development costs are incurred when accessing new mining areas. These costs do have future economic benefit to the Company and should have been capitalized. The average expected useful life over which these development costs will provide future economic benefit is approximately five years.
<PAGE>
The effect on "earnings attributable to shareholders" has been provided in the table below:
<TABLE> <CAPTION> ---------------------------------------------------------------------------------------------------- 2005 2004 2003 (Rand in millions) ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Earnings attributable to shareholders as previously stated 9 787 5 358 7 344 Capitalization of underground development costs (reversal of costs expensed to the income statement) 79 57 74 Additional depreciation to be provided on the amounts capitalized (72) (70) (70) Taxation (2) 4 (1) ----------------------------- Earnings attributable to shareholders revised for the capitalization of underground development cost 9 792 5 349 7 347 ----------------------------- ---------------------------------------------------------------------------------------------------- </TABLE>
The effect on the financial position of the Company has been provided in the table below:
<TABLE> <CAPTION> ------------------------------------------------------------------------------------------- 2005 2004 (Rand in millions) ------------------------------------------------------------------------------------------- <S> <C> <C> Property, plant and equipment as previously stated 46 591 39 720 Accumulated capitalized underground development cost (net after accumulated depreciation) 141 134 -------------------- Property, plant and equipment revised for the capitalization of underground development costs 46 732 39 854 --------------------
Retained earnings as previously stated 44 011 37 080 After tax effect of the capitalization of underground development costs 99 94 -------------------- Retained earnings revised for the capitalization of under ground development costs 44 110 37 174 -------------------- ------------------------------------------------------------------------------------------- </TABLE>
The Company will amend its current accounting practice of primary geographical expansion where it is expected to have future economic benefit to the Company. The Company has considered the materiality of the accounting practice of expensing primary geographical expansion in accordance with SAB Topic 1:M. The net effect on "earnings attributable to shareholders" and the accumulated impact on the financial position of the Company is not considered material. The Company proposes to make the amendment prospectively in the financial statements for the 2006 financial year.
2. We note your response to prior comment five including proposed disclosure indicating your view that capitalization of around mine exploration costs is in accordance with U.S. GAAP. We are unable to agree with your conclusion. As previously indicated, it is unclear how the potential future economic benefits associated with these costs rise to the level of probability required under the U.S. GAAP to capitalize costs, as proven and probable reserves underlying those costs have not been established at the time the costs were incurred. We also refer you to the Division of Corporation Finance: Frequently Requested Accounting and Financial Reporting Interpretations and Guidance, March 31 2001; II Guidance About Disclosures; F.1. Issues in the Extractive Industries; which can be located on our website:
http://www.sec.gov/divisions/corpfin/guidance/cfactfaq.htm#P267_55290 ---------------------------------------------------------------------
Based on your response it appears that the effect of these costs, had they been expensed, would not have had a significant impact on net income in any given period, however, your response did not provide a materiality conclusion as to each period or address the accumulated capitalized cost effect regarding your statements of financial position. As
<PAGE>
previously requested please provide us with your materiality analysis and conclusions in accordance with SAB Topic 1:M. In the event you determine that the impact is immaterial please explain how you intend to monitor your accounting policy regarding the impact of these costs in future periods.
Response -------- The Company notes the guidance included in Division of Corporation Finance: Frequently Requested Accounting and Financing Reporting Interpretations and Guidance, March 31, 2001, II Guidance About Disclosure; F.1. The Company would like to clarify that it defines "around mine exploration costs" as costs incurred to explore the reserve formation of "producing mines or development properties". The reserve formation has already been the subject of a feasibility study that has determined that commercially minable deposits exist prior to these exploration costs being incurred. Exploration costs incurred to explore outside or around the commercially minable deposit for additional reserves are not capitalized.
Based on this definition of "around mine exploration costs", the company continues to believe that these exploration costs have future economic benefits as they relate only to exploring within a reserve formation that has been the subject of a feasibility study and determined to contain commercially minable deposits and thus are properly capitalized. The company includes materiality information as the Staff requested, but has not performed a materiality analysis based on the conclusion noted above.
<TABLE> <CAPTION> ---------------------------------------------------------------------------------------------------- 2005 2004 2003 (Rand in millions) ---------------------------------------------------------------------------------------------------- <S> <C> <C> <C> Earnings attributable to shareholders as previously stated 9 787 5 358 7 344 Expensing exploration costs previously capitalized (17) (23) (31) Reversal of depreciation provided on capitalized exploration costs 4 10 3 ----------------------------- Taxation 4 4 8 Earnings attributable to shareholders revised for expensing exploration costs 9 778 5 349 7 324 ----------------------------- ---------------------------------------------------------------------------------------------------- </TABLE>
<TABLE> <CAPTION> ------------------------------------------------------------------------------------------- 2005 2004 (Rand in millions) ------------------------------------------------------------------------------------------- <S> <C> <C> Property, plant and equipment as previously stated 46 591 39 720 Accumulated cost of capitalized exploration (net after accumulated amortization) (107) (94) -------------------- Property, plant and equipment revised for expensing exploration costs 46 484 39 626 --------------------
Retained earnings as previously stated 44 011 37 080 After tax effect of expensing exploration costs (76) (67) -------------------- Retained earnings revised for expensing exploration costs 43 935 37 013 -------------------- ------------------------------------------------------------------------------------------- </TABLE>
3. We note your response and proposed disclosure to prior comment three regarding the reasonably possible contingent loss with respect to the explosion at the Secunda West ethylene production facilities. Please expand your disclosure to more fully describe the nature of the contingent loss. Additionally, please expand your proposed disclosure to clarify how you have addressed your assessment using terms defined in paragraph 3 of SFAS 5 regarding the likelihood of loss.
<PAGE>
Response -------- The Company proposes to include the following disclosure in the Form 20-F for the fiscal year ended June 30, 2006:
"On September 1, 2004 the lives of ten employees and contractors were lost and a number of employees and contractors were injured during an explosion that occurred at our Secunda West ethylene production facility.
Since January 2006, the Company, Solidarity, the Chemical, Energy, Paper, Printing, Wood and Allied Workers' Union and an attorney representing the unions have been in negotiations to find a mechanism to pay compensation to the dependants of people that died or were physically injured in the accident to the extent that they had not been previously compensated in terms of existing policies and practices. It was agreed to establish an independent trust, the September 2004 Accident Trust, to expeditiously make ex gratia grants to persons who were physically injured in the September 1, 2004 explosion at our Secunda West ethylene production facilities and to the dependants of persons who died in that accident. The September 2004 Accident Trust was registered on 29 June 2006. Qualifying victims of the accident have been invited to submit applications for compensation. These grants will be calculated in accordance with the applicable South African legal principles for the harm and loss suffered by them as a result of the accident to the extent that they have not already been compensated.
The Company will fund the September 2004 Accident Trust to pay the ex gratia grants. Whilst accepting social responsibility, the Company has not acknowledged legal liability in creating the trust. As at June 30, 2006 it is believed that a loss contingency exists and that it is probable that the future claims will be received from the dependents of the deceased or from those physically injured and to whom ex gratia grants will be made. No accrual has been made as at June 30, 2006 as the amount of the loss cannot be reliably estimated. The future payments are dependent on the number of applications submitted to the Trust, the independent findings of each application and the calculation of the grants based on the applicable South African legal principles. It is believed that the possible loss is unlikely to exceed R20 million."
4. We note response indicating that you will amend future filings to disclose the recognized obligation and suggesting that the disclosure of a range of loss is not applicable. Please expand your disclosure on page 72 of your document to further describe the judgments and assumptions underlying and measurement of the liability. Refer to Interpretive Response to Question 5 of SAB Topic 5.Y
Show Raw Text
<DOCUMENT>
<TYPE>CORRESP
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>
Ms Jill S. Davis
Branch Chief
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
September 8, 2006
Sasol Limited Form 20-F for the Fiscal Year Ended June 30, 2005
Filed October 26, 2005
File No. 1-31615
Dear Ms Davis
We refer to the Staff's comment letter dated August 9, 2006, relating to the
Form 20-F of Sasol Limited (the "Company") for the fiscal year ended June 30,
2005 and our response letters dated April 13, 2006 and July 21, 2006. Set forth
below in detail are the responses to the Staff's comments, which have been
provided in each case following the text of the comment in the Staff's letter.
The Staff is referred to the definitions contained in the Form 20-F for the
fiscal year ended June 30, 2005.
1. We note your response to our prior comment number four, which indicates the
Company expenses mine development cost incurred subsequent to the
establishment of the main asset. Please tell us the nature of the
development costs you are expensing as incurred. In addition, please tell
us why you do not believe these mine development costs have future economic
benefit.
Response
--------
Underground mine development costs incurred after the main asset is ready
for use, includes the installation and upgrade of underground
infrastructure. Underground infrastructure includes conveyor systems
(belting, structure, idlers and drives), power- and water reticulation,
telemetrics, substations and dams or seals.
Due to the nature of the Company's mining activities continuous underground
mine development costs are incurred when accessing new mining areas. These
costs do have future economic benefit to the Company and should have been
capitalized. The average expected useful life over which these development
costs will provide future economic benefit is approximately five years.
<PAGE>
The effect on "earnings attributable to shareholders" has been provided in
the table below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
2005 2004 2003
(Rand in millions)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings attributable to shareholders as previously stated 9 787 5 358 7 344
Capitalization of underground development costs (reversal of
costs expensed to the income statement) 79 57 74
Additional depreciation to be provided on the amounts capitalized (72) (70) (70)
Taxation (2) 4 (1)
-----------------------------
Earnings attributable to shareholders revised for the capitalization
of underground development cost 9 792 5 349 7 347
-----------------------------
----------------------------------------------------------------------------------------------------
</TABLE>
The effect on the financial position of the Company has been provided in
the table below:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
2005 2004
(Rand in millions)
-------------------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment as previously stated 46 591 39 720
Accumulated capitalized underground development cost (net after
accumulated depreciation) 141 134
--------------------
Property, plant and equipment revised for the capitalization of
underground development costs 46 732 39 854
--------------------
Retained earnings as previously stated 44 011 37 080
After tax effect of the capitalization of underground development
costs 99 94
--------------------
Retained earnings revised for the capitalization of under ground
development costs 44 110 37 174
--------------------
-------------------------------------------------------------------------------------------
</TABLE>
The Company will amend its current accounting practice of primary
geographical expansion where it is expected to have future economic benefit
to the Company. The Company has considered the materiality of the
accounting practice of expensing primary geographical expansion in
accordance with SAB Topic 1:M. The net effect on "earnings attributable to
shareholders" and the accumulated impact on the financial position of the
Company is not considered material. The Company proposes to make the
amendment prospectively in the financial statements for the 2006 financial
year.
2. We note your response to prior comment five including proposed disclosure
indicating your view that capitalization of around mine exploration costs
is in accordance with U.S. GAAP. We are unable to agree with your
conclusion. As previously indicated, it is unclear how the potential future
economic benefits associated with these costs rise to the level of
probability required under the U.S. GAAP to capitalize costs, as proven and
probable reserves underlying those costs have not been established at the
time the costs were incurred. We also refer you to the Division of
Corporation Finance: Frequently Requested Accounting and Financial
Reporting Interpretations and Guidance, March 31 2001; II Guidance About
Disclosures; F.1. Issues in the Extractive Industries; which can be located
on our website:
http://www.sec.gov/divisions/corpfin/guidance/cfactfaq.htm#P267_55290
---------------------------------------------------------------------
Based on your response it appears that the effect of these costs, had they
been expensed, would not have had a significant impact on net income in any
given period, however, your response did not provide a materiality
conclusion as to each period or address the accumulated capitalized cost
effect regarding your statements of financial position. As
<PAGE>
previously requested please provide us with your materiality analysis and
conclusions in accordance with SAB Topic 1:M. In the event you determine
that the impact is immaterial please explain how you intend to monitor your
accounting policy regarding the impact of these costs in future periods.
Response
--------
The Company notes the guidance included in Division of Corporation Finance:
Frequently Requested Accounting and Financing Reporting Interpretations and
Guidance, March 31, 2001, II Guidance About Disclosure; F.1. The Company
would like to clarify that it defines "around mine exploration costs" as
costs incurred to explore the reserve formation of "producing mines or
development properties". The reserve formation has already been the subject
of a feasibility study that has determined that commercially minable
deposits exist prior to these exploration costs being incurred. Exploration
costs incurred to explore outside or around the commercially minable
deposit for additional reserves are not capitalized.
Based on this definition of "around mine exploration costs", the company
continues to believe that these exploration costs have future economic
benefits as they relate only to exploring within a reserve formation that
has been the subject of a feasibility study and determined to contain
commercially minable deposits and thus are properly capitalized. The
company includes materiality information as the Staff requested, but has
not performed a materiality analysis based on the conclusion noted above.
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
2005 2004 2003
(Rand in millions)
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earnings attributable to shareholders as previously stated 9 787 5 358 7 344
Expensing exploration costs previously capitalized (17) (23) (31)
Reversal of depreciation provided on capitalized exploration
costs 4 10 3
-----------------------------
Taxation 4 4 8
Earnings attributable to shareholders revised for expensing
exploration costs 9 778 5 349 7 324
-----------------------------
----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
2005 2004
(Rand in millions)
-------------------------------------------------------------------------------------------
<S> <C> <C>
Property, plant and equipment as previously stated 46 591 39 720
Accumulated cost of capitalized exploration (net after
accumulated amortization) (107) (94)
--------------------
Property, plant and equipment revised for expensing exploration
costs 46 484 39 626
--------------------
Retained earnings as previously stated 44 011 37 080
After tax effect of expensing exploration costs (76) (67)
--------------------
Retained earnings revised for expensing exploration costs 43 935 37 013
--------------------
-------------------------------------------------------------------------------------------
</TABLE>
3. We note your response and proposed disclosure to prior comment three
regarding the reasonably possible contingent loss with respect to the
explosion at the Secunda West ethylene production facilities. Please expand
your disclosure to more fully describe the nature of the contingent loss.
Additionally, please expand your proposed disclosure to clarify how you
have addressed your assessment using terms defined in paragraph 3 of SFAS 5
regarding the likelihood of loss.
<PAGE>
Response
--------
The Company proposes to include the following disclosure in the Form 20-F
for the fiscal year ended June 30, 2006:
"On September 1, 2004 the lives of ten employees and contractors were
lost and a number of employees and contractors were injured during an
explosion that occurred at our Secunda West ethylene production facility.
Since January 2006, the Company, Solidarity, the Chemical, Energy,
Paper, Printing, Wood and Allied Workers' Union and an attorney
representing the unions have been in negotiations to find a mechanism to
pay compensation to the dependants of people that died or were physically
injured in the accident to the extent that they had not been previously
compensated in terms of existing policies and practices. It was agreed to
establish an independent trust, the September 2004 Accident Trust, to
expeditiously make ex gratia grants to persons who were physically injured
in the September 1, 2004 explosion at our Secunda West ethylene production
facilities and to the dependants of persons who died in that accident. The
September 2004 Accident Trust was registered on 29 June 2006. Qualifying
victims of the accident have been invited to submit applications for
compensation. These grants will be calculated in accordance with the
applicable South African legal principles for the harm and loss suffered by
them as a result of the accident to the extent that they have not already
been compensated.
The Company will fund the September 2004 Accident Trust to pay the ex
gratia grants. Whilst accepting social responsibility, the Company has not
acknowledged legal liability in creating the trust. As at June 30, 2006 it
is believed that a loss contingency exists and that it is probable that the
future claims will be received from the dependents of the deceased or from
those physically injured and to whom ex gratia grants will be made. No
accrual has been made as at June 30, 2006 as the amount of the loss cannot
be reliably estimated. The future payments are dependent on the number of
applications submitted to the Trust, the independent findings of each
application and the calculation of the grants based on the applicable South
African legal principles. It is believed that the possible loss is unlikely
to exceed R20 million."
4. We note response indicating that you will amend future filings to disclose
the recognized obligation and suggesting that the disclosure of a range of
loss is not applicable. Please expand your disclosure on page 72 of your
document to further describe the judgments and assumptions underlying and
measurement of the liability. Refer to Interpretive Response to Question 5
of SAB Topic 5.Y