A Modest Position in Sasol Is Attractive as an Income Investment

| About: Sasol Limited (SSL)

The United States has been referred to as the "Saudi Arabia" of coal because of the extensive deposits here. China, another vociferous consumer of energy, is also endowed with vast coal reserves. In fact, coal is found all over the world in substantial quantities.....much more so than oil.

Of course, the use of coal as an energy source is not without problems. First, the amount of energy in each unit of coal is substantially less than is found in oil. Secondly, as mined, coal doesn't lend itself for use as a transport fuel (unless somebody's planning on bringing out an up-dated version of the Stanley Steamer, anyway). Finally, out of all of the carbon-based energy sources, coal is typically the "dirtiest", although there is a fairly wide variance in the output of pollutants - such as sulfur - between the various types and grades of coal.

Which brings me to Sasol, Ltd. (NYSE:SSL), a South African integrated oil company whose ADRs trade on the NYSE under the ticker SSL. Using the Fisher-Tropsch indirect liquefaction C-T-L (coal to liquids) process developed in Germany during the 1920's, Sasol converts South African coal into a variety of fuels, as well as chemical feedstocks for the petrochemical industry.

Sasol was founded in 1950, and has been producing CTL fuels since 1955. They even produce fuel that's approved for use in commercial aircraft. Currently, roughly 30% of South Africa's gasoline and diesel needs are produced by SSL using this process.

Using a modification of the same process, Sasol has also moved into G-T-L production (gas to liquids). The G-T-L process allows for the production of liquids including naptha, diesel, and chemical feedstocks. In 2009, Sasol signed a joint venture agreement with Uzbekneftegaz in Uzbekistan to establish a G-T-L facility there.

Sasol already has an operational G-T-L plant in Qatar, and is in the midst of design and feasibilty studies of a C-T-L plant in China. SSL has an operational footprint in over 30 countries.

Although SSL closed yesterday (1-24-11) at 51.65, close to its 52 week high of 52.55, it still is yielding 4.30%, according to Yahoo Finance, making it attractive to income-oriented investors, as well. At this price, Morningstar gives it a 3 star rating. While I certainly wouldn't suggest that an investor looking to build an oil/energy sleeve in the portfolio using SSL in lieu of XOM, or COP, or one of the other international majors, I think that a modest position might well provide a pleasant surprise, especially if one waited a bit for weakness.


Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.