Methanex Corporation (MEOH)
Q4 2012 Earnings Call
January 31, 2013, 12:00 pm ET
Executives
Jason Chesko - Director, IR
John Floren - President & CEO
Michael MacDonald - SVP, Global Operations
Ian Cameron - SVP, Corporate Development & CFO
Analysts
Jacob Bout - CIBC World Markets
Steve Hansen - Raymond James
Shawn Siddiqui - Scotiabank
Laurence Alexander - Jefferies
Robert Kwan - RBC Capital Markets
Hassan Ahmed - Alembic Global
Paul D'Amico - TD Securities
Ben Isaacson - Scotiabank
Winfried Fruehauf - W Fruehauf Consulting
Max Salk - PPM America
Peter Butler - Glen Hill Investment
Kunal Banerjee - Brigade Capital
Charles Neivert - Dahlman Rose
Presentation
Operator
Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Fourth Quarter Results Conference Call. As a reminder, this call is being recorded on Thursday, January 31, 2013. I would now like to turn the conference call over to Mr. Jason Chesko, Director of Investor Relations. Please go ahead Mr. Chesko.
Jason Chesko
Good morning, ladies and gentlemen. Our 2012 fourth quarter report along with presentation slides summarizing the Q4 results can be accessed at our website, www.methanex.com. I would like to remind our listeners that our comments and answers to your questions today may contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcome. Certain material factors or assumptions were applied in drawing the conclusions or making the forecast or projections which are included in the forward-looking information. Please refer to our latest MD&A to our 2011 annual report for more information.
For clarification any references to EBITDA, cash flow or income made in today's remarks reflect our 60% economic interest in the Egypt project. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on share-based compensation and expenses, impairment charges related to our Chile assets and charges related to Louisiana project. We report our results in this way to make a better measure of underlying operating performance and we encourage analysts covering the company to report the results in this manner.
I would now like to turn the call over to Methanex’s President and CEO, Mr. John Floren, for his comments and a question-and-answer period.
John Floren
Thanks Jason and good morning everybody. As you have seen from our results, we delivered a very strong quarter with EBITDA up about 14% from a $104 million to $119 million. Few comments on the market, in 2012, demand grew in the industry; if we exclude the integrated MTO projects by about 3 million tons; with this kind of demand growth the industry would need two to three world scale plants per year just to keep even.
The current markets are relatively snug. We continue to see supply side issues with the operating rates at number of plants lower than expected. This has led to a higher price environment with the Atlantic Basin having a premium of around $60 over the Pacific Basin. By this time, usually when you see these kinds of basin imbalances, you expect the pricing to normalize; we haven't seen that yet. We don't expect to see that in the coming months.
Demand remained solid. I think you will know the Ningbo MTO project is in the process of starting up at full rates. It’s consuming about 5000 tons of methanol per day. There is another project later in the year in the Nanjing area which will consume about 1 million tons of methanol a year at full rates.
Fuel blending continues to grow. Its growing in China and outside China. Israel recently announced trials on methanol 15% blends in gasoline. In addition to gasoline blending, we are seeing methanol now being used in other energy applications. Stena announced recently they plan to convert 25 ships to run on methanol by 2018. So long-term, the industry outlook is very positive with solid demand growth in very limited supply over the coming years.
Just switching to our operations; our plants operated very well in the quarter. We had our highest level of production since 2007 and as you know, we're looking to increase our production capacity by 60% or 3 million tons over the next few years. We are making great progress on our Geismar relocation. This plant will service our North American customers with added production in North America. You noted that we recently signed a 10-year gas deal with Chesapeake underpinning this project. Right now, the project is on time and on budget and we plan to have the first shipment of equipment from Chile in the May-June period of this year.
We will make a decision on relocating a second Chile plant during the first half of this year. We are currently doing some work and spending some money to understand the capital cost. Currently, we believe it will be around $75 million to $100 million less than the first one, but we're doing some work to clarify that number.
You will note that in the December of last year, we had a bond financing and we increased our credit limit and we believe this moves along with our solid balance sheet and liquidity will allow us to move both plants from Chile to Geismar using our existing balance sheet and cash flow.
In New Zealand, we plan to be operating at a rate of around 2.2 million tons by the end of this year. Current operating rate is about 1.5 million tons. In order to get to 2 million tons, we plan to spend about a $130 million in capital and prior to making the investment in the Waitara Valley site we certainly would want to have another gas contract which we believe we are close to settling on and should have something to announce in the coming quarter. In addition, we have an opportunity to secure high CO2 gas in New Zealand and we believe we can add additional capacity in New Zealand by about 200,000 tons by mid-2014 by securing this high CO2 gas.
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