Methanex Corporation (MEOH)

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Methanex Corporation (MEOH)

Q3 2012 Earnings Conference Call

October 25, 2012 12:00 PM ET


Bruce Aitken – President and CEO

John Floren – SVP, Global Marketing and Logistics

Michael MacDonald - SVP, Global Operations

Jason Chesko – Director, Investor Relations


Jacob Bout – CIBC

Rob Walker – Jefferies

Hassan Ahmed – Alembic Global

Paul D’Amico – TD Securities

Robert Kwan – RBC Capital

Ben Isaacson – Scotiabank

Gregg Hillman – First Wilshire Securities

Rosh Quesboni[ph] - Raymond James

Bert Powell – BMO Capital Markets

Winfried Fruehauf – W Fruehauf Consulting



Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation third quarter results conference call. As a reminder, this call is being recorded on Thursday October 25, 2012.

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. 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 ND&A and 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 and charges related to the 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'd now like to turn the call over to Methanex' President and CEO, Mr. Bruce Aitken, for his comments.

Bruce Aitken

Great, thank you Jason and good morning to everyone, and welcome to our third quarter investor conference call. I have got a number of colleagues with me here in the room, and they will be here to help answer questions a little later.

We reported adjusted EBITDA of $104 million and adjusted net income of $36 million or $0.38 per share. EBITDA was slightly lower in Q2 since the average realized price in Q3 reduced by about $11 per ton. Cells of producing methanol were up slightly at the last quarter, as we benefited from higher production from our second plant in New Zealand. However, this was offset by lower production from Egypt.

While I would characterize the third quarter results as okay, I don’t think they’re a good reflection of the earnings capability of the company. We sold a little over a million tonnes of Methanex-produced methanol in Q3. However, today we have capacity to produce and sell $1.3 million tonnes of our own production on a quarterly basis. I think the issues impacting our current production causing these differences are short term and I expect we should be able to post significantly better production and earnings in the near future. And with the several initiatives we have in place to increase capacity, we’ve significantly more upside potential to our earnings over the next few years. I’ll be commenting more on the expectations for Q4 and the industry and pricing outlook a bit later in the call. But, before I do that, I’ll make some comments regarding our operations during the quarter.

In Trinidad, our plants operated at 86% capacity and produced 441,000 tonnes of methanol. Gas curtailments continued to impact our Trinidad operations in the third quarter and we’ve lost some production as a result of maintenance outages. For the last couple of months, two large natural gas platforms have been undergoing maintenance. We’ve used this as an opportunity to take down the Atlas plant and perform some repairs. We expect the plant to restart in early November which should acquaint to that 85,000 tonnes of lost production in Q4, based on our 63% equity position.

As I’ve mentioned on previous occasions, we are engaged with key stakeholders to find a solution for the gas curtailment issued in Trinidad. We understand that the major platform repairs that commence in September and now substantially complete and we would expect this to lead to improve the gas delivered reliability in coming quarters.

In New Zealand, the second Motunui plant started at the beginning of the quarter, and both plants operated well in Q3 and produced 346,000 tonnes of methanol. The Motunui site now has capacities produced at an annualized rate of $1.5 million tonnes and we had a measurement in place to increase production further in New Zealand, which I’ll comment on later on the call.

In Chile, we continue to operate one plant at low rates and produce 59,000 tonnes. The short term outlook for natural gas in Chile continues to look challenging and I’ll also comment more on this in just a few moments. Egypt plant produces 62,000 tonnes during the quarter based on that 60% interest. The plant was down in the first couple of weeks of Q3 to complete plant maintenance and inspection activities during the remainder of the quarter, natural gas constraints impacted our operations and the operations of other industrial users in Egypt.

Our observation is that ongoing uncertainty in the country has prompted many changes within key ministries and this environment, a lack of timely decision making has led to short term issues in many parts of the economy, including energy infrastructure. With respect for the gas grid, maintenance issues have temporarily reduced deliverability at a time of incremental electrical demand associated with hot summer weather. These factors have led to a rapid gas supply from the grid. Egypt plant is currently operating at about 70% capacity, and while it’s difficult to provide certainty on the near term outlook, we are expecting gas deliveries to improve.

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