Methanex's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Methanex Corp. (MEOH)

Q2 2012 Earnings Call

July 26, 2012 12:00 pm ET


Jason Chesko - Director, IR

Bruce Aitken - President & CEO

Ian Cameron - SVP & CFO

Michael MacDonald - SVP, Global Operations

John Floren - SVP, Global Marketing and Logistics


Jacob Bout - CIBC

Ben Isaacson - Scotiabank

Bert Powell - BMO Capital Markets

Hassan Ahmed - Alembic Global

Steve Hansen - Raymond James

Robert Kwan - RBC Capital

Paul D'Amico - TD Securities

Charles Neivert - Dahlman Rose



Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation second quarter results conference call. As a reminder, this call is being recorded on Thursday, July 26, 2012. I would like to turn the meeting 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.

We expect this will make our analysis of our results more straightforward and for consistency 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

Good. Thank you Jason, and good morning, everyone, and welcome to our second quarter investor conference call. I have got a number of colleagues with me here in the room, and they will be available to answer questions a little later on.

I will first give some comments on our second quarter results. We reported adjusted EBITDA of $113 million which is a 22% improvement over the last quarter. Adjusted net income was $44 million or $0.44 per share. The average realized price in Q2 was similar to Q1. However, we achieved higher production in produced methanol sales and lower logistics cost and these factors drove the higher EBITDA.

With the recent start up of our second plant in New Zealand, we now have annual operating capacity of over 5 million tonnes and our cash generation capability has improved. I will be commenting more on the expectations for the third quarter and the industry impressing outlook a little later in the call, but before I do that I will make some comments regarding our operations for the quarter.

In Trinidad, our plants operated at 90% capacity and produced about 460,000 tons of methanol. As I've mentioned on previous occasions, we and other downstream users in Trinidad have continued to experience some gas curtailments as a result of supply disruptions from upstream gas producers.

We are engaged with key stakeholders to find a solution to this issue, however at least during the next quarter we expect to continue to see some shortfalls in gas supply as we understand there are more outages planned by upstream producers.

In New Zealand, the Motunui plant operated at full operating rate and produced 210,000 tons in the second quarter.

The restart of the second plant in Motunui plant was completed on schedule at the beginning of July. I will comment more on the restart and the further initiatives to increase production in New Zealand again later on the call.

In Chile, we operated one plant at low operating rates and produced 82,000 tonnes. We have received reduced volumes of natural gas over the past quarter as we were in the southern Hemisphere winter and residential gas demand in that area is at its peak.

We’re planning a maintenance outage in August and expect to receive larger quantities of gas after this turnaround is complete. I will comment on the outlook for Chile in just a few moments also.

In Egypt, the plant operated at 86% during the quarter and produced 164,000 tonnes based on our 60% interest. The plant was shut down late in the second quarter to complete plant maintenance and inspection activities. In addition, we experienced some natural gas curtailments, as a result of outages at upstream platforms and strong seasonal domestic demand for natural gas for electricity generation.

The plant is currently operating at about 70% and we expect to be back consistently operating at full rates in the coming months. Finally our plant in Medicine Hat, Alberta operated at full capacity and produced 118,000 tons in Q2.

In the current pricing environment for natural gas in North America, Medicine Hat is a particularly valuable asset and we're working on a debottleneck of that plant that will see capacity increase by about 20%.

Turning now to industry conditions. While softness in some derivatives in the current economic environment, overall global methanol demand has remained good and current indications are for relatively stable demand in the third quarter.

They have continued to be a significant number of planned and unplanned outages, affecting methanol supply across the industry and Iran sanctions have continued to negatively impact the level of production in that country.

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