Methanex Corp (MEOH) 2002 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Fourth Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. Later we will conduct a question and answer session. As a reminder this call is being recorded on Tuesday, January 28, 2003.

I would now like to turn the conference call over to Chris Cook, manager, investor relations. Please go ahead sir.

Thank you, Erica. Before we begin today I would like to take this opportunity to remind listeners that our comments and answers to your questions 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 stated outcome. So please refer to the bottom of our latest news release and to our 2001 annual report for more information.

I would now like to turn the call over to our President and CEO, Mr. Pierre Choquette.

Thank you, Chris. Good morning and good afternoon to all of you who are with us. What I would like to do today is give an overview first and then I will talk specifically about the quarter, Q4, and about strategic initiatives and then close with some comments on the outlook.

Before I comment on the specifics of the fourth quarter, just a review of the fundamental drivers which impact our financial results. I have focused on this in the last few conference calls because I think it is so important.

We have been very consistent in saying nothing impacts our business more positively than good supply-demand dynamics. For the past few years, we at Methanex have maintained that we could see a likely period of high-capacity utilization which normally means above-average pricing for our product.

I am really proud of the fact that we have now delivered three consecutive years of strong operating results. It is a period where we saw steady improvements and capacity utilization, and where our realized prices averaged just over $160 a ton, which happens to be close or a little bit above historical averages.

I would just like to quote some numbers for that period. During the three year period, our income -- and this is before unusual items -- was $340m. EBITDA was $813m. That of course resulted in substantial excess cash flow, and we used over $300m of this excess cash to reduce our shares outstanding from about 173m shares to a level today of 126m shares.

We also instituted a quarterly dividend, and we still closed 2002 with a cash balance of about $420m, an absolutely superb financial flexibility. The track record of our management is very clear. Since 1994, just looking at a longer period now, we have generated cash from operations of about $2.3b. We have reinvested $1.3b to improve the quality of our business. And we have returned over $650m to our owners. We have done this in the form of share repurchases primarily, and more recently dividends.

A point I want to emphasis; time after time, in spite of our superb cash flow, even with our superb cash generation capabilities, we have no intention to diversify or to make acquisitions outside of the methanol business. Excess cash that we generate, that we have generated in the past will continue to be for our owners, our shareholders.

The special dividend of 25 cents per share that we declared yesterday is another demonstration of this commitment. This, of course, is in addition to the regular quarterly dividend that we instituted in the middle of last year and that our board will continue to look at in a normal course of business.

If we look now at the period ahead of us, the next three years, 2003-2005, we continue to feel optimistic. I should say very optimistic about the fundamentals of supply and demand. We have an important global presence. That allows us to develop really good market intelligence about the supply side of the business.

Our involvement in all the major geographies and the fact that we deal directly with our customers also gives us confidence on our estimates of demand. You saw that we made an announcement about an exclusive supply arrangement with Lyondell Chemical along with the agreement to purchase their customer list. That is another example of the privileged position we have achieved in understanding the dynamics of supply and demand that impact our industry.

At the bottom line of all of these comments, based on our own knowledge of supply and demand and our estimates of supply and demand, we are continuing to plan for capacity utilization rates for the industry for the next few years that will be above any level, any level delivered by our industry in the past 15 years, and certainly improvements over where we have been in the recent two years. So that is good for methanol pricing, we think, and it is good for Methanex.

I think these comments are important because we are a commodity business. It is all about supply and demand and we feel really good about this environment. Now I would like to turn to specific comments about the fourth quarter.

We were very pleased with the results for the quarter. Income of over $55m; EBITDA just under $100m at $99m; cash flow from operations at $92m. All of these were in line with our own expectations for the quarter.

We had said in our October conference call that we expected a small improvement in pricing and that didn’t materialize. We thought that would be offset somewhat by cost increases, primarily due to gas costs. That also materialized during the quarter. There was really only one change to our own expectation, and that is we had anticipated an increase in our sales coming from our own production. In fact, we purchased more product from third parties than we had originally expected, and that we sold roughly about 71,000 tons less of produced product.

So while this impacted operating income negatively by about $7m compared to the third quarter, from our perspective we saw a need and an opportunity to replenish our inventories and we wanted to take advantage of that. We will go specifically to some highlights for the quarter on the different headings.

On the revenue side, overall sales volume was quite steady at 1.8m tons. That is where we have been for a few quarters. The mix of our sales hasn’t changed very much. We continue to -- the Americas represent about 40 percent of our volume. Asia, a little bit over 30 percent. Europe, a little bit under 30 percent. That is where we were the fourth quarter and pretty well the same for the total year of 2002.

In terms of pricing, our realized price has increased from $182 per ton to $188 per ton for the quarter.

On the cost side, I mentioned this already, but they were higher in Q4 than in Q3 and that was primarily because of gas costs and a little bit because of the sales mix. We continue to see improvement in logistics costs. I have emphasized this over the last few conference calls. On an annual basis we think that we have achieved reductions of about $25m and we believe that is sustainable.

I want to mention as well that for the year, for the total year 2002, our [plant gate] cash costs were the lowest in our history, so we continue to bring continuous improvement to how we operate our business. That leads me to a comment on operating performance. Excellent for the quarter with the exception of a planned maintenance turnaround in New Zealand, that is one of the three units there. Our plants operated at capacity and that continues through January. So again, a track record of very high on-stream time and reliability.

Just moving to cash and cash flow. I mentioned already that cash flow was strong from operations at $92m for the quarter. A very important event for us during the quarter was the completion of the project financing for the Atlas project in Trinidad. The amount for 100 percent of the project for financing was $237m and that represents approximately 60 percent leverage.

That of course impacted our liquidity and cash balances. At year-end we had $421m of cash and we still had undrawn credit facilities of $291m. In terms of looking at our cash requirements, just mention first on the maintenance capital side we have an eight-year maintenance capital budget that we update on a regular basis. When we look at that through the end of 2005, so for the three-year period in total maintenance capital is about $80m. It is reasonably even on an annual basis.

Switching to strategic initiatives, we currently have three approved strategic initiatives. The first is the acquisition of the methanol customer contracts from Lyondell Chemical which we announced recently. That will be effective January 1st. We will be making a $10m payment for that.

We have to complete the Atlas project in Trinidad. That is a capacity of 1.7m tons which we still think will be on-stream in early 2004. At the end of 2002 we still have $45m to go on this project.

The third is the construction of a fourth plant in Chile with a capacity of 840,000 tons. This is planned to come on stream in early 2005. Again, at the end of 2002 the remaining commitments for that project were $218m.

So if you add all this up, you will see that the equity required to fund these three initiatives is approximately $275m. That was at the end of the year. This is in addition to the $80m that I mentioned earlier to maintain our facilities. That should allow you to have a pretty good feel for the equity required to complete our capital projects.

When you look at that and our liquidity, we are clearly in a superb financial condition to complete these projects, develop additional strategic opportunity such as Australia and of course in the current environment, still be left with excess cash for our owners.

Switch to the outlook. I said this a couple of times already, but as we enter 2003 the supply and demand balance and methanol pricing environment is very favorable for Methanex. We are already seeing upward movement in pricing; that is a result of a balanced market. Of course, that has been compounded by the supply disruption in Venezuela. Venezuela is about 1.5m tons of capacity, so when you withdraw 5 percent of the world’s demand for methanol that has an impact in the short term.

In January the published non-discounted North American prices were increased by a little bit over $20 per ton. European prices by a similar amount. The trend in Asia is identical. Of course stock prices are currently well above these contract levels.

Offsetting these major positives, we continue to face uncertainty regarding the availability of natural gas for our plants in New Zealand. We have yet to receive the final report from the independent expert that was appointed to assess the remaining gas reserves in the Maui gas field, and that is our main source of gas supply in New Zealand. Frankly, in the absence of this report, we don’t have much to add. We have nothing to add, really, to our December conference call comments. Those were that if the preliminary findings prevail, we will in the short term lose substantial production capacity in New Zealand. I said in December that from an operating perspective this would be a difficult but manageable situation.

I also said that from a financial perspective, if the original findings prevail, we believe and continue to believe that the tightening of supply and demand would be a huge impact on the global market that is already balanced. We believe from a financial point of view that would likely result in price increases that could offset the lose in cash flow from the loss of production in New Zealand.

That uncertainty in New Zealand makes it a little bit more difficult to look at the first quarter financials, but I would still like to make the following comments that would be appropriate. At this point in time we certainly expect a substantial improvement in our realized prices compared to the fourth quarter. In order of the magnitude of $20 a ton would not be unreasonable. We also expect further increases in our cash costs. That is simply due to what has happened to natural gas costs in North America.

Also, we would see an increase in Chile. The order of magnitude of these increases we think are about $10m in total. I remind you that the Chile gas costs escalate in periods of substantial or sustained high methanol prices.

Finally, we would see lower sales of produced volume in the order of magnitude of 50,000 to 60,000 tons, assuming -- and I emphasis assuming -- that we have reductions in production in New Zealand in February and March.

So when you put all of these together our conclusion would be that we expect an improvement in the first quarter, both in EBITDA and income compared to the last two quarters of 2002.

Let me close with a few points. I certainly feel that in spite of the uncertainties we are entering 2003 with just sound industry fundamentals, superb cash generation potential and strategic initiatives that will see us continue to improve the quality of our business.

We have a very clear map forward. We remain absolutely focused on building our leadership in methanol. We are not interested in anything else. We are focused on a simple strategy. Low cost, global positioning, operating excellence and our focus is on execution.

Finally, we are focused on finding optimum ways of returning cash to our owners. Of course we have to have appropriate regard for our strategic needs and the short-term limitations of our debt covenants. As an example, the institution of the regular dividend last year and our announcement yesterday of a special dividend in addition to the regular dividends are examples of this commitment. We will now take your questions.

Mr. Bob Hastings, Raymond James Equity Research. Please go ahead.

Thank you very much. Pierre, maybe just two quick questions. One is the special dividend of 25 cents. Maybe you could give us your thinking behind that particular amount, and whether if this continues, the strong supply and demand and better earnings continue, whether you would be seeing special dividends quarterly as the excess cash comes in?

Thank you, Bob and good morning. Just to use a bit of humour, of course, the 25 cent dividend is being paid on February 14. It is just a valentine’s present to our shareholders because we love them. Maybe we will send a card with the dividend payment.

On a serious note, just to get to your point, because I think it is an important one. Why now, why the amount? We have made a commitment to our board and I have made the commitment more generally, I think in conference calls, that we have excess cash. With our board, we have decided that from time to time we built a cash flow model that we will review with them. That cash flow model looks at two things. It looks at, given the strategic projects that -- first of all, look at the cash balance that we have today; the bank lines that we have; the timing of the renewal of the bank lines; then we look at the strategic projects and I gave you some numbers on that. The ones that are approved and others we are contemplating.

We have basically come to the conclusion whether or not we have excess cash to fund all of these projects today. Never mind cash we might generate in the future, but today. So we looked at that.

We also looked at our covenants on debt, specifically the 2005 bonds which say that we cannot make distributions that will take our book equity below 850. Then we try to make a judgement as to whether or not we do indeed have excess cash flow. We don’t try to be too precise in the arithmetic, and one should not judge that if we pay a 25 cent dividend that that happens to represent the excess cash flow that we have today. We just have to think that at this point in time we are very comfortable returning to our shareholders this amount. We will continue to look at it from time to time, and depending on where we are in terms of projects, things like Australia, the possibility of looking at the plant in Trinidad and other things we are looking at in methanol, we will just make proposals to our board as to what makes sense.

The second point, of course, is we have a track record of buying back stock. So an important point for us is to try to find a balance between, does it make more sense to buy back shares or does it make more sense to pay a dividend? I have to say that in terms of buying back stock, we felt quite comfortable when we did a major -- I actually forget the technical term for it -- but the substantial repurchase, that seemed to impact the market positively so we will continue to look for these opportunities. That will be a function of where is the stock in relationship to what we think it is worth, and look at that versus dividends.

I hope I covered it in a general basis, but we will look at this on a regular basis. It doesn’t mean that we will look at it on a quarterly basis, we will look at it on a regular basis. We have a commitment to operate with a balance sheet that is more efficient. So you take all these comments in the right context, you should see us continuing to look at excess cash and returning it to the owners as opposed to just staying with it.

So just on that then, you mentioned Australia, And [Piton] and Australia, you were looking at previously, and we haven’t seen a decision there yet. Does this mean if you were – first of all, when might you decide on Australia? Secondly, when you make that decision, would that automatically limit your ability to pay the special dividends then?

Well I will talk about Australia specifically. I can’t remember exactly the comments I made in the past, but it is a very key project to underpin our position in Asia. I mean, Asia is the fastest growing market that we serve. Of course, we have always looked at additional capacity. Now it is even more important given the uncertainty about New Zealand.

If there is one concern about Australia, it is that the capital cost is quite high in dollars. Not in dollars per ton, but in total dollars. When the economics are superb, cash costs would be the best in the industry, you know the returns are acceptable, but it is a big chunk of capital.

So we have been looking at, what is the best alternative to execute this? Should we do it with a partner, what kind of partner should we have and if we have to execute it on our own, what is the risk and what is the optimum timing? We are still working our way through that.

We would prefer to be in a position where executing the Australia project still leaves us with substantial excess cash, I can assure you that when we contemplate executing it with a partner, say a 40 percent partner, that would mean that we could execute all of these projects and over the next three years still have substantial excess cash to return to our owners. When I mean substantial, I mean very substantial. Does that answer your question, Bob? Operator?

Can you hear me?

Yes, I can hear you now.

Okay. Is there a decision date on that, for Australia?

Not at this point. We had certain requirements under our gas contracts that we needed to go back to the sellers to say that we couldn’t meet the year-end 2002 date before coming to a final investment decision, so we would like to -- we need a little bit more time. That is what we are doing right now.

Okay, thank you. I will stop monopolizing the call. Thank you very much.

Thanks, Bob.

The next question is Sam Kanes, Scotia Capital Markets. Please proceed with your question.

Hi Pierre. I have seen a variety of estimates now for what it costs per ton of new capacity, including your own, especially out of Australia lately; Chile, Trinidad, we have those numbers from you already.

You always get mixed up in terms of what it costs in cash to build the plant, then you have to add on the working capital that is needed for the plant and capitalized costs along the way, because it is a multi-year project.

I presume that you look at all three of those combined to make your discounted cash flow investment rate decision. What are some of the differences or comparisons between why Chile is relatively high and Trinidad is relatively low, and the preliminary numbers out of Australia are relatively low?

Is it that much this new technology that is entering Trinidad and Australia potential projects, or is it other things?

Thanks Sam, and good morning. I think an important point and I hope I don’t take too much time in answering the question, but first of all, one key point for all the people listening. When people announce plants and they give the capital costs, one of the questions that should be asked is, what is included in the capital costs? You have referred to that.

When we talk about -- I think we probably announced a number of $275m for Chile, that includes everything. That includes the EPC contract, which is nowhere near the $275. It includes the capitalized interest. It includes our owner’s cost, working capital. All the things that you need to put in there.

Then you ask the question, do we take all these things into account when we do the economics? Obviously, yes. We do.

Another key point to make is that with the new technology, and I assume that is perhaps what you were referring to, a lot of the new plants have an air separation unit because they use oxygen in the plant. Some of the plants give their capital costs with the oxygen plant included, some give it without.

So for example, the Atlas project, the air separation unit is outside of the project, so you have lower capital but you have to buy oxygen and provide a return to the supplier of the oxygen. The Chile project has the oxygen plant because the technology we are using there uses oxygen, inside the project. So in Chile we are buying an air separation unit and it is part of the capital cost.

The type of plant, for instance, had the air separation unit outside of the project. The Australia project is likely to have the air separation unit inside the project. It is a very important point. So for those of you I have been dealing with for the past eight years, including yourself, Sam, we have a guideline. It is not an absolute fast truth, but we have a guideline that around $300 a ton or less is what we would like to spend our capital at and that is what we have done in the past.

Today I would say it is a guideline. We have to look at, well does it include an oxygen plant or does it not include an oxygen plant? I think that it is important for listeners to take this into account and of course that all comes out in the wash when you do the net values anyway. If you don’t have an oxygen plant inside the fence, you have to give somebody else a return. I hope that answers your question.

Thank you, Pierre. If I could shift forward. In New Zealand, is there such a thing as a sub spot market for natural gas and couldn’t you buy, at a premium, other people’s Maui share, albeit reduced? At subprice?

Again, obviously a question that we ask ourselves. We don’t have the report yet, unfortunately, so there is not much to add. It is expected soon. And then, I would assume that there would be different dynamics. Clearly, the best outcome for us is any incremental gas we can find in New Zealand comes capital free and creates tremendous value. And of course, we can consume gas immediately.

So It is simple arithmetic. An environment where methanol prices are where they are at right now, I would say that we should be prepared to pay more for the gas if it allows us to continue to operate to capacity at the plants in the environment that we are in. I just don’t know what that level is. Well, sorry, I can calculate what the level is from our point of view, but I don’t know what the market will be yet. That will be something, a dynamic that will be very important to follow as the quarter -- actually the first half unfolds. When you get a little bit later and we expect supply from other fields, that will be a different situation altogether.

Thank you, Pierre.

Thank you.

The next question is from [Greg [Goodnight], UBS Warburg. Please go ahead.

Good morning, Pierre.

Good morning.

A couple of questions. One, near term dynamics of the methanol market. You mentioned the two Venezuelan plants that are currently down. What is your expectation on those? In that vein, are there other significant outages that you are aware of in the industry?

Thank you, Greg. In terms of Venezuela, I am not sure I can add much more to what I have said already. The plants have been down since mid-December. The two plants represent about 1.5m tons. In a market where the total demand we would think is around 32m tons, that is quite significant. And of course, who can predict the politics of Venezuela?

However, our own judgment would be, even if that were decided today, you are probably 45 to 60 days away from that being able to restart, replenish inventories, pay people back for whatever swaps and exchanges we have done and then to have the product start to enter the market.

I want to emphasis that the impact of Venezuela has driven the stock prices up quite high. Above a dollar for a period of time and now around 90 cents or $300 per ton. Even prior to that, we had a market that was very, very tight. I tried to mention in my remarks today that we are blessed with great market intelligence, because we are so accurate in all the areas and we are buying spot product all the time. We were finding it very difficult to buy any reasonable quantity of methanol in any of the geographies around the world. That is an important point to make. We had a very, very tight market.

Your last point about any other outages. First of all, the outages for the year, they are unbelievable numbers and I would urge you to interact with us offline because in our regular quarterly marketing report we have tried to identify quite specifically our view of the outages and we have done it by plants. It is just a demonstration again that the industry cannot operation above 85 percent. That is an important point.

In terms of things that we know about, the biggest uncertainty is our own facility in New Zealand. In December I tried to outline different scenarios and certainly if the finding of the independent expert prevail, then again you have a potential disruption, similar in order of magnitude to what we have seen in Venezuela. While we think it is manageable because of our global logistics system, we think it would have a significant impact on the global dynamics.

Specifically has the Omont methanol outage been postponed, or do you know if that’s proceeding in the first quarter as planned?  

As far as I know it’s proceeding as planned.

Okay. The -- one more question if I may, the 50,000 to 60,000 tons of reduced production February and March is equivalent, if I do the math right, to about a 15 percent reduction capacity for your New Zealand plants. Is that a base case expectation? Is it best case, worst case? And, can you even speculate at this point of how that will move through the year?

It’s -- we don’t have the final report. And, I’m not a guy that tries to play games or be coy. And, we just don’t have the final report. So, we don’t know what it could be. You know, it could range from the original finding, which was pretty severe, to maintaining our point of view. Our independent expert says there’s enough gas there to satisfy our contracts. That’s a huge range. From a planning perspective we tend to be pessimists, you know, and go to the low end. And, so, we’ve assumed that we might produce something like around 350,000 tons in New Zealand in the first quarter. But, that is -- that’s based on a lot of knowledge for January, obviously, but we’ve operated close to capacity and, you know, just taking a stab for February and March. So...

Okay.

... that’s all I can say. You know, until we get the final report and when we get it and we have a chance to analyze it and we know the process, we’ll probably organize a conference call so we can give our best view of the path forward.

Okay. That’s fair. I appreciate you trying to answer in the best way you can.

Thank you.

The next question, Tony Campbell, Knott Partners. Please proceed with your question.

Good morning, Pierre.

Good morning, Tony.

A couple of things if I might, opportunities for additional purchases of contracts like the Lyondell?

Well, first of all, that we work with Lyondell for over a year and a half so these things don’t happen quickly because it’s very much, you know, a meg buy decision for a company like Lyondell, so they have to come to the conclusion that that makes sense for them because, you know, it is their decision. Once they’ve made their decision then, you know, who do they look to to supply them and we represent a great opportunity and then we’re so pleased that we were able to do that contract.

We are not focused on any additional at this point. And, the reason is very simple. We have uncertainty of supplying New Zealand and our Atlas plant only comes on in, you know, in the early part of next year and then, Chile in the early part of 2005. So, as we get closer to these periods and others are looking at their meg buy decisions, it’s a strategy that’s worked very well for us. And, we’re the leader in the industry and we understand what it means to have the high capacity utilization. So, it clearly would be part of our strategy, but not in the short-term. In the short-term we’re focused on making sure we complete these projects that we have.

I’d obviously be remiss if I didn’t ask you about fuel sales. So, perhaps you could give us an update of what you views are there and opportunities for your company. And, then, perhaps you could also, if there’s anything new on the Californian situation?

Okay. Let me start with California. You know, most of our information would be the same as what is available publicly, but I don’t expect everybody to read the same stuff as we read. We have started to see an increase in methanol use in California and a slight decrease in MTBE consumption. That’s somewhat hidden in the fact that Venezuela is not around. So, you know, you really don’t see it all in terms of the impact on demand because Venezuela presumably is a supplier of MTBE methanol and gasoline. So, right now that’s being replaced by somebody else. The people that have announced that they’re moving out are the BP’s, Shell, Exxon, Phillips, Chevron and, you know, those people would represent over 50 percent of the market. And, then there’s still some strong players like [Vilaro] [phonetic word] who have not switched or haven’t even announced that they are switching yet.

When we talked to very large producers of MTBE, some of which we’re very close to, you know, they’re still planning on running their MTBE plants, the ones that had low cost. So, there’s still uncertainty there. But, clearly, in the market that we’re in today if the conversion in California took place over night it would be fully absorbed. It would give some relief in terms of inventories in the system. So, overall, Tony, we haven’t changed our view. I mean, very consistent. We still think that what’s going to happen in California can be fully absorbed in terms of supply and demand. We still see that if California converts this year and next year, that still means higher capacity utilization globally. And, of course, we were encouraged late last year when the energy bill didn’t pass in Congress. Switching to fuel sales, we continue to have a dedicated group looking at opportunities, the group is focused primarily in the area of stationary applications, and, you know, we still think that there is a big prize. It does seem to be a little bit further away every year that goes by. But, we think the prize is big enough that it’s worth continuing to spend the dollars.

And, if there’s any different spin that I would put on it is that we see the ability to develop, I’d call it more of a service orientation, because the applications we’re looking at are applications where our interest would not be just supplying the methanol. It would be supplying a service. So, you know, inventory management, metering, the appropriate blend of methanol and water. And we think that that could be a winner for us.

And, when do you see this having any kind of financial impact?

It is not -- except for the cost it has not been our strategic plan for the next three years in terms of revenue.

Thank you very much.

Thanks, Tony.

For further questions, please queue up now. Next question is Winfred Fruhoff [phonetic word], National Bank Financial. Please proceed.

Thanks, good morning.

Good morning, Winn.

Pierre, if assuming hypothetically that the Maui gas report that you reviewed would be reconfirmed, would you be estimating in the reaming three quarters, a similar reductions as in February and March, in the 50,000 to 60,000 megagrams?

I think I would go back to what I said in December that in the event that the findings prevail, then there’s not much left for us from Maui, so we have to be dependent on all of our other sources of gas. And, I’ll come to an overall view in a minute. That will not be even by quarter because fields like [Pokagrua] [phonetic word] for instance, we wouldn’t expect to get substantial gas from that even test gas until later in the year. And, then the probable outcome would be in the range that I mentioned in December, and that is that, you know, production could be, you know, we could lose as much as between -- well, around a million tons is the round number that I would use. And, it was based on that that I said that if you look at the rest of our production, Chile in particular, that if we had a price increase of about $30 a ton that that would basically offset the loss in production.

So, you know, in the absence of further information, Winn, I’ll just say what I said earlier. We just don’t have the final reports. We don’t have any additional material to work with.

Okay. The other question I have, assuming again that the worst case would happen in New Zealand, would this not negatively effect your ability to supply the Asia market sort of from your nearest source of Methanol? And, would you not be looking at if you wanted to hang on to market share at trying to find higher cost Methanol?

Yes that is what it means. I mean, you know, it’s pretty simple to tie it up what our actual production capability is in the absence of substantial New Zealand reduction. But, let me make some general comments. First of all, we have a fantastic global network of access to product which we’ve been utilizing since I’ve been here. You know, we have a track record of buying substantial third party volumes and, of course, we’ve tried to position ourselves ahead of buying to anticipate that. That’s one point.

The second is that in terms of supplying Asia, clearly Kitimat, which doesn’t add much in terms of positive cash flow today, but has been cash neutral or positive, becomes an excellent source of supply for Japan and Korea. And, the third point is that, you know, we have options that we can exercise to have more influence as to where our product goes from the Trinidad operations. And, we would look at doing that and making sure that volume’s in our hands. And, that gives us a chance again to rearrange our supply chain.

But, clearly, in an environment where you lose New Zealand production, which hasn’t happened yet. I want to mention that, then you would count on Chile to a significant extent, Kitimat, as sources of product. And, then replenishing that with purchased product, which we’ve been doing on a regular basis. But, as of today, our supply chain people, our marketing people, looking at all of the alternatives are confident that we can maintain our market position.

One more question, if I may, for clarification, you mentioned that in the fourth quarter you were cutting back the sale of company produced methanol in favor of third party product. And, did you say this cost you and estimated $7 million in net income?

I said almost that. What I said is that we purchased more product than we had planned. We produced at the capacity that we had expected, but from an accounting point of view, if you look at what flows through the income statement, it shows less produced product, more purchased product. That’s just the accounting. And, I did say that when you take that into account, the impact in the quarter was 7 million, which is really the only difference from what we would have expected at the beginning of the quarter.

And, why is it that the sale of purchased product takes precedence over the sale of your own product, is this just the way the contracts are structured, or is this how you decide or like to operate your business?

It has nothing to do with the way the contracts are structured. It’s just the way that we account. So, it’s first in, first out.

Yes, it’s just first in, first out. It’s strictly on timing.

Okay. So, [unintelligible] other reason to it.

Yes. No, there’s no operational reason, just the way that we keep our books.

Okay. Thanks very much.

Bob Hastings, Raymond James Equity Research. Please go ahead.

Yes, just to finish up on Winn’s point there, would this also imply then that your larger company produced inventories should actually benefit in the first quarter of 2003 if prices remain the same or higher?

We are likely in the first quarter, based on what we, the assumptions we’re making today to have higher produced product sales than production.

Okay. And, the question I wanted to ask was your new financing is limited recourse, as opposed to non-recourse, can you sort of explain what the limited portion of recourse is?

I’ll ask Ian to answer that.

Yes, Bob, what limited, it’s non-recourse to the parent company, but what it is that it means it’s limited to the assets of the atlas operation.

Okay. I just wanted to be clear that there wasn’t any other ties in there back to...

No. No, the -- one of the reasons it took a long time to close the financing was just, you know, partners involved and just the sheer execution of it. But, boy are we pleased with the way it ended up in terms of the flexibility of, you know, benefiting from the cash that’s going to be generating from there.

It’s unbelievable that it took a year to do that with the [UMBP] [phonetic word] together in that project.

Yes, and I think people should draw some conclusions in terms of [unintelligible] but either in methanol and the credit of BP in a country like Trinidad, you know, and it takes ample time to execute a financing. What about people who are more builders of projects who may not have customers and the type of partners that we have or even a gas contract? I mean, some projects have been announced where we know that some of the key components to lead off the project are still missing. And, yet people have announced them for, you know, execution by a particular timeframe and you go and look and there’s nothing on the site and you know there’s big pieces missing in terms of the components. But, that’s okay.

Marketing is very important.

Yes, that’s fine. But, you know, at the end of the day I, you know, I’ve traveled a lot. I go and see all these things and I talk to people then I come back and share that information with our marketing people and then we put down what we think it capacity utilizations for the next three years. And, I can tell you that I feel very optimistic.

What have you built into your assumptions then based on your travels of what new plants [unintelligible]?

I guess I walked right into that one, didn’t I? We would continue to feel that our, you know, in terms of next increments, on a serious note, this is very important. If you look at the next increments, we just had a project review last week in Trinidad for our own projects, so that still looks to be on time and, you know, for start up early in 2004. We have a track record of execution in Chile. So, if [unintelligible] says, you know, early 2005, that’s what it’s going to be. And, then, we think that the project in Saudi Arabia that’s been announced for the first quarter in 2005 is probably a highly likely project. That’s what we see in the next three projects. And, I know we have a different view than others on Iran, but we just have a different view.

I don’t know if it’s different than mine. The...

Yes, so, you know, when you put that together and then you make assumptions about capacity that would disappear like some of the capacity you would expect to disappear when we bring our plant on stream in Trinidad, so some, you know, like our products that have been mentioned and Lyondell will, you know, we have certain rights to that production. So, if you make the assumption that there’s an adjustments there, you know, boy, you start to get to very high capacity utilizations even if you’d take into account the MTBE disappearing from California.

Right.

So, I mean, beyond that if you start to speculate too much. So, I mean, we -- if I repeat myself, you know, [AFRa] [phonetic word] starting next year, so that’s our plan. We would think that the SIPC plant in Saudi Arabia that has a good track record there, so that would come on stream in 2005. And, then our Chile plant in early 2005. And, so, in total that’s about 3.5 million tons offset by, you know, reductions of -- that I mentioned, including possibly, you know, reductions in New Zealand. So, that’s the best I could give you today.

So, if markets were weak and you had higher gas prices in new Zealand for replacing what you may be losing here, it’s likely you just turn that down in a weaker market?

I don’t know, I think we’d always look at what’s the economics of running New Zealand even at higher cost gas versus having to spot in Imperial. I think you just have to make a judgment at that time, Bob.

Okay. No, I just thought maybe you’d try to start using that as in a swing plant, but other production.

I would love to do that in the longer term. I think an ideal outcome for us if we could actually fuel Australia is to continue to get gas in New Zealand and use it as a swing plant. And, if it’s a swing plant and it’s got flexibility you should be prepared to have slightly higher cost or willing to have slightly higher costs.

Sure. Well, very thorough, thank you very much, Pierre.

Thank you, Bob.

David Troyer, CSFB. Please proceed with your question.

Thank you. Regarding the book value of New Zealand, in the event you can’t get gas from Maui and you can’t economically supply the plant from additional sources, what’s the book value today? Maybe what’s the -- what might you need to do in terms of book valuations and the timing?

Well, I’ll answer it in a general way. I always want to remind people that Maui is one source of gas. It’s an important one, but there are other sources of gas. And, then we obviously at year-end and we will work with our auditors. We have to look at valuations of all of our assets and, at this point in time, there’s no need to make any adjustments. And, I’ll ask Ian Cameron, our recently appointed CFO, to see if he wants to comment on book values and...

Yes, no, I’m comfortable with talking of book values. It’s slightly less than $100 million, the book value of the New Zealand operations today.

Okay. So, you know, there’s a chance that you could almost fully write, you know, assuming that there’s net income between now and the rest of the year which seems very reasonable assumption, you could almost completely write that down and still be ahead of your $850 million threshold?

Well, we don’t, based on our best case filing assumptions, we don’t see a need for a write down.

We don’t see a need for a write down. The plants being depreciated -- it depreciates with a unit gas of consumption, that’s been the policy there. But, there’s -- I want to emphasize again that Maui is one source of gas, there are other sources of gas. And we don’t see a need to do that right now.

Okay. Second question, you know, given the difficulty in the financing Trinidad, in Australia, I know you still have a lot of decisions to make partnering and financing and such. But, you know, would you anticipate beginning that project, first spade in the ground, before you had financing or would, you know, a fully financed, project financed commitment be required before you even started work?

Well, that’s a very important point. I think I’d like the audience to remember that the project in Trinidad, Atlas Project, is not one that we were involved in from the beginning.

Right.

We ended up being a partner because of an acquisition of a company called Saturn. We love the project. But, the project had already started. The financing was not complete. We will not execute the Australia project. We will not bring it to our board until we have financing in place.

Okay. Thank you.

Tony Campbell, [Knott] Partners. Please go ahead.

Pierre, I’m just going to make a comment. I think given the track record et cetera that you’ve created here, the stock probably ought to trade higher. Unfortunately, the stock can’t trade higher because of the overhang of the Nova stock. And, so, I would urge you to try and find someway to remove that overhang in part or whole.

Well, I take the comment. And, of course, Nova has their own conference call I think tomorrow. So, you might take the opportunity to ask them their view and their position with Methanex. But, I understand what you’re saying.

Thank you.

Thank you.

Sam Kanes, Scotia Capital. Please proceed with your question.

Pierre, I remember in a bitter sweet way as you do back to 1996 when Methanol price, of course, saw their all time high. There were a few spoilers back then that came to bear. And, I remember you in a conference call back then saying that the largest spoiler was and it was China. A lots changed in China since then and what was spoiling the fun back then in ’96 was that China literally shut down, if I recall your words, their downstream methanol consuming industry to resell methanol into the world markets as opposed to buying it. I’m just wondering if you’ve seen any shift of any behavior yet within China. And, a comment on the other swing spoiler was Russia, [unintelligible] that would show up now and then at extremely high methanol prices into the European markets through the [MED] [phonetic word]. I’m just wondering if you’ve seen any of that from either of those?

Geesh, I don’t remember those words from 1996, Sam. But...

Well, I appreciate them.

You probably have them written down. But, I think, you know, here we are six, seven years later and of course we have much better to market intelligence about those two regions because we’re, in the one case, we have been purchasing product, and in the other place, we’re fairly active. And, actually, in our supply and demand models, which we obviously don’t want to share with everybody, but we look at China, India and Eastern Europe, you know, as swing capacity and we keep following what amount of that capacity hits the market depending on the market price. And, it’s a swing of almost 2 million tons. And, something that we really try to stay on top of. So, it’s a very important dynamic. And, in the case of China, china now consumes over 4 million tons. They import just under 2 million tons. And, the growth inside the country has been significant. It’s almost hard to believe some of the numbers that come out. I’m talking about GDP growth or global industrial production. But, at this point in time the plants are operating and serving downstream needs and the country’s still importing just under 2 million tons and of course we are an important participant of that.

And, in the case of Russia, you’ve probably seen recent stuff about, you know, gas probably increasing the prices to the downstream consumers. It’s still very expensive to get product to their coast and then to ship it. But, they continue to be an exporter. And, even in the high price mode there’s only a certain capability and I know that from our perspective we -- it’s something that’s very important to us because it’s been a source of product for us in the past 12 months...

Are you buying...

But, in terms of all of the sudden a huge chunk of capacity coming off of the market to impact supply and demand or capacity, you know, capacity utilization in a different way, we don’t see that.

Pierre, do you see the [Totaliaties] [phonetic word] building a plant inland Russia right now?

I’m sorry?

Do you believe that [Totaliaties] [phonetic word] building a plant in inland Russia at the moment, seen not in the press?

Our market intelligence on that particular aspect would not be good. So, I would be only quoting from things I’ve read. And I’m always more comfortable, you know, making a statement of things I’ve seen. So, I don’t have much to add to what you just said.

Okay. Thank you. Thanks, Pierre.

Next question Mark [Shnell] [phonetic word], Fidelity Investments. Please proceed.

Mark?

Is there a question from Mark Schnell at Fidelity Investments?

No.

Okay. Thank you. There are no further questions currently. If you have a question, please queue up now. Mr. Choquette, there’s no further questions.

Well, thank you, Erica. I think we’ve been on for just about an hour and we appreciate your questions. Clearly a very dynamic environment, but it looks like we’ve got a good quarter ahead of us and we look forward to talking to you soon. Thank you.

Thank you for participating. As a reminder, the number for the playback of this conference call is available at the bottom of the press release. Thank you for participating.