Methanex Corp (MEOH) 2003 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation first 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 April 22, 2003. I would now like to turn the conference call over to Mr. Chris Cook, Director Investor Relations'. Please go ahead sir.

Thank you Erica. Good morning everyone. Before we begin today, I'd 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 actual outcome. So we'd ask that you please refer to the bottom of our latest news release, and to our freshly issued 2002 annual report for more information. I would now like to turn the cal over to Mr., Pierre Choquette, President and CEO of Methanex.

Thank you Chris, and good morning to all of you who are joining us. This morning we really appreciate your interest in our company, Methanex. We're doing this a little bit differently today; we have people at a number of locations. I'm actually in Trinidad with a few colleagues doing a normal project review, a quarterly project review of our Atlas project. So if the quality of the sound, or perchance we have some issues in terms of connections, I hope that you will understand. We don't expect any, but who knows what may happen.

Let me start with an overview. I'd like to do this before I comment on the specifics of the first quarter. I think it's important to review the fundamental drivers, which impact our financial results. I did this in January during our last conference call, and I really want to do it again today because it's so critical to help understand our financial performance today and the potential over the next few years, to get a good grasp on supply and demand.

I think we've said this very consistently, nothing impacts our business more positively then good supply/demand fundamentals, and for the past few years we at Methanex have maintained that we could see a lengthy period, a period that would require high capacity utilization from the industry, and therefore we would expect above average pricing for our product. Frankly, except for a brief period at the end of 2001 and in early 2002, we think that our assessment has turned out to be reasonably accurate, and most importantly, we continue to see the period ahead as being stable for our company.

It's particularly encouraging to us, to me, to see that respected industry observers, such as CNAI, are now projecting prices in 2004, and I repeat again, in 2004, above Can$200 a tonne. This to us is a confirmation of favorable supply/demand fundamentals for Methanex. The key of course is to be positioned to take advantage of this favorable environment, and as most of you know in the short term we have lost substantial low cost production capacity in New Zealand, but as you can see by our results, the high price environment that we find ourselves in has still allowed us to maintain great earnings momentum over the past three or four quarters.

Of course when we enter 2004 we will benefit from additional low cost capacity here in Trinidad, and then we'll be in an even better position to capitalize on the favorable environment. I want to repeat this again; we continue to see 2004 as a very positive year for our company from an industry supply/demand perspective. As we said three months ago, and I mentioned at the outset, the required capacity utilization rates for the industry for the next few years will, in our view, and I repeat again this is our view, be above any level demanded of our industry in the past 15 years, and that's just a great environment.

So with this as opening remarks and an overview, let me now switch to the specifics of the results for the first quarter. Obviously we're pleased with the results, the financial results for the quarter. Income of over Can$75m or 60 cents a share, EBITDA of Can$125m, cash flow from operations of about Can$112m. These are our best quarterly results since the, I call it 'euphoria days', of late '94, early '95, which didn't last very long.

As you can see from our press release the results are very significant improvement over the same period a year ago, and over recent quarters. I think it's appropriate to comment on how the quarter compared to our own expectations. Certainly when we went into the quarter, realized prices were somewhat higher than expected for the quarter. Cash costs increased, as we had expected, primarily because of natural gas costs in the different jurisdictions. We had also assumed a lower level of sales coming from our own production, and that was primarily due to curtailments in New Zealand. In actual fact the sales from our own production, which of course is where we generate the margin, were down by about 10% compared to the fourth quarter, and our earlier estimates were more around 5%. But again, this was more than offset by the higher realized prices.

If I look at different aspects of the results, some of the highlights would be as follows; just starting with the revenue side. Our overall sales volume was 1.7m tonnes. We're basically selling on a rate that's consistent with our supply capability and we have customer order controls in place. Our geographic sales mix was not much different than we've seen recently. About 45% in the Americas, 30% in Asia, 25% in Europe, and of course I realize prices increased quite a bit to Can$223 per tonne, and that compared to Can$188 per tonne in the fourth quarter. I should mention that there was progress throughout the quarter, and in March realized prices were closer to Can$235 per tonne.

On the cost side, unit costs were certainly higher in the first quarter. This is not surprising, since we operated overall at 80% of capacity, and this of course is because the New Zealand plant itself was up just a bit under 60% of its capacity during the quarter. As we expected, and I believe that's reported in the NDNA, gas costs were up about Can$7m quarter-over-quarter. In terms of operating performance, we had excellent performance in our plants [unintelligible] and Chili, these plants delivered about 95% of their capability. There was nothing there particularly unusual during the quarter. In New Zealand the natural gas curtailments took place in February, and total production for the quarter was about 360,000 tonnes. In March we actually produced about 75,000 tonnes in New Zealand. For those of you who've been following us, this is basically what we had talked about a few months ago. At 75,000 tonnes, that's just under 40% of the plant's capacity.

In terms of cash and cash flow, cash flow from operating activities, as mentioned earlier, were quite strong at Can$112m. We closed the quarter with cash balances of Can$465m, and of course we have an un-drawn credit facility of Can$291m. When we look ahead in terms of planned capital maintenance program, and that is to the end of 2005, we like to look at it over the next three years, this is about Can$75m. Not per year, this is Can$75m for the total period. So we clearly have superb liquidity, and as one of our larger shareholders puts it, we seem to have a great ability to transform natural gas into excess cash flow.

I should also give you an update on the strategic initiatives, because they consume a fair amount of capital as well. But before I do that, first and foremost, I want to say that you can continue to count on us to be very focused. We'll stick to what we know, which is methanol. We have no strategic intention to diversify or to make unrelated acquisitions. We just simply want to continue to improve the quality of our business, and if that results in excess cash, and we believe that it does, beyond those needs, then we will return it to shareholders, the same as what we've done in the past.

So an update on the initiatives, we're working on a number of them, as you know. The first one, as we mentioned last quarter, that we had an agreement to purchase the customer contracts of Lyondell Chemical Company, effective January 1, 2004. That's still on track, and the capital to execute this is Can$10m. Second, we're also on track to complete the Atlas project in Trinidad by early 2004. This is a plant that has a capacity of 1.7m tonnes. It's owned 63% by Methanex, 37% by BP. There, the remaining equity contribution, and I repeat, the equity contribution for Methanex, is about Can$43m. Third we've also started construction of our full train in Chili, that will come on stream in early 2005 and there the remaining equity contribution is around Can$210m.

So in summary, the total equity to complete these three projects between now and the end of 2005, so same period as the maintenance capital, is around Can$265m. Can$265 for the strategic initiatives, and about Can$75m for the planned maintenance capital.

In addition to these approved projects, we're working on a few other important initiatives that we feel can have a significant impact on our bottom line, both in the short term and the longer term, and when we've got these nailed down then we'll communicate them.

An update on Australia, we're now taking a different approach to underpin our market position in Asia/Pacific. Our thoughts of a large 2m tonne facility in Australia have been put aside, and I have to say that the initial attraction of lower unit capital and operating cost, that simply does not outweigh the risks associated with financing a very large capital project. In our case, and I don't think we've mentioned this before, but that capital when we decided to change course, had actually reached in excess of Can$800m. So we are, instead, looking at copying our Chili model of 1m tonnes, we think that's worked well for us in the past. We're working very actively on this right now. By midyear we would expect to have reached a decision on the viability. If that's positive, then we'll seek support from our board. Of course we would expect the financing of a few smaller projects to be much more straightforward than the very large 2m tonne alternative.

We're clearly in a superb financial condition to complete, approve, and contemplate projects. We have the liquidity in hand today to fund all these initiatives, and in the current environment still be left with excess cash for our owners. We're also looking to renew our credit facility right now, so once we've renewed that, which again we're in the process of doing, we'll have a better understanding of the viability of our project in Australia. I think that will be the time to decide on the optimal mode for returning excess cash to you, our owners.

In terms of outlook, market conditions continue to be favorable and supply limitations has led to a strong pricing environment, and we've outlined that in our press release and NDNA. On the demand side, the underlying demand reflects the overall global economic activity of quite low growth. One of the things that we find encouraging is a recent survey of our customers indicates pretty strong order books going forward, so we feel good about that.

Some comments specifically about MTBE, the reduction in consumption in the United States is taking place, but of course it's overshadowed by supply constraints, so it's hard to see the impact of the reduction. But some data is starting to come in, and very early data for 2003 shows that MTBE consumption in California is down about 50% compared to the same period in 2002. To put that in methanol terms, that's approximately 750,000 tonnes per year, which is what we expected. In the rest of the United States a slightly different story, MTBE demand is actually up by a few percentage points. So overall when you combine everything that's happening in the U.S., and I just want to focus on the U.S., including California, the reduction in MTBE demand is about 14% and you would estimate that to be just under 600,000 tonnes a year.

Of course we are in an environment, or have been in an environment where the traditional driving season inventory bill has yet to start, so we'll need more of that to form a better conclusion. But the trends seem to be what we expected. I think it's important to point out that this demand reduction, when you put it on a global basis, is less than 2% of global demand for methanol. So it is still our view, even with lower perspectives now on global GDP and global industrial production, that we would see positive growth for methanol in 2003. So we haven't changed our views on that.

Pricing for methanol of course, in terms of outlook, reflects a difficult supply scenario. Yes, the capacity in Venezuela has come back on stream, but that's basically been offset by the reduction in New Zealand almost tonne for tonne. As we look ahead, as I mentioned at the outset again, we looked at this year and next year at least as years requiring very high capacity utilization. I mentioned CMEI, the methanol industry consultant, earlier in my remarks. They currently are forecasting, so this is their forecast, they're forecasting North American contract transaction prices at Can$250 a tonne for the rest of 2003, and above Can$200 a tonne for early 2004. ## While we don't like to forecast where we're going as a company, clearly if these prices are realized we would expect an outstanding year for Methanex in 2003, and actually with capacity that's coming out next year, an even better year in 2004. I think that's a very important factor.

So in closing, let me say that we have a few uncertainties, but clearly these are more than offset by very sound industry fundamentals. We have superb current and potential cash generation. And, we continue to work on initiatives to further improve the quality of our business. So, it's a very clear path going forward.

We're focused on building our leadership in Methanol. We're not interested in anything else. We're focused on a very simple strategy and strong execution. And, of course I'm repeating it for the third time today, but I want to make sure it gets heard properly. We're committed to finding the optimum ways to return excess cash to our owners. And, over the next three to six months in particular, this continues to be a top priority for us. So, I'll stop here and be happy to take your questions.

Peter Butler, [Glen Hills Investment Research], please proceed with your question.

Good morning. I have a couple of things, Pierre. First is maybe a nitpicking thing. On page 10 of your release, your cash flow statement, you have the total of inventories and prepaid expenses going from plus nine to minus 12. I wonder, what part of that are prepaid expenses?

Peter, good morning to you. Ian, could you answer that please?

Yes, Can$5m, Peter.

And, so Can$5m, so, this was the discretionary management debit of the quarter by Can$5m, then roughly?

It's not discretionary. We have certain--we have various insurance policies and they expire on different dates of the year-[crosstalk].

OK.

[Crosstalk]-business amortization.

OK. I understand, you know, it's kind of perplexing why your stock is selling so cheap. I think part of it might be that some of the earnings estimates for next year seem to be rather low, you know, extremely low. I've seen some on the order of Can60,65 cents, in that ballpark. You just indicated that the way you see things now, you see your '04 earnings, in fact, better than '03.

I'm wondering, you know, for the sake of argument, do you see good odds that, in fact, that you earn in the first quarter next year what some of the Canadian brokers are saying you're going to earn for the full year?

Well Peter, you know me quite well. You know giving very precise numbers is not my nature, but I do want to convey a feeling about 2003 and 2004, which is probably more optimistic than what I'm known for. So, I'll repeat again what I think I said in my remarks.

We think 2003 will be an outstanding year. I think, when I look at the consensus in earnings, I actually cannot remember the exact number. But when I looked at it recently, that seemed to reflect pricing the way that we see it currently. And, of course, that's an outstanding year for us.

And then, when I look at what's being forecast in terms of prices by people at CMEI and I apply that to the capacity that we believe, low cost capacity we've got to have in place next year, then I'll repeat what I said. That should give an even better result for 2004 than 2003.

But there is a lot of leverage in terms of pricing. And as you know, we have our own views about supply and demand. We continue to feel strong that the capacity utilization that's going to be required for next year so at least as high as this year. And, that's because of the market intelligence that we have in terms of new plants coming on stream, and plants that we expect to shut down.

So, I think, without giving a precise number, as you were hoping, I want to repeat again that in terms of trends, we get our own looking forward, with the type of pricing that was mentioned by CMEI, we would expect 2004 to be better than 2003. But, [crosstalk] pricing.

Yeah. I wasn't asking for a precise number. I was just seeking the validity of the view that in fact you might earn more in your first quarter than the Canadian brokers are forecasting for the full year. But, you sound optimistic.

I just have one last thing on new supply. Are there two Iran methanol projects? Because, I saw a report a couple of weeks ago in Chemical Week that at least one of these plants was being postponed from '04 to '06, because they were going to enlarge it and make it a combination plant that would co-produce ammonia. And, I'm wondering, are there two plants? Or, in fact, could this plant be delayed to '06?

And then, what else? Could you answer that one please?

OK. I'll answer that one, Peter, and them maybe we can move onto other people.

Yeah.

I think it's an important question because, when I read comments made by people who look at our company, it seems to me that the only place where there is a different view in terms of fundamentals is really about supply and demand and new supply coming on and then capacity going off.

And therefore, people might have a different view of capacity utilization than we do. And, if they do, they'll have a lower price and therefore lower earnings.

And, there are not that many factors to look at in terms of supply. The one that you bring out is probably the one that's the most controversial. I mean there are many different views and, depending on whose report you read, this plant was supposed to on this quarter. It could be on in the third quarter, or our view, which is sometime in 2004.

Why do we have a different view? Our market intelligence, really, is based on the engineering companies that we work with in trying to get a view from them of likely startup time. And the other part of the market intelligence comes from the people who are likely to market this product. And, we talk to them and ask well, when do you think you will off-take those products. And then, we form our own view. We might be wrong, but that's the basis for our view. That's for the first plant.

The second plant is, as you have pointed out, still in the engineering stages. So, people are still talking about, as far as we know, engineering concepts. That's information that we get from engineering people.

So, it's based on that that we continue to feel strongly that we have 2003, 2004, in particular, as years that require very high capacity utilization. So, thank you Peter.

OK, thanks for your help.

Bob Hastings, Raymond James, please go ahead.

Thank you and congratulations on a very good quarter. Pierre, one of the things in the annual report talked about New Zealand and the tax position. And here in the quarter, your tax rate actually went lower. What happens if New Zealand becomes less of a factor in the overall income? What happens to that tax rate?

I'll try and give you an answer in terms of a range and if I'm wrong, I'll ask Ian Cameron to jump in. Clearly, if you look at where most of our production capacity now is, today it's in New Zealand. Sorry, it's in Chile. So, at this type of earning levels, the tax rates start to change and I think, going forward, in terms of guidance, the 30% to 35% range for taxes, and starting now, basically, would be an appropriate range to use. Ian, is that OK?

Yes, that's right, Pierre.

Does that answer your question, Bob?

Yeah, so that's an average and the first quarter, I think, was 23%. That means the ensuing quarters are probably at the very top end of that range?

[Crosstalk].

I think it would be better to use 35%, for planning purposes.

For the year?

Yeah, well Bob, it's going to trend towards 35% for the year, is our thought at this point, our projections.

OK, and Pierre, just maybe one clarification. You said something about after the Australian decision, you're looking at the-what you might do with excess cash. And I'm just wondering if there is a sort of decision to date that you have? So, are we looking at sort of the end of the first quarter-sorry, the end of the second quarter, say, the end of July? Or, is this something that might happen in the fall or later?

Well, two observations, Bob. I did mention we're working on some projects, which we're not quite ready to come out public with, but we're working on them.

And the second is that we just, we think the place to discuss what to do with excess cash is at our regular board meeting. And, our next regularly scheduled board meeting is in May. So, that'll be a good time to have a discussion on it and to start to form some views of what we do, going forward.

We have Can$465m that we're generating at a high rate. I saw in our details, our financials, which I don't think is in the MDNA, but we're earning 1.3% on those cash balances. We can't sit on that cash.

Glad to hear it. And I assume one of the projects that you're looking at is again in the end report you talked about this Titan option. Is there any [inaudible] on that?

Well, no timing to talk about it this time. But we do have an option to purchase the rest of Titan, that we don't own. We market the product, but we only own 10%. It's a fixed price option, so it's not dependent on what's happening in the methanol market. So, we think this is a good time to look at it, and we are.

I think it's important to remember that this plant was built with 80% leverage. That means that banks really control the operations of that facility. And for us to have a keen interest, we want to have total flexibility.

So, while we look at the option, we're doing that. We'd have to resolve these issues and if we can, then we would make an announcement.

Thank you very much, and congratulations once again on the quarter.

Thanks, Bob.

Next question is from Greg Goodnight, UBS Warburg. Please go ahead.

Hello, Pierre. Have you gotten an early read on the revived national energy bills, either the senate or house version? And, would you think that there's any possibility for a more global, or national, ban on MTBE here in the States, from what you're reading?

Well of course, we stay on top of what's happening in the energy bill, very closely. We have a small office in Washington, and that's basically the focus of their activity. And, we're also very interested in what other participants in the industry are doing.

It's not easy, to read the politics. I, for one, have always felt that if there was a renewable fuel mandate that the offset to that would be not to have a ban on MTBE. Of course, the position of our company has always been clear on that. We'd rather not have anything mandated at all and let the market decide.

And with different versions in the house and the senate, it's hard to follow a view. But as long as one version does not have an MTBE ban, then I remain hopeful that could be the case. But it's a tough, tough call. But all I can say is we're working hard to try and bring out facts about how difficult it would be and how senseless it is, really, to remove from the gasoline pool, a component, which seems to add such tremendous value.

Yeah. OK, I appreciate you taking on that one at this point. The potential restart of Medicine Hat, I would assume that at this point is, with high natural gas prices, it's going to be tough to justify. Would you comment on that possibility?

Sure. I guess just coming back to your first question, first if I could add one thing. This is probably not very well known, our American intelligence, by the way, indicates that the demand for MTBE in the Arabian Gulf, has gone up substantially.

For instance, the new MTBE plant in Iran is aimed at basically creating new demand in that geography. And we know from the other geographies there that there's been an increase of almost 1.5 million tonnes of MTBE, new demand. That's about 450,000 tonnes of Ethanol. So, I thought I'd mention that, because that probably wouldn't, people wouldn't be taking that into account.

In terms of Medicine Hat, our motivation there really is that we want to make absolutely sure that we can honor our contractual obligations to our customers globally. And with the capacity that we've lost in New Zealand, we currently are on order control. But we want to make absolutely sure that we meet that obligation.

So, the thought was, if we can restart this facility, that's the one that's the easiest to restart. It's a very small capital cost to restart and shut down. We don't have to enter any services obligation or contractual obligation, then it would make sense for us to do this, probably until our new crane in Chile comes on. So, the first quarter of 2005.

We're at a stage now where we're trying to see if we assemble the workforce to do that, and we were playing a game with you, anybody that would drive by the plant in Medicine Hat would see that there's a lot of activity. So we're looking at bringing people back under contract, and have been really pleasantly surprised at the willingness of people who left there to actually come back and work with us. I say I'm pleasantly surprised because that means if you treat people right when they leave, if you have an opportunity to bring them back, they'll come back. So to the point though, the key for us is we want to make sure we do this without it being a cash drain on the company. So we're looking at what we can do on the gas side, different approaches to buying the gas and whether or not we can also offset that risk with something we might be able to do with our customers so whatever additional volume we get we have a fixed revenue and also a fixed [inaudible].

We continue to work on that and we would expect to be able to make a decision over the next, 30-45 days. But we're trying to organize ourselves so that if it makes sense, we could start in July.

OK. I'll get back in the queue; I have one other follow up that I'll have later if we have time. Thank you.

The next question is [Jerry Darbashire], RBC Capital Markets. Please go ahead.

I have no questions.

Thank you. Sam Kanes, Scotia Capital; please go ahead.

Pierre, with respect to New Zealand, and New Zealand's gas reserves, more precisely Shell and [Porokura], and just how the stock market has worked out since all those contracts have been cleared back, what is the spot price, if any, in the New Zealand market. Are we actually at a bid/ask spread with Shell in terms of helping them sell that gas from [Porokura] a year out, or two years out?

Sam, good morning and thanks. I don't think I could answer the question on the spot price of gas, but we'll get that for you. So if my colleagues in Vancouver could make a note of this and ask Bruce Akins and we'll get the information back to Sam. But I can certainly give you a flavor for it. Our gas cost right now in New Zealand, where we're operating at about a 75 tonne rate, about twice what they've been in the past. So that gives you an indication of how much we'd have to pay to be able to attract the gas from fields like McKee and [Monongahela], when the make up of our gas has got a lower component of Maui gas. I know you're familiar with this, so that's why I'm using the jargon.

In terms of [Porokura], the debate has been when could they develop that field? We are obviously a natural buyer for that gas. We're making proposals to the Shells of this world, including some capital proposals to treat the gas on our site, to try and facilitate early development of the field. Right now that doesn't look like it could happen in the very short term. But we're continuing to work at that very hard. Actually in a management team meeting this week we had a complete review of what's happening in New Zealand, and our guys are uncovering a number of other possibilities, which not that we could go back to capacity, but seem to be encouraging in terms of being able to maintain a reasonable rate of operation for three other sites. We've had this encouragement before and been disappointed, but at least there's some encouragement there. [Crosstalk]. Actual sites will not be [unintelligible] because there's more competition, but that's fine for the next couple of years, because we think we're going to be in a high priced environment, and of course we're the natural buyer for any new reserve. Does that give you a reasonable overview?

Yes it does. Thanks Pierre.

Winfried Fruehauf, National Bank Financial; please go ahead.

Good morning. Pierre, would you please clarify for us your comment you made regarding Australia? If my note is correct you were saying something that you backed away from a 2m-mega gram per year plan, and you're looking at 1m mega gram increments. Does that mean you're now looking at Australia to start with a 1m mega gram plant, or are you looking at the increments to existing other facilities you have elsewhere?

Thanks Win, for the opportunity to talk about that, because it's an important point. If you'll allow me, I'll tell you again what I said about the 2m tonne plant. When we started to look at the 2m tonne project, we thought that we would have very substantial capital savings. As a matter of fact, some of our early estimate for a Greenfield were around Can$600m, which to us gave this fantastic [inaudible]. By the time we decided to move away from it, we were up to over 800, and I say well over Can$800m, at which point it didn't matter that economics were still OK, the capital was so high that the risk, in our view, was not worth it. That I think is something that's being missed in big plants. I mean sure, you've got the attractiveness of lower unit cost, but my god, the capital that you've got to put in place becomes so substantial that the financing of it I think becomes a significant issue. As the industry goes forward, that's something that the industry needs to think about. We certainly have thought about it.

So now what we want do to is, on the assumption that we can maintain the gas contract that we have there, and we think that's a possibility, on the assumption that we continue to maintain out from the government in terms of infrastructure, and we think that's a possibility. Then in the same location we would rather build a 1m tonne plant and then do what we've done in Chili. A little bit later build another 1m tonne plant. So instead of adding a 2m tonne plant, we'll have two times one to start with, and then that will become a production hub for us for the longer term, and you would expect to see us do what we've done in Chili over the last 8-9 years. So not a new location, but this would be subject of course to demonstrating by the end of this quarter that it's viable to build a 1m tonne plant in a Greenfield. Does that clarify the situation?

It almost does. I have one more question, which will sure clarify it. You also mentioned that - well let me ask it differently. If you did not proceed in Australia with the 1m mega gram plant, when and where would you proceed with the next 1m mega gram increment?

Good point. We think one of our strengths is the global leadership position that we have. It's absolutely essential we underpin our position in Asia with appropriate capacity, and that means that we would have to start to look at other locations. When we looked at the Middle East before, that certainly would be one alternative, because in the longer term we don't think we can maintain the type of positioning we have today supplying from the Atlantic basin, whether that's Trinidad or Chili. So we would have to look hard at that. But I would tell you that today I'm quite confident that we can [inaudible] in Australia.

Thanks very much, that helps.

The next question, Don Anderson, Salman Partners; please go ahead.

Hi Pierre. When Atlas comes on in 2004 this is talking about tax rates here, looking forward again, to get a little clarification on that. What happens to the tax rate when Atlas comes on? Are there tax holidays in Trinidad for you, and what may the sort of deferred current split be, looking into 2004 please?

Well I'll answer the easy part of the question, which is that yes, there is a tax holiday for Atlas. The hard part of what about the overall tax rate, I'll leave to the experts. So Ian, do you want to tackle that?

I think it's quite a technical question, and I think the best thing to do is to handle it offline in terms of trying to get a feel for the - certainly for the current deferred split. But our view is that the tax rates are trending upward, and they'll be around 35%, certainly for this year and into 2004.

OK, so at this point dropping that rate to below 35 with Atlas coming on is probably not wise?

No.

OK. Pierre, maybe you could, we've talked a lot about the supply side, what do you see in the demand, as guess as non-MTBE, how does the demand in Asia, Europe, and maybe North America as well please.

OK I have Jerry Duffy here with me, and I'll make some general comments, and Jerry, who is our head of marketing, can add to it. We're not experts at economic forecast, so we will attempt to go with other people's views. Certainly as we look at 2003 and 2004, and of course we look at it on a global basis first, global industrial production consensus forecast now seems to be between 2-2.5 for this year, and around 4% for next year. That is a dip below, it's quite a bit below what we had in our original plans. And so whereas previously we would have seen overall demand growth of say 3.5% this year, 2.5% next year, today we would see demand growth of just over 1% for this year and just under 2% for next year.

So having said that, then when we look at the geographies, I think a general comment would be Europe's a difficult scenario. Asia, continuing with reasonably healthy growth. That, including places like Japan where we have positive industrial production growth, Asia and [inaudible] will continue to see 4-4.5% growth both this year and next year in industrial production, and that's certainly being reflected in the demand that we see. So Asia continuing strong, Europe a difficult scenario, North America basic demand, Gerry?

What's surprisingly risky when you talk about customers in North America in terms of order books, we've just done a review with them in the last three weeks or so.

Jerry, we can't hear you. Maybe move the mic closer.

Surprising for us, we were in touch with all of our major customers in North America in the last three weeks, just to see if we could get a feel for what demand was looking forward, and the response we got from our major customers was that they're looking at very strong order books out to the next quarter and into the third quarter. So it all depends on what happens in the North American economy. We don't see spectacular growth, but it's certainly steady.

I think just to conclude on that, our view then, as I think I mentioned earlier, would continue to be some small positive growth this year and quite a bit better for the following year. Even when you assume reductions in MTBE demand.

Thank you very much. Maybe just one last in terms of May U.S. contract pricing, do you have any feeling for if we're going to have another roll forward, or any view right now on that please?

No, we'll stick with April for now.

OK, thank you.

Lesley Roberts, Morgan Stanley; go ahead.

Two questions that are tied together. One is, the smaller plant in Australia, roughly what would the capital cost look like, versus the 800+ you're at the 2m level? And then the second one is, what is the length of time it would actually take you to build this plant, and that ties back into the second plant in Iran. What would the real time, once you begin to go and you do your engineering, you're actually taking construction, before you could start it up?

Thanks for the question. In terms of the capital cost for Australia, just looking at the model that we use, that would be, if it's over Can$400m it's unlikely to give us the returns that we're looking for. That's probably the best I could say at this point. In terms of the start up date, we would still see 2006 as the possible start up date, because a lot of the money that we've spent up to now for the 2m tonne plant, like sites and heritage issues and infrastructure issues, they apply to a 1m tonne plant as well as they do to a 2m tonne plant.

Could you answer it a little differently? What is the fiscal construction time necessary for one of these plants, and what's the length of time for start up?

We just broke ground in Chili in the first quarter of this year, and we're starting up in the first quarter of 2005. I don't see any reason why it would be different in Australia, so 24-30 months of construction time.

Thank you.

That's our experience in building time. Does that answer the question?

Yes, it does.

Thank you.

Jeff Gates, Gates Capital Management; please go ahead.

A couple of questions with respect to your view of excess liquidity. First, do you assume in your plans that you refinance the 7.75 when they're due in '05? And secondly, can you talk about the size of the revolver that you're seeking, and at what point does the company start using the revolver for short term liquidity needs, rather than having a pile of cash hanging around? And lastly, can you talk about the assumptions if you happen to go forward with Australia, would that be on a project finance basis, and how much leverage would you expect to get?

I hope I remember all of these, because I was making notes as you were mentioning them, Jeff. The Australia project, I'll start with your last one, I think what I like about a smaller project is that you don't need to do project financing, you don't need a partner. So actually in terms of impact on our company, I'd rather have 100% of the 1m tonne plant than 40% or 60% of a 2m tonne plant that's project financed. So we would probably want to have 40-50% leverage, but not project finance, is my view.

In terms of cash, the revolver, the '05, this is all a function of course of future cash generation and strategic projects. For instance, like Australia, but I won't back away from what I said earlier, and that is that we basically have on hand today the liquidity to do all of the approved projects and the ones that we're contemplating. So we do have excess cash.

As I've mentioned in private meetings where you've been present, we think that we need to move the company closer to our target capitalization, which is a maximum of 40% debt, and to be closer to operating with a revolver. So all of that to me means that [inaudible] is very, very substantial over the next couple of years. So in terms of '05, do we renew the '05? If that's a way, for instance, of getting the appropriate leverage on the Australia project, then that would make sense.

In terms of the size of the revolver, Ian, do you want to take a stab at that?

I think, it's really hard to say, but I think around the level we're at, a little bit less, we'd be comfortable with that.

And it's Can$290m today. Does that cover the range of your questions?

For now, thanks.

Greg Goodnight, UBS Warburg; please go ahead.

I was wondering if you would comment on methanol inventories. Have they been rebuilt from what I understand was a fairly low level in the first quarter? And secondly, the number of planned outages globally in the second quarter seems fairly low. Would you comment on how that might affect the inventory trend, or do you see them being rebuilt in the near term?

Thanks Greg. We feel, again because we purchase quite a bit on a global basis, that the inventories continue to be quite low. Our ability to go out and secure a large parcel of methanol is non-existent, unless we're prepared to pay outrageous prices, which we're not prepared to do. So our view is inventories continue to be low. Our own inventories, by the end of this quarter, will be around 50 days sales, which is pretty close to what we think is a controlled level for us, so 750,000 tonnes or something like that. Again I've got Jerry Duffy in front of me, and if he disagrees he'll jump in.

In terms of outages, we might not have had the type of outages like Venezuela, but New Zealand is a pretty significant outage for the industry, and I'm afraid that some people are not taking into account the fact that we're operating at a rate now just under 1m tonnes, so that's 1.4m tonnes of capacity that was being utilized. In terms of other regions, we continue to see problems in Asia, in Indonesia and Malaysia, are simply not operating at capacity. Sometimes it's because of gas, sometimes electrical outage. The smaller plants in Europe have also had difficulties and that's been well publicized, although they seem to be coming out of that. But it's also a fact, if you read the industry press, that more recently in the past month, there have not been new outages, and that is correct.

[Crosstalk] in our view needs to operate at somewhere around 87-88% of capacity, which is never done. So it needs this performance just to stay in balance. Jerry, do you want to add something?

Just one additional comment if I can. The industry in a number of areas is overdue for turn-arounds, particularly in the Far East or the Middle East and in Southeast Asia. And these units are going to have to go down before the end of this year.

We have some scheduled downtime ourselves on at least two of our units between now and the end of the year. So, I don't think we can afford to have much unscheduled downtime, as an industry, and still meet demand going forward.

OK. Thanks for your answers.

Thank you, Greg.

For further questions, please queue up now. Next question is Winfried Fruehauf, National Bank Financial.

Pierre, would it be economically feasible for your company to consider moving one or both New Zealand plants to Australia, and then proceed at some point in the future with the [inaudible]? And any comment of the order of magnitude you were discussing?

Thanks, Win. When we made the decision to stop work on the large 2 million tonne plant, I wish I could say mega-grams like you do, but it's my French-Canadian vocabulary is limited.

One of the alternatives we looked at was relocating the plants. And at first on the surface that looks attractive. The plants were actually built in modules, two big plants in New Zealand. So, you'd think you could just do the reverse.

But then, when you, you know the experts like Rodolfo Krause; I think you've met our head of manufacturing. He says, "Remember, Pierre, when you dismantle a plant that's 16 years old and you take the insulation off the pipes, you don't know what you're going to find underneath. And also remember, you have 16 year old tubes there in the reformers."

And when you look at things like that and then look at the actual cost of doing it, and on top of that combine the fact that you would be taking plants that have got low efficiencies, you would be wanting to change all your environmental permits, because you just would have higher CO2 emissions, the arithmetic just doesn't work.

And so, we've looked at it seriously. But, it's not just a policy thing, even the numbers don't look as good. We've looked at it and decided that it would be best to build a new plant. [Crosstalk].

Thanks very much.

We do want the plants in New Zealand, because frankly without Methanex there, there's not much justification for new exploration. And when there is new exploration and new fields are discovered, we want to have the plants mothballed and ready to take that gas.

OK. Thanks very much.

Bob Hastings, Raymond James, please go ahead.

Pierre, I was actually just going to go on that line 2 on the New Zealand gas situation and given that you're sort of an anchor tenant, if you will. What is it looking like now, in terms-there must have been lots of discussions. Have you got any update in terms of what it's looking like for the production out of the newer field, or test gas you might be able to get? Or, whether you're able to negotiate gas from other producers out of the Maui field, or other takers out of the Maui field?

Well the only update that I would give is that I'm encouraged by the discussions that are taking place between the producers and the sellers, to try and accommodate everybody's needs. And of course, our needs are short-term. What we want is gas now and next year in particular, more gas than we currently have contracted. And at least, the discussions are taking place. I'm encouraged by the tone of the discussions. So, that's around Maui.

Our guys are doing a good job to looking at all the exploration that was ever done in the past by smaller people, where the ones were capped, and whether or not it makes sense to bring that back on stream. And, as I said earlier, we're making proposals to owners of, people like [McKee Monongahela], and [unintelligible], even where we're prepared to spend some capital to encourage early production.

So, other than that I would be breaking confidentiality agreements. So, I just want to leave it that I'm encouraged by the way the discussions are going. But, I want to see contracts.

So, when you made the comment at the end of the quarter here that the expected production out of New Zealand, that's barring any new agreements that might push that up a bit?

That's correct. I mean the rate that we're running at now, we think we can run at for quite a while. And this is based on remaining Maui contracts and the other contracts we have in place.

And there's no reason for you to reassess your carrying costs of the New Zealand assets?

No. We look at it on a regular basis. And, you know, Ian and I just reviewed it again. I'm much more involved now on a quarterly basis, looking at all of our financial issues, to make sure they're strictly satisfied that from a governance point of view we don't have any.

We just reviewed it with the audit committee again yesterday afternoon, and we're comfortable with the basis that we have there. Ian, do you want to add anything?

No.

That was pretty clear.

Well no, I think Pierre said it all.

Yeah, I know. Thank you. And one last thing here is, is given that your sales were down 6% from the fourth quarter levels, and given that you think market demand is still holding up, does this mean you're losing market share? And, are you worried by that?

Are we worried? No. The numbers show just a slight couple of tenths of a percentage point on market share. We're not market share driven. We're leadership driven, not market. Not that a number, per se. We could sell, probably close to an 8 million tonne rate, if I picked the number, and Gerry's shaking his head positively.

But to meet our customers' expectation, to do that means we have to go and buy a spot. We can't find the spot material at a price that we'd be willing to pay. So, what we've decided to do is work with our customers. So, we honor our contract commitments, work on a couple of initiatives, like I was asked about Medicine Hat, you know. That's aimed at supporting customers. We're working on a couple of others that are aimed at, or at least one more, that's aimed at the same thing.

So, no I'm not--I think we've got--the relationships we have with our customers, they understand our situation. I guess I would answer it another way, as well. I mean I don't know of anybody who's spending a billion dollars right now, putting in place Ethanol capacity to support the industry.

But, we're looking to spend Can$1b. I mean if you look into what we're spending in Atlas, where we're planning what we think we need to spend in terms of Australia, and what we're spending in Chile, and one other thing we're looking at, you're in the Can$1b range. And when I go around the world and talk to our customers and say you tell me who else is making that commitment to the industry, they realize that we're totally committed.

And then we have to say to them, but this year we have a problem. And, let's see if we can work together to meet your needs and our needs. And up to now, that's working OK.

But yet, you increased inventories in the quarter.

No, no. Inventories actually went down.

I thought you said-[crosstalk].

Our inventories went from about 910,000 at year-end, to 870,000, I think, at the end of the first quarter.

OK, I thought your day sales had gone from to 50 from 40 something.

The day sales might have changed, but the physical inventory is around 870,000 at the end of the quarter, and trending towards 750,000 tonnes by the end of the second quarter, which is, I think, 47 day sales.

OK, thank you very much.

OK, thanks Bob.

Sam Kanes, Scotia Capital, please go ahead.

Pierre, I'm not sure if this is possible, but if you replayed the first quarter in terms of buying on the spot markets, there were some big flare ups on spot pricing premiums in the U.S. Gulf, vs. other markets. And if you avoided buying spot in the first quarter, would it have changed your results materially, in terms of your contracts, which you were able to change and defer?

The numbers actually are that we bought about 350,000 tonnes of spot in the fourth quarter of last year. In the first quarter of this year we bought about 275,000 of spot. So we bought less. When I say spot, those are amounts that were probably committed, Gerry-? No, three to four months before.

So, active terms of the accounting impact, I got, it was quite small. I think Can$1m or Can$2m was the loss on that, the accounting loss. Ian, have I got the right-[crosstalk]?

Yes, it's, I believe it was about Can$6m of losses in the first quarter.

In the first quarter, OK. I had the wrong number.

[Crosstalk].

I look at that as an investment, Sam, to make sure that we maintain the positioning with our customers.

Pierre, just to be clear, we lost Can$4m in the first quarter.

That's correct, and it was Can$6m in the fourth?

Can$6m in the fourth.

Do you anticipate, with spot prices being pretty steady with contracts at the moment that should be a wash in Q2?

We're continuing to forecast some losses in purchased products. In terms of what it's going to be specifically, I'd just hesitate to say at this point in the quarter.

OK. Thank you.

OK, Erica, I think we've been on for over an hour. I really appreciate everybody being online, and for the interest in Methanex. I guess, just to close, from our perspective we had absolutely superb results, particularly in an environment where other chemical companies are, of course, not delivering these types of results.

We've been at, I think, great results now for three or four consecutive years. We continue to feel quite optimistic about the next few. So, again, we'll try and maximize earnings and see what is the optimal way of returning the excess cash to you, the owners.

Thanks for your interest.

This concludes the Methanex Corporation's first quarter earnings conference call. Thank you for calling in today.