Methanex Corp (MEOH) 2003 Q3 法說會逐字稿

Welcome to the Methanex Corporation third-quarter earnings conference call. (OPERATOR INSTRUCTIONS). As a reminder, this call is being recorded on Thursday, October 21st, 2003. I would now like to turn the conference call over to Mr. Chris Cook, Director of Investor Relations.

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 I would ask that you please refer to the bottom of our latest news release and to our 2002 annual report for more information.

I will now turn the call over to Mr. Pierre Choquette, Chief Executive Officer of Methanex.

Thank you, Chris, and good morning, everyone. Welcome, again, to our third-quarter investor conference call. I'm in Vancouver. I have a number of colleagues with me in the room, primarily from the financial group. Bruce Aiken, who was recently appointed President for our Company is also on the line. He's actually in New Zealand today. But I will be making the remarks today, then we will be happy to take your questions.

Just as an opening comment, before I discuss the specifics of the third-quarter results, I would like to spend just a few minutes talking about 2003 in its entirety. Business fundamentals are good, particularly in terms of supply and demand, and certainly, our own financial results have been superb. For a chemical company to generate return on equity exceeding 20 percent, we think, is a great result.

But there's one particular event that has impacted our results for 2003 that's really not fully reflected, when you look at the financial analysis, which is typically, if you want a line-by-line analysis, as you do in an MD&A. And that event is the loss of low-cost capacity in New Zealand. Now, you will remember that we entered the year 2003 with close to 2.4 million tons of capacity on our site in New Zealand, but our production for the year, as we expected and as we disclosed early in 2003, will be just under 1 million tons. And that's as a result of lower natural gas supply. I mention this because at today's market prices, that loss of cash margin is in excess of $130 million, and it kind of overwhelms everything else, in terms of analysis. That loss of capacity in New Zealand also caused us to buy more products from third parties than we would have otherwise done, and that clearly was to meet our contractual commitments. And since we've incurred a small loss on the purchased product, that would add somewhat to the $130 million that I mentioned earlier.

Now, clearly, it's impossible to predict what market prices would have been, had New Zealand continued to operate at capacity. And that's obvious because that loss of capacity is equivalent to almost 4 percent of global methanol consumption. So it's important to keep that in mind. You might remember that early in 2003, our view was that prices would need to increase by about $30 a ton over the prevailing level at that time, to allow us to continue to generate good results. Again, I don't expect you to remember these prices, but prices were around $185/$190 a ton at the end of 2002. And it just so happens that this increase of $30 a ton is about what's going to happen for the year. So I think it's rather remarkable that we've been able to go through an event like this, which is a onetime event of a big loss of capacity, and still continue to generate good results. So this has happened, we're pleased with the outcome, and of course, looking ahead, the good news is that we're really well advanced now with projects to replace this low-cost capacity with new additions to our production hubs in Trinidad and Chile.

So I wanted to mention that up front, because that doesn't necessarily come out in the analysis. I'd like to turn it now to discuss the third quarter results.

We're pleased to again report another strong quarter of operating earnings and very healthy cash flows. As mentioned in the press release, income before unusual items was 32.1 million; that's 27 cents a share. EBITDA continued strong, at 83 million, cash flows from operating activities was 69 million. And as a result of this, particularly the cash flow comment, our cash balances at the end of the quarter increased to 309 million, and that, of course, is after the capital spending on major projects in Trinidad and in Chile. Looking at the revenue side, sales volumes for the quarter were similar to quarter two, just under 1.6 million tons -- 1.55 to be precise. And the realized prices declined to $216 a ton, and that compared to 240 in the second quarter. I always have a bit of a smile on my face when I talk about prices declining to 216, because that, of course, is still a very healthy price level for our commodity, as you know.

In terms of sales volume, we saw a small increase in Asia. As a matter of fact, we continue to see very strong demand in Asia, particularly in China. And our volumes in other regions were a bit lower than previous quarters.

If you look at the quarter on a macro basis, the reduction in operating income from quarter to quarter is explained by a reduction in sales price of about 29 million. And that was offset to a very significant degree by a reduction in unit task costs, which increased operating income by about 14 million. That reduction in unit costs was primarily the result of incorporating the impact of the newly-acquired Titan plant in Trinidad in our results. So it's starting to have the impact that we judged it would have.

On the less positive side, in the quarter, we did suffer major unplanned outages at our plants in Chile and Trinidad. In both cases, these were the result of massive power failures, particularly in Chile. f Just focusing on Chile for a minute, the lost production there was close to 130,000 tons. And it's not easy to be precise about the exact impact of this on our results. Of course, it depends on how the product flows through inventory, but certainly, we know that we will not recover this, and we estimate the forgone income, at some point, to be close to $10 million. As of now, our production plants are operating very well.

Also, late in the quarter, we took a decision to cancel the project in Australia; that was a difficult decision, given the importance to us of the Asian markets and the time that we had spent on this project. But clearly, the economics simply could not meet our investment criteria, and we have no intention of embarking on projects, particularly of that size, that will not provide adequate returns for our shareholders. The cancellation of the project led us to write off the capitalized development costs of almost 40 million, and this reduced after-tax income from 32 million to a loss of 7.8 for the quarter.

I'd like to move on, now, to discuss our strategic priorities, and describe briefly the environment that we find ourselves in. I mentioned earlier our projects in Trinidad and in Chile. I mentioned this on the last quarterly call, but I will repeat it again. We did have some construction delays last year, at the Atlas project in Trinidad, but we still continue to expect the plant to be operational in the first part of 2004. The remaining cash estimates (ph) to complete that project are about 42 million.

In Chile, the Chile IV project is proceeding well; it's on time, it's on budget. We expect the plant to be onstream in the early part of 2005. Our capital expenditures in this project during the quarter were about 15 million, and the remaining capital to complete the project -- that includes capitalized interest -- is about 185 million. Just want to remind you again that at midcycle pricing, these two projects will add well in excess of $100 million of EBITDA to our cash generation. And that's not a projection; I'm saying well in excess because it is well in excess of 100 million.

I'd like to provide a brief update on the gas supply situation for our New Zealand plants. The team in New Zealand continues to work hard on a number of initiatives to secure gas. However, our position today is that we have almost no contracted gas for 2004. Unfortunately, all of the opportunities and possibilities are coming together in the fourth quarter. And while there can be no certainty, certainly we are continuing to be optimistic, and our planning base is that we will secure sufficient gas at reasonable prices to operate our plants in 2004 between 500,000 tons and 1 million tons. We're actually going -- we're currently going through a downsizing of our organization in New Zealand. We are attempting to adjust the staff to be more in line with the expected production level, and that will result in redundancies of 70 people before the end of 2003.

Turning to the current environment, demand and supply are globally in balance. Prices are relatively stable. I say that, although stock prices have been creeping up. In Europe, the Q4 price was recently settled at EUR190 per ton; that's a little bit over $220. As I just mentioned, stock prices in Asia and in the US have been edging upwards in recent weeks. Our own Methanex posted contract prices in Asia and North America for October are -- closed between $225 and $230 a ton. We continue to see high natural gas prices in the US, and of course, that underpins our flow price for the commodity, and as everybody knows, the volatility of natural gas prices over the past few weeks. On the demand side, demand in Asia continues to be quite brisk, demand in both North America and Europe is subdued, and of course, it's the economic activity that expects that over the next few quarters and next year that will be the most significant factor in influencing methanol prices, and we certainly are encouraged by the general consensus for reasonable growth in the coming quarters, and some of the latest projections in terms of industrial production globally. And the latest, projections are up over previous ones.

I would now like to make some comments regarding cash on hand and priorities for the cash. I would expect that most listeners would know that we are committed to returning surplus cash to shareholders. For example, during 2003, we've repurchased $90 million worth of shares, we paid a special dividend of 25 cents per share, we increased our regular quarterly dividend by 20 percent, and so the total distributions for the year are around 150 million. And that's typical of Methanex, and that's -- the track record speaks for itself.

We have a few factors that we need to address, in considering how to manage our cash position. We do wish to develop an Asian in-region supply source. We are in the early stages of working on a few initiatives, and it is too early to discuss the details of these initiatives, but we are working on them. Another important factor is that at current interest rates, large cash balances result in a significant negative carry, and that destroys value, so that is not healthy. So once the strategic alternatives to supply Asia are clearer, we will, as we have done in the past, find the optimum way of dealing with excess cash. As a reminder, our priorities for cash have always been to support strategic initiatives first, insure we have appropriate leverage, and then return excess cash to our owners. And as I said a few minutes ago, our track record speaks for itself.

And lastly, some comments on the short-term outlook. Stock prices have shown some strength, but when we look at transaction prices, particularly on our own transaction prices, for the fourth quarter, we would expect our realized prices for that period -- for the quarter, that is -- to be approximately $15 a ton below the level of the third quarter. As we have done in the past few quarters, we also plan on further improvements in cash costs, and higher levels of produced product. And at this point, the combination of these two factors would result in a small -- and I mean small -- reduction in EBITDA. Below that, we do expect depreciation to increase in line with increased production. It is also our intention in the fourth quarter to take the charge for redundancies in New Zealand and Medicine Hat. We would expect that to be around $7 million, both before and after tax.

As a reminder, by the way, we had been doing some work to potentially restart the Medicine Hat plant, and organize ourselves to do that. Our judgment today is that that is not the right decision to do so. We have abandoned that at this point.

I think an appropriate comment, too, would be on the tax rate. The tax rate has been edging up over the last few quarters, primarily because we get lower contribution now from New Zealand, where income previously was not attracting accounting tax, so for the fourth quarter, we expect around 40 percent tax rate, and structurally, this is where we're going to be for a while.

Looking out longer-term, our views have not changed at all; they remain very positive. They are based on fundamentals, very good supply and demand fundamentals. If anything, looking at recent announcement on projects, probably better than we've felt before. Strong North American natural gas prices provide a good floor price mechanism for the commodity. And in our case, the prospects of bringing onstream two low-cost plants in the next 15 months, all of that results in a good environment for our Company. And as a reminder, we are not deviating from our sole focus of maintaining our leadership in this business.

So I will stop here, and we will be happy to take your questions.

Peter Butler, Glenhill.

I hear what you are saying about cash flow, but you guys are emitting mixed signals. The press release that went out talked about directing cash flow to new opportunities, etc. It was almost an afterthought you put in returning cash to shareholders. And in page eight in your press release, you repeated the statement about pursuing opportunities, but you didn't even include the mention of cash to shareholders. I think investors maybe really aren't sure, and why not an ongoing share repurchase program right now? And why not a higher dividend payout right now?

Without looking specifically at the remark that you're referring to, I guess I'm a bit surprised to get that question. This is the 35th or 36th conference call that I've had for our Company, and over the past two years, I have consistently said that we are totally focused on methanol, that the way that we've organized our business results in substantial excess cash flow, that we have a track record of returning it to shareholders, and I just thought that I made the same comments again today in my remarks. So Peter, it is not an afterthought. Actually, I mentioned today again in my remarks that sitting on cash that gets a negative carry is not -- does destroy value. So for us, it's a matter of finding the optimum way of returning it. In terms of opportunities, up until now, we felt it was appropriate to have the cash, because we were looking at the project in Australia. None of the alternatives that we would contemplate to find a supply -- another supply alternatives for Asia are on the order of magnitude that we had for Australia. So once we've got these sorted out, we will again take a look at the optimum way of distributing the cash. And my God, you know, the track record is there. 150 million in the past nine months. For a Company that has a market cap of 1.2 billion. That's not bad.

I'm just saying investors get mixed signals, though, when you -- they don't follow you on a day-to-day basis like a lot of people, and when they -- when the average investor sees pursuing opportunities, he doesn't remember that you said, "We're not going to make acquisitions," whatever.

Peter, I appreciate you giving me the opportunity to reinforce the point. The simplest message I can give to shareholders is, we are a company that transforms natural gas into excess cash flow -- excess cash flows for the benefit of the owners.

I do have a happier-sounding question.

I thought the first one was happy.

I'm interested in your China business. I think -- I'd be interested to know on what basis they buy, presumably spot, how much they are buying now, and where could that go in the next year or two? Do they have the potential to soak up a hell of a lot of the excess supply just by themselves?

Just a few comments on China. When we put together our most recent plan, we continue to see China as a very significant importer. A few million tons of methanol -- I think maybe offline I could be more precise about the number, because I don't have it in front of me. But certainly I would make that available to everybody. And strategically, we want to be a major player in that. So that's the first point. We continue to look at the opportunity to locate terminals at the right place in China, so that we can be seen as a strategic supplier, which we are today. We have also organized ourselves to have an office in China in the past year, so that's in place, and we're much more on top of the opportunities today that we have been in the past. There are a number of developments in China that are quite interesting. One is that there is a movement to do what had been done in South America seven years ago, which was to use methanol directly into gasoline blends. And some of the car companies are gearing themselves up to do that. There's also a movement to build small methanol plants that go directly to DME, and to use DME in terms of -- for power. For energy use. DME is dimethyl ether. So in terms of the one part of your questions about demand, we continue to see tremendous potential for growth in methanol in China. Offsetting that demand is the fact that the Chinese are keen on building a number of small plants to meet that demand. But we continue to see them as a very significant importer. You mentioned is it spots or is it contractual business? We actually have some contracts, with a few customers directly inside China, and some of them are longer duration. So for us, it's primarily contract business, but there is also spot business done with some of the suppliers that don't have the same reliability, in terms of track record. So I hope that long answer does cover your point.

Yes, I was asking whether you have the -- China, in aggregate, has the potential to soak up a lot of the current surplus.

Yes, well, first of all, I don't think there is a current surplus. Today, I think the market is well balanced. And second, that's why I mentioned -- the underlying demand is growing at 8 to 10 percent, so that's significant, but I also tried to outline (ph) new applications that are developing into China to address that point, because I think it has the potential -- to use your words -- to soak up a lot of demand.

Well, thanks for the help, Pierre.

Samuel Kanes, Scotia Capital.

Two questions, both accounting, I guess. Pierre, you mentioned 130,000 tons, in your remarks, from Chile that was your shortfall from I guess primarily blackout. Was the other 60 split equally between Kitimat and Trinidad? You mentioned that both had unplanned outages, as well. And are those repaired, and more broadly, one year out, what is your target utilization, going forward, that you can control?

I think remember mentioning 60,000, but 130,000 tons was definitely in Chile.

Your press release mentioned 190 for all three.

Okay. That's correct. It's a little bit more towards Kitimat than Trinidad. Trinidad, in my recollection, is around 20,000 tons; the rest would have been in Kitimat, which was down for almost an entire month, for a plant turnaround. Although we had some equipment difficulties, which we decided to fix, and the turnaround took a little bit longer than planned. Going forward, our plan, which we have always met, is 96 to 97 percent utilization.

I'll ask one more question -- as you build these new plants out in Trinidad and Chile, and they come onstream, could you or your colleagues on your financial side help us to understand how cash taxes payable will change as a percentage of this 40 percent you're giving us, because both countries, I believe, have front-end loaded brakes, from a cash tax point of view. And if you reinvest money in Chile, I guess you get a discount rate, which is what you are of course doing. And maybe you also have something to say about the way your gas contract works. If I understand, those are front-end loaded discounts, as well, in Trinidad.

What you mean by that, that last point?

The last point is that my understanding -- they may not be broad-based, but certain contracts have been signed with the ammonia/urea (ph) producers, whereby gases for the first five years is materially lower than the last five years of the 20-year contract.

Okay, let me answer the question on the gas contracts, and I will ask Ian to make some comments on tax which hopefully can help. And I -- always important to remember how our gas contracts work. And I say this because right now, for instance, in Chile, our price of gas in Chile has probably just peaked, because it's a 12-month trailing average, so from here forward, depending on what happens to prices, they will either stay the same or start to come down. So in Chile, prices fixed, as long as, generally speaking, the price of methanol is 150 or below. And other than that, it is totally fixed for 20,027 (ph). And it only goes up in a margin-sharing arrangement. When the price goes above 150, it's on a trailing 12-month average, and the margin-sharing mechanism with the producers is around 20 percent. Trinidad's quite different. There are these steps, as you mentioned, for I have never seen an ammonia contract, but you just mentioned it. So it's the same as methanol. First five years is at a particular level, then next five years a little higher, next five years a little bit higher. And on top of that, there is a margin-sharing mechanism. So quite different, but it reacts also quicker. So today, for our Titan plant in Trinidad, because spot prices did come down over the past six months, on a quarterly basis, our cash costs in Trinidad have come down faster than in Chile. On tax, Ian?

As Piere mentioned in his remarks, structurally, our tax rate going forward is around 40 percent. And the breakdown between deferred tax and current taxes in the near-term is about 60/40. In terms of our new assets, let's start with Chile. In Chile, when Chile IV come onstream in 2005, there is an accelerated depreciation for that asset. Having said that, the rest of the Chilean operations have been heavily depreciated from a tax perspective already. So that will be incorporated in the mix that would get to this sort of 50 to 60 percent deferred current split.

And that tax in Chile is?

35 percent. So the tax rate -- the overall accounting tax rate is 35 percent. There's a Tier 1 tax which we pay upfront on a taxable income of roughly half of that, and the rest would be deferred taxes. In Trinidad, there are tax holidays that scale, over time. In Titan, it expired in 2005, and for Atlas, they would go through to 2008, 2009. Having said that, during these tax holiday periods, there would be some accounting tax, but we're waiting on cash tax or limited cash tax. So that sort of all contributes to this mix of a roughly 50/50 current deferred split going forward.

You're at that currently, of course, because that's what your year-to-date numbers show. I just thought that that might have tilted, or about to tilt a little bit, next year and hereafter, towards more deferred.

It does slightly, to more towards 60/40.

Okay. We should use 60/40, then, generically, for '04/'05?

Yes.

Okay. Thanks, Ian.

And a challenge for us in terms of taxes, of course, was that we have costs in Canada but no income. And that's why the tax rate has been creeping up, as well.

Bob Hastings, Raymond James Equity Research.

Maybe just a couple of technical questions here. From the outages that occurred in the third quarter, is there any impact that will be continuing from those in the fourth quarter, just because of the inventory situation?

No, Bob. All I was trying to say, with the 130,000 tons -- and I hope I'm addressing your question here -- is that you know that you've lost 130,000 tons in Chile of low-cost capacity. That will never be replaced. So there's $10 million there, approximately, of foregone income. But no, the fourth quarter is pretty straightforward. There's a small -- there's a reduction in price, as I mentioned, which one can easily calculate, and from an EBITDA point of view, offset to a very large degree by improvement in costs and expectation of much higher production. Actually, for the fourth quarter, we also have expectations of quite high sales volume. So, it was wrong. So we do expect higher produced product and purchase product, actually.

And your inventories came down a little bit in the quarter?

They did, and we also expect them to continue to go down to -- I believe the level is around 850,000 tons by year end.

Okay. And the timing of the Atlas, you said it was in early 2004. Is that in the second quarter?

We've never been precise, but also don't like to play games, so the current window is between mid-March to mid-May. If things go well, it will be the end of the first quarter. If productivity continues at the levels that it's been at, then it will be early second quarter.

And then we should assume a month light (ph) to build inventories?

That probably would make sense, yes.

And the last thing is that you seem to stress, in your announcement last night, that with regards to New Zealand, that there was no assurance that the operations will generate sufficient cash flow to recover their carrying value. Is that sort of a hint, or an increased risk that there may be a write-off coming in that plant?

I don't think it should be taken as a hint or increased risk. I think there is a process that we go through. We thought that it was appropriate to bring it out, Bob. The fact is, we do have uncertainty about gas. We thought it would be resolved earlier. But all of the alternatives that our people are looking at are really going to be finalized in the fourth quarter. So I mentioned the planning base of 0.5 million to 1 million tons, but we don't know that for sure yet. We don't know at which level. And once we know, then we will go through a formal process, just like we did last year, of looking at the carrying value of that asset. And it's only at that point in time that we will be able to make that judgment, but we wanted to highlight that yes, there is uncertainty. And we will go through that process at the right time. We do not know the outcome right now.

So the fourth quarter is going to be key, here, in how much cash you can get?

I believe so, yes.

As an associated matter, then, Medicine Hat is still on the books for $61 million. You looked at restarting it this year, when demand was tight, and decided not to. When we look out to next year, with Atlas coming on and then Chile IV coming on the year after, is there any reasonable expectation that that plant could be restarted?

Well, I guess one way to answer it is that we did spend some dollars over the past six months to position ourselves to restart. We actually only made the decision not to restart in the past 10 days. At that point, we had almost 60 people on the site. And the plant was waiting, maybe, for our decision as a management team of whether or not to go ahead. And our judgment was that looking at our overall supply and demand, and other options that we have, and the price of natural gas, that that was not the right decision to make. So we are now re-mothballing the plant with those people. So we have always looked at that as a flexible asset, and it's in that context that we would look at the carrying value. Again, go through a similar process internally, and then with our audit committee and auditors, on whether or not the carrying value is justified. Ian, do you want to add to what I just (multiple speakers)?

I think you said it well, Pierre.

Thank you very much.

(OPERATOR INSTRUCTIONS) Brian MacArthur, UBS.

I was just interested if you could elaborate on your comments that you didn't see anything as large as Australia potentially available, going forward, to replace your lost capacity in New Zealand. Because if you're down sort of 1.4 million to start there, China is growing, Asia is growing -- does that mean we should think you're going to look at a number of different plants to support Asia, or would you consider something large in the Middle East, or was your comment just referring to no large projects in Australia?

Having spent, in my case, since 1995 exploring opportunities in Australia, because I really felt it made a lot of sense, we're not going to go back to Australia to do a project. So we've come to the conclusion that, while gas contracts there are attractive, and location, in terms of logistics, is attractive, we just cannot come up with the technology, or with a size of a plant appropriately built that gives the capital cost that gives the return we're looking for. We were 5, 6 percentage points off from our target return. So we're not going to do that. In terms of alternatives, I want to point out, first of all, that we've demonstrated this year that we can maintain a presence of well over 2 million tons in Asia, supplying to a significant degree from Chile and from Kitimat. So that flexible Kitimat asset has been very good for us, and we've done this actually without being cash negative. So that's another important point. We continue to gain confidence in our ability to supply from places like Chile.

So the alternatives that we would look at, I think, would fall into three baskets. One is, can we put in terminal facilities in Asia so that we can supply from Chile in much larger quantities, and we would be able to do that particularly after some of the Trinidad capacity comes onstream and Chile IV comes onstream. That clearly requires expenditure in terminals, and that is nowhere near the type of capital that you would see in a green fuels (ph) plant. A second alternative is that we have been approached, from time to time, to participate in projects in other regions, where we might be willing to be a small equity investor, but have a very large marketing position. So, as a result of the cancellation of Australia, we're more interested in looking at that, and we are exploring one of these opportunities right now. I'm not comfortable talking about the details. And finally, we have also been approached, from time to time, to see if we would be interested in buying existing assets to supply Asia. And we are pursuing that right now. So those would be the three types of opportunities we would look at. We don't need a year to explore these, but they will be a lot of focus for us over the next 12 months. And we will mark them off one at a time.

So, effectively, you're saying you're able to offset the additional transportation costs from Chile, which will be your main site to Asia, vis-a-vis doing expenditures in other regions. It's just that $20 a ton, or whatever, you just can't get a return in something else to offset that; it just makes more sense to do that.

Well, you know, when we presented our proposals for Australia to the Board, we always had cost curves in there, showing the ability of people from the Middle East or Malaysia or Indonesia or Australia to supply particularly the target markets for us -- the large markets are Korea, Japan and China. And on that cost curve, we also put delivered cash costs from Chile. When you've got plant gate (ph) cash costs in Chile, which I mentioned before, below $50 a ton, you're pretty competitive to find that (inaudible). So the problem is that we don't want to do it in small shifts. So if we can find a way of moving in larger quantities, I think that's one viable alternative.

Bruce, do you want to add anything to what I'm saying?

I think you've covered it very well, Pierre. I think we would like to have an in-region supply source to supplement the volume that we can bring out of Chile. We think that makes strategic sense for us. So we will look at these opportunities as they come up from time to time. But I think you've said it well, Pierre.

I mean, currently, our in-supply source is 900,000 tons coming from New Zealand. The rest is coming from Chile and Kitimat. Did I answer your question, Brian?

Yes. No, that was a great answer. Thank you very much.

Jerry Katanatsche (ph), Principal Capital Management.

This is Alan, for Jerry Katanatsche. I was just wondering, as Trinidad starts up, in terms of the fixed costs or non-gas cost per ton -- that's how I think about -- is their going to be any material improvement, just from sort of the elimination of startup, or absorption of fixed overhead, stuff like that?

I'm not sure I'm getting your question, but let me try and answer this way. If that doesn't get at your question, then please ask me again. Once Trinidad starts up, so we would have 1.7 million tons, of which we would own 60-some percent, so about 1.1 million tons equivalent in Atlas, just under 900,000 tons in Titan, and then 3.8 million tons in Chile. Basically, these plants are all very low-cost, at midcycle or bottom of the cycle, which is when you really want to measure the cost structure. And those plants, combined, meet our longer-term target, which was $85 to $90 delivered cash costs. And of course, that's a very dramatic improvement over where we are today.

Okay. If I could ask it one more way, what's the Trinidad operating rate? I mean, you've produced, I think, just under 400,000 tons this year. What's the operating rate in Trinidad at the Titan facility? I get the two confused, but I think that's right.

The Titan facility, which is the one that we bought, that we own 100 percent, except for that one power failure, where we lost 20,000 tons, the plant has been producing at an unbelievably steady rate of about 900,000 tons per year, every single week since we bought the facility.

Okay. That helps. Thanks.

Bob Hastings, Raymond James Equity Research.

It seems like you're getting off too easy on all the questions. I thought I would jump in with some more.

I always look forward to a good, vigorous debate.

This isn't in the debate category, but just wondering two things. One is the percentage of sales around the world that you had, whether that's changed. You said China's been stronger and you've seen some weaker demand elsewhere. So I was wondering how those sales are going now.

(multiple speakers).

-- by what you see sort of going forward.

Actually, in an environment where we've been limited, in terms of supply, we've tried to organize our sales to basically meet our contractual commitments, which were around 6.9 million tons for the year. So that's why I don't talk very much about volume, because it's not that meaningful. We're just trying to organize ourselves to optimize income around that 6.9 million tons with our customers. I did mention in Q4 that we see much higher sales volume, so in Q3, first of all, there was not much change in mix, except as I mentioned, there was a tiny improvement in Asia. And that was offset by some reductions, primarily in the US and in Europe. Looking at the fourth quarter, we expect to see almost 8 or 9 percent improvement in Asia, and a huge increase in North America; that's because we've picked up some new accounts in North America, and we're also benefiting from some of the plants that have shut down, like Air Prada (ph). So we're actually -- our anticipation for the fourth quarter is an increase of almost a couple hundred thousand tons over Q3.

I have always assumed that Lyondell's plant would shut down once you get operating control of it, and you'd shut it down essentially when Trinidad -- the Atlas plant came up. Do think supply is tight enough that you'd keep that plant running?

I think that's a great point. One of the things I like about having that flexibility is, depending on what happens with New Zealand gas, and what happens in terms of Atlas, we've always got that plant of Lyondell, where we have operating rights as a source of product in the short term. So it's -- we thought that that was one aspect of the transaction that was very attractive to us, to have that flexibility. So we will have to wait, Bob, and see how we do on New Zealand gas, what exactly is the timing of getting full output out of Atlas, and then make the decision on that facility.

What are your major customers telling you, in terms of their outlooks?

Well, I actually just spent a fair amount of time with customers last week in Europe, a couple of weeks before that in North America, and next week I'm going to Asia. It's actually quite a mixed feedback; it depends on the end uses. I had a chance in Europe to see customers that are in that big category of "other" -- other end uses. And those customers are quite bullish, actually. These are people like MMA and methyl methacrylate and other end-use applications. The formaldehyde producers, I think overall, talked about challenges in the structure of their industry, but from a demand point of view, things are quite good. I think it important to comment on the situation in Europe. There's a lot written about the levels of water on the Rhine, and how it impacts major customers -- people like BSF (ph), for instance, who have a tremendous number of movements on the Rhine. From a logistics point of view, they have had to change the way they do their logistics, but they still feel quite positive about demand for their products. And at a place like BSF -- and I was talking about this last week -- methanol goes into about 100 end-use applications. So they may feel reasonably good positive about the outlook; that's good. And Jerry Guthrie (ph), right now, is in Japan, Korea and China, and I'm going to join him tomorrow. And the feedback we're getting from customers there is also positive. So that's why I think, from an economic point of view, we could be coming into a period that's positive. So that, combined with new plants coming on and plants shutting down, I think harbors (ph) well for next year.

Great. Good summary. Thank you very much.

Samuel Kanes, Scotia Capital.

I don't have a debate question, either -- just elongates (ph) clarity of various points. BP, months back, said they are going to leave a variety of different chemical businesses, including methanol. That probably led to your purchase of their position in the Titan plant. Where do you stand, Pierre, with BP on their fractional interest in the new Atlas plant?

Well, we do have dialogue with BP. We're always interested in what their strategic position is. The basic dialogue is -- I'm not even sure if I can find the right words here. It would go something like this. Did you invest originally in Atlas, which was before we got involved, because of gas monetization, or because you wanted to be in methanol? And now that the plant is being built, is this a strategic investment for you? So, we have -- of course, we participate with BP in Atlas Board meetings on a regular basis, and we have asked that question, and we will continue to ask. Clearly, from my perspective, my vision of Trinidad is Methanex Trinidad; it's not Atlas or Titan. It's Methanex Trinidad. I would like for Methanex to have that 2.5 million tons of capacity into our stable. Having said that, BP is a great partner. And if they did indicate an interest in divesting, which they have not yet, it would be a matter of value.

So there's no preset price like there was in the Titan?

No, there is not.

Thanks, Pierre.

Don Anderson, Salomon Partners.

Just wondering if the Chile spending left over the next five or six quarters is going to be evenly spent, or how would you characterize that, please?

Actually, for Chile, what we currently have is -- when I look at the numbers, I would say it's something like it happened this way. But somewhere around 50 million this quarter is what we're getting from the Chilean team for the fourth quarter. And then around 75 million for 2004, and just over 30 million in 2005. So -- it's tough to answer by quarter, but that's the current view. And to help in the case of Atlas, we would have about just over 20 million in Q4, and the remainder is 42 or 19 million in the first quarter of 2004.

And then will some of that be paid back to you from project debt? Or how will that work for Atlas?

In the case of Atlas, I'm talking about our cash equity requirement. So that's our cash.

Great. Thank you.

Brian MacArthur, UBS.

I just wanted to follow up on something Bob asked earlier. We talked about historically Medicine Hat has always been viewed as a swing producer, if you want to look at it that way, and now, with Lyondell coming into your stable, control of that plant in 2004. Which one of those would you view as your first choice swing producer? Obviously, it depends on which customers you have where. I guess what I'm trying to get at is which one of those is more useful for supplying your mix, going forward?

It's a good question. It's a tough one to answer, because I'm not one to avoid answering a question, but it really depends on how much gas we have in New Zealand, and when the plants start in the new plant in Trinidad. Having said that, we were looking at Medicine Hat. We made the decision 10 days ago, at this point, not to restart, and that's because we have the flexibility of Lyondell. And at this point in time, given where the customers are, that's the best outcome. But longer term, my view of what we should have in Methanex, and this is the way we present our strategic plan to our Board is, low-cost plants with a Chilean hub, a Trinidad hub, at this point, that operate 100 percent, and as two (ph) swing plants -- which might be high cost, but you might be comfortable having that high cost, because they serve a purpose in terms of swing plants. And hopefully, that can continue to be New Zealand, at the 500,000 ton plus level, and Kitimat and Medicine Hat can fall into that category, as well. In terms of Lyondell, that's a short-term alternative. And we wouldn't look at that at all as a swing plant after Atlas starts up.

So it wouldn't be like Fortier was, for a while a few years ago, where you kind of had that sitting around as a swing producer for that region?

No, not at all. I think Lyondell can speak for themselves, but they have plans for that facility to do other things. So we have rights for a period of time, and now, we're working in tandem with Lyondell, which is a very large customer of ours, to make sure that we can supply them. And that involves utilizing that facility in the first quarter if we need to.

Great. Maybe if I can ask just one last question. I know you have put it in your press release this time, too. What's your latest guess that when NPC or Randall (ph) start up?

Actually, the --

You hear different reports now.

Yes. Yes. I can tell you that -- well, I just read our quarterly marketing report last night, from the four regions, and paid particular attention to Asia. And our marketing guys there are making a lot of comments about expected capacity in places like China and the Middle East. And their source of information is from the potential customers. I want to emphasize that. So our source of information is either, as I mentioned in the past, from engineering companies or the people who buy from these new facilities. So the latest information that we have, in the case of Iran, is that Iran are telling their customers -- now, I'm not saying this is factual, I'm saying this is the information we have -- the plant is unlikely to be complete and ready for startup before the end of the first quarter, and product will be available in the second quarter. That, by the way, is what we've been saying for two years.

And here, we're just talking about the first one, right? NPC 3. Not NPC 4.

That's correct.

Great. Thank you very much for answering all the questions.

At this time, we have no further questions in the question queue.

I think I'd like to close with one comment, and it's really to go right back to the first question that was asked in this session. We continue to be very focused. Methanol is our only interest. We do believe that we're a Company that generates substantial excess cash. We do have 309 million of cash today. When you look at the cash generation that we have, at this point, the one that we expect for 2004 and 2005, in the absence of other major projects, we clearly have substantial excess cash. And that will be for the benefit of the owners, and we will continue to find the best method of getting -- dealing with that excess cash. So we stand by our track record on that. And we thank you for participating in our call.