Methanex Corp (MEOH) 2004 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 remainder, this call is being recorded on Thursday April 22, 2004. I would like now to turn the conference call over to Mr. Chris Cook, Director of Investor Relations.

Thank you Cindy. 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 today may contain forward-looking information. This information by its nature is subject to risks and uncertainties that may cause the stated outcome to differ materially from the actual outcomes. So I would ask that you please refer to the bottom of our latest news release and to our recently published 2003 annual report for more information. I will now turn the call over to Mr. Pierre Choquette, Chairman and Chief Executive Officer of Methanex.

Thank you Chris. And good morning to all of you who are online or by Web cast to listen to our remarks. In terms of process I will make a few general comments about the current environment and then I will turn it over to our President Bruce Aitken for more detail remarks, and then of course well all of us here will be happy to take your questions. So we continue to be very encouraged by all the factors that impact our business, let me go through a few of them. The first would be that general and economic conditions are favorable. We pay a lot of attention to global industrial production in particular. Consensus forecast for that is now above 4.5%, that's a main driver for our business. So we should demand quite good across-the-board, which means across most end users and geographies. On the supply side, supply is adequate but capacity utilization is high and that's resulting in a well-balanced market, and of course that's a very conducive to a good pricing environment. Our own plans are now running very well. The Lyondell and Terra transactions which we've executed over the past twelve to eighteen months have turned out to be very timely transaction for us. They had given us very good supply flexibility invest at a reasonable cost. Natural gas of course, which underpins the floor price for our commodity, continues to be high, so that's a positive. On the marketing side, our marketing people have done an outstanding job, our customer mix or marketing mix has improved substantially compared to where we were last year and that's given us improved netbacks. We also have a great mix now of short-term and long-term contracts for our total sales volume. We continue to see improvement in the safety environmental area and keep our activity areas like logistics. On our major projects, Bruce will go into that in detail, but the major project in Trinidad is in the start up mode now. The expansion is on track. We've taken advantage of dis-environment to repay some project depth in Trinidad, and that's have some associated side benefits, and again Bruce will describe in more detail what that is. And finally, we are really pleased with our results, I mean that's the quality of results were that gives us some return on equity well above 20% again, and that's a good environment for us and that should allow us to look at further shareholder distributions in near future. So with that as general comments, I'll just turn it over to Bruce.

Thank you Pierre. And good morning everyone. As Pierre has mentioned we are delighted to have produce another excellent result for the quarter. Our EBITDA at $93m, is an increase of $10m over the EBITDA for the fourth quarter of 2003. This is mostly as a result of an increase in the methanol price, we earned at $220 per metric ton price in this quarter relative to a $204 price in the fourth quarter. Our sales for the quarter actually increased to the highest level we've had since the end of 2002, when we still had our plants operating at capacity. The mix between produced purchased methanol within the sales mix did see a small reduction in producing methanol, but really this is a timing issue and there is nothing of significance in that variation. Our net income for the quarter was $47m, or $0.39 per share also a good increase on the fourth quarter. In fourth quarter, we hit the four unusual items, net income of $28m, or $0.23 per share. So overall a very healthy improvement in results quarter-over-quarter while our results, our operating results were very close to forecasts. We didn't receive a positive gain below the line. Our tax rate was 33%, which was a little lower than our forecasted rate of 35%. as a result of clarifying several tax issues in Trinidad. We also enjoyed a small foreign exchange gain as the US dollar strengthened during the quarter and a small accounting gain from the repayment of the Titan bid that we have referred to. So, reiterating again Pierre's words, we continue to be in a very positive environment in this small industry. The demand for our product is good all regions.

Our customers are reporting to us and improved operating environment related to 2003. Demand growth in China continues to be extraordinary. One industry commentator calculates demand increase in China of 25% in 2004, our own analysis is more conservative but still indicates very strong growth. Globally, we expect to see an increase in demand of about 1m tones in 2004. In the US, the one methanol derivative that is under pressure is MTBE. A combination of state bends in various parts of the US, litigation, and continued uncertainty regarding the passage of the energy bill is impacting the environment for MTBE. While demand for MTBE in advance of the driving season has been quite strong, MTBE is trading at a substantial discount to its gasoline blending value suggesting that refiners are preferring alternative gasoline blending components despite a significant economic advantage for MTBE blends. Of interest, all the other major gasoline-blending components are trading at a premium to their blending values. We are hopeful that for MTBE, since we'll provide on the longer term and that MTBE producers and refiners will be protected from defective product lawsuits as proposed in various reasons of the store energy bill. It is our , we would expect the more positive environment for MTBE in the US. However, even in this environment it is interesting to observe that despite the events that I described regarding MTBE, the methanol industry demand supply balance is evenly poised. On the supply side of our industry, there is nothing of great consequence to report.

High North American gas prices are prevailed throughout the quarter, meaning that North American methanol producers are operating at either low or no cash margins. There have been a number of relatively short outages in the industry but nothing that could be regarded as extraordinary. Our own plants have enjoyed improved reliability in Q1, for the reliability rate of 96%. We have achieved the highest level of production from our own facility during the quarter, again, since the end of 2002, when our New Zealand plants were operating at capacity. Our plants in New Zealand produced 289,000 tones during the quarter, which is somewhat higher than we expected at the beginning of the year. Our team in that country has been very successful in contracting small short term passes of gas and the plants continue to make a contribution to our earnings and cash flows. The gas environment in New Zealand continues to be difficult going forward and our focus is quite short termed. A significant achievement during the quarter was the repayment of the Titan project debt. The repayment totaled $182m. But this also resulted in a release of $14m from the debt reserve fund. But at the end of last year, the debt reserve fund was categorized as other assets rather than cash. So, the net repayment was there for $168m. Taking account of scheduled repayments of what have occurred in any event during 2004, we have effectively the accelerated the repayment of $135m of debt. Our finance team did an outstanding job to repay this debt with no great cost, with a small gain to Q1earnings in this transaction, and ongoing positive earnings impact represented by a reduction in interest expense. There are also quite significant savings of operational costs and some interesting future tax benefits. In summary, we judge this to be an excellent value adding transaction for the company.

At the end of the quarter, our debts totaled $594m while our cash balance was $149m. Our forecast remain in commitments are a two major projects, in Trinidad and Chile, total of $130m as on March 31st. So, we have cash on hand to complete all of our major capital projects. We have in the past explained our approach to cash management. We take a belt approach between reinvesting in our industry, maintaining a prudent balance sheet, and distributing cash to shareholders. In an environment of strong units and cash flow we are well positioned to contemplate further distributions to shareholders. We indicated during our last conference call that we are contemplating a normal course issue of bid and an increase in our regular dividend. But also that we wish to remove some of the uncertainty related to the start up our major projects. We continued to make good progress with the start up of the Atlas plant in Trinidad. We've commissioned the air separation unit and most of utilities. We expect to commission the reformer and the synthesis loop starting in the last week of April. So, while there are numerous tips on the prices of commissioning of plant of this size, we would expect the plant to be producing methanol by the end of May. While there may be a modest positive earnings impact on Q2 from this new low-cost plant. We would not expect to see the full impact at this time in our results until Q3 and Q4. Actually, full project has made excellent progress and it's both on budget and on schedule.

We have also talked in the past conference calls about our need to find a long-term supply solution for the Asia Pacific market. We have now made the decision to expand their storage terminal in Yeosu, Korea. The original investment was made in 1998 and has been an outstanding success for us. We will be spending up to $10m to expand this storage terminal and this will provide us additional flexibility to supply our customers in the Asia Pacific region. We continued to work on a number of other potential projects for the first early stage we have incurred no material costs. So, a few closing comments on the short-term outlook. Methanol prices remain firm and stable. The European Q2, price was set at 200 euros per ton, which was an increase of 10 euros per tone over the Q1 price. The Methanex, Wakelands price in North America and Asia remains around $250 per tone. We therefore expect selling price in Q2 to be similar to Q1. As I mentioned earlier, we expect that the Atlas plant will commence production during Q2. We are planning at the same time with the start up to cease production from either the Terra old line and possibly both of these plants. When we are unable to do this there will be an immediate positive impact on our earnings. As we replace first cost North America produced methanol with lower cost methanol produced from Trinidad. By this time next year, we expect to have both Atlas and Chile fully operational and these two plants will add about $100m to our EBITDA at mid-cycle crossing at $150. Just to remind you again our pricing today we are enduring is $220, somewhat higher than the mid-cycle. Overall for Q2, we would expect operating income to be at a similar level to Q1. Our tax rate has decreased a little and we would expect to see our provision closer to 30% than the previous guidance that we have given of 35%. So, I'm happy to stop at this point and we'll be delighted to take questions.

Thank you our first question comes from Peter Butler of Glen Hill Investment; please proceed with your question.

Hi good morning. I have a couple of questions if you have some time?

We'll do have time Peter.

Okay. I'm getting mixed signals on your commitment to return cash to shareholders. I noted in your press release in the third paragraph you were talking about uses and then you say in addition, and we'll give or not to the shareholders, but further on in the text you repeat this without the talk about giving cash to shareholders. Was that just an omission or is there any clue here?

No, into that Peter. We are completely committed to build approach to cash management and I guess we stand on our track records. We have distributed $460m to shareholders. Over the last four years, we consistently said that we would like to embark upon a normal course issue of bid that we'll review our regular dividend and the only hesitation, what our hesitation at this stage is just reducing some of the uncertainty related to our projects. Our projects are making outstanding progress so, you can infer out of that what you would like and our commitment is as it always has been.

Okay. Obviously if you multiply or your annualized $0.39 you get a number that's significantly above the consensus estimates for you guys. It looks to me like the second quarter could be better than the first, plus and minus, but the second half should be considerably better, shouldn't it? And if so, your numbers for the year could be quite outstanding.

I am going to answer questions on behalf of the analyst because they do their job analyzing the industry just as we do. Your correct that when the Atlas plant starts up we will have an immediate positive advantage in costs. So if the methanol price was to remain where it is we would have seen improvement in earnings. But, we had never provided forecast methanol prices. All we like to do is to describe the environment that we operate in and today that our debt environment is a very positive environment.

Is there a disconnect? Most economists, if not everyone you read is pretty positive about your sustainable GDP growth for the rest of this year and next. It is hard to see why some analysts if not most of the analysts that follow you have down earnings next year and down earnings in the second half. Is there a disconnect that they are just not seeing the same factors that you see?

Well, I agree with your observation that GDP forecast is strong, industrial production growth is strong, and we observed that in all parts of the world. So that will certainly affect in our consideration of the future.

Okay. If I can add something Peter it's Pierre. I think other observers for the industry would look at the announcements of new capacity, particularly the capacity from our end, is different forecast about when that's supposed to come on stream, and then they will take a look at that and drive whatever impact it might have on pricing. But, I think that Bruce and I stand by what we have said for the past year that we've always said that we looked at this year as being a very good year for Methanex. And today we'll probably if anything -- I know it's a little bit more positive than what we would have expected six months ago. So, we will take at a quarter at a time.

Okay, thanks for the help guys.

Thank you. Our next question comes from Bob Hastings, Raymond James Equity Research; please proceed with your question.

Hi great results.

Thanks.

Just a couple of questions. The Lyondell contract, the agreement with Lyondell runs out of the end of 2004. I have given the state of the industry, I imagine even if they get control they wouldn't operate any way, but is there anything that you spot that could extend that agreement.

Bruce is looking at me to answer this. I will answer this. The agreement with Lyondell was always that they had a desire to exit the methanol business. So, and we have entered the long-term supply agreement with them, and then its just a matter of the timing of the Trinidad plant coming on stream. And at that point, we supply them under this new long-term agreement, of course that will happen soon, and at that point, they would prefer to see the plant shut down, we have other plants for that site.

So, you supply agreement is regardless what the plant is doing, your supply agreement was to go on beyond 2004?

Yes.

Okay.

Do you mean, our sales to Lyondell?

Yes. In terms of replacing that plant output.

So, may be we don't understand you. We have a very long-term supply agreement with Lyondell. To supply them their needs around the world.

Including the output of that gets reduced from this plant closure?

Yes. That's a 100% supply agreement, Bob.

Okay, sorry. So they obviously don't need a product beyond 2004.

No. Whatever their needs are from methanol they will come form Methanex. That's the simplest way of saying it.

Okay, thank you for clarifying it. And New Zealand, obviously the gas is constrained and on the comment that I heard there was a lot more short term focused. Can you give us an idea of how much of the gas you have under contract for 2004 versus spot purchases for 2004?

We have enough gas to run one plant at a per annum rate of about 500,000 tones Bob. Today, this week our plants are operating at a rate of about 1.3m metric tons per annum. So, you can see there's a lot variability in those production rates. We are being, I think quite opportunistic. We do make quite healthy modules out of our New Zealand plants. Even if the elevated gas prices we are paying. So, we see it consistently the production will be between 500,000 tons and 1m tons and given the first quarter you have to expect that we are going to be closer to 1m than 500,000. It's very hard to forecast it was really the deals that we are doing month by month.

Okay. Good thank you for that. The operating, just to clarify, I thought I read it was 93% for the ex-New Zealand plants and I thought I heard you say 96%. So I just want to get a clarification on that.

I think only 3% A 93% was the rate for 2003. I don't recall seeing the number. I was just looking around the table to see if there was another number but our reliability rate for Q1 was 96% for all of our plants.

Okay. Great. And the last question is the Atlas is you said starting up and commercial productions through the end of May, when do you anticipate the first delivery is going to customers i.e., when might you start booking some revenues?

It could be some in June, but I think in our forecast we don't anticipate much revenue in June. So really it's Q3 and Q4 book.

Okay. Good thank you very much and great quarter.

Thank you.

Thanks Bob.

Thank you. Our next question comes from Owen McCloskey, Equity Value Ventures. Please proceed with your question.

Good morning. Just a couple of questions on supply. You stated in your press release that you estimate -- let me say it to have historically that the NPC facility in Iran coming on second half of '04, plus the whatever product from the Atlas plant will be offset totally you believe by shut downs in North America, so that there would be no net increase in industry supply?

No. I think we certainly have the capacity to shut down Terra and Lyondell, which between them represent 1.5m tons per annum of production.

Okay.

But that's a pretty well an offset with Atlas with the small delta. The plant with Iran, we don't have any privilege or special knowledge, we talked to the people who are the customers of that plant and they tell us they are not expecting to see product before Q3. So it does seem that that plant is still some distance away. You might have recalled in my comments I mentioned that total demand growth for 2004 we expect to be around 1m ton and we certainly observing demand growth in all the markets. So in fact demand growth plus those two shut downs I mentioned does completely offset any supply increments in 2004 even if Iran came a little earlier.

Okay. So how much is Lyondell and Terra actually producing now annualized?

Those plants are both running at capacity in 1.5m tonnes is their production rate.

Okay. So that the reasonable estimates then is that the net -- there will be a net loss this year including the demand growth?

That would seem to be a reasonable expectation, yes.

Okay. Okay. Thank you.

Okay. You see any other effect to it - so it is we are running on own plants rights and I've talked about our ability to continue to do that. We just don't know what our ability is, so we could see some supply constraints there as well.

Okay.

And we are currently waiting for additional questions to answer the question queue. And at this time gentlemen there is no questions holding in the question queue. One moment please. The next question comes from Bob Hastings, Raymond James Equity Research. Please proceed with your question.

Sorry. There seems to be less time. So first you mentioned about storage in Asia and I didn't quite catch that. Can you give a little more color on that?

Sure. Yes. We invested -- in 1988 we invested in a storage terminal in Yeosu in Korea that enables us to bring large ships from Chile into that part of that world and distribute to our customers. That investment has been an outstanding success for us in every way in terms of securing long-term valuable customers, improving customer service. We got a great return on investment out of that terminal. We see that going forward as a supply position in Asia Pacific becomes more tenuous expanding that terminal as a very good option for us to give us flexibility. So we are going to spend up to $10m over the next 12 months that will give us a total of about 90,000 tonnes of storage in that location and really it gives us lots of flexibility to supply from different supply points to our customers in Korea, Japan, and China.

Add to that Bruce, Bob the -- there are two aspects to supplying Asia, which of course is a critical market for us and that were the growth is. As Bruce said in his remarks, we continue to work on longer-term projects, I think, we've said publicly and the Middle East and they continues to work in two areas there. But up to now, it's primarily manpower we haven't spent big dollars. But we are coming close to make decisions on that. Then the other approach to supplying Asia is to outstanding logistics, and one of things that's changed in our company is that two years ago, if you'd asked our marketing people, how much could we supply to Asia from Michelin source using good storage capability, they would have said somewhere around 500,000 tons to 750,000 tons. Today, we've demonstrated this year and we now have a high degree of confidence that we have good terminal facilities in the expansion in carriers and essential component of that, that we could shape as much as 2m tons from Chile. And when we look at the arithmetic, the cost of landing Michelin product there in large ships is actually very, very competitive. So, it is a small amount of capital at $10m, but the implications for us in terms of being able to maintain any growth, our position in Asia are quite significant.

That sounds like great, . And I know you don't like to comment too much on your competitors' projects, but given that has announced that they would like to be building and have a partnership to build 1.8m tons in Saudi Arabia. Has that any way impacted your plants in Asia -- sorry in the Middle East to supply Asia?

No, that hasn't Bob. We have, as Pierre mentioned, we have two projects that we are working on in the Middle East. I usually observe in old commodity industries that people announce lots of projects and that occurs mostly when prices are high. So, the relative projects out there, we are short listing the once that we think has much merit and working alongside with people. So, we don't really want to comment on where and when and the nature of the until we get closer to a definitive conclusion.

Okay. But the -- that one doesn't change, if you rate success of these things or it doesn't change anything in terms of your supply demand forecast going out?

Actually we've got to say that every time a 1.8m ton plant is built in the world, it certainly changes certain demand supply forecast, so I think that we turned the right projects plants underway . There is a long list of projects on the . And just one comment on these large plants. That's really our experience from that's -- they are very, very difficult plants to integrate into your supply chain. So, we have a -- I think a fantastic opportunity with our in line going through that are being superb for us. We are able to back out those plants at the same time we startup the . And without that sort of flexibility, I don't know how people will contemplate running their shipping, supplying customers, and so I think the economics of this big plant looks very compelling, the principles instincts of how do you actually do it, and I think some of those principles instincts will come up during financing. People really haven't stop the thought about that too much.

Yes. Now it is going to be pretty difficult. Now, speaking of what's in the Uranium plant forgetting about the timing, have you seen any suggestion to them in the marketplace to whose marketing that product or how they are going to--?

I think there are Japanese trading companies have a position, but the Uraniums themselves are quite proud on their uncapabilities and they tend to be represented in the market themselves.

So, you don't see much disruption when they bring that in? They will be able to do that smoothly.

I think so. Certainly the Japanese trading house is full, we'll bring it in without much disruption. And the Uranium's themselves are tended to focus on China, it's being a -- it's their primary market. And there is no doubt there is an appetite from China for methanol. So, I certainly don't expect that Bob.

Okay. Thank you very much.

Thank you. Our next question comes from Don Anderson with Salman Partners. Please proceed with your question.

Thank you. Just wondering on the purchase material number in the quarter was a little higher. Is that related to the or just wondering about that number, looked a little a higher than it has been?

No, it is a little higher Don. It's not really related to those two types of impact decrease, the cost of their purchase material quote nicely for us. So you might have also noticed that the losses on purchase product have reduced almost to 0 from an accounting base there is some loss, but when we look at it on a cash to cash basis we better be breaking even on purchase material today. We really intentionally tried to increase our inventory levels. I think I told in the last conference call about the fact that we were running really on the bottom of that chains, and was in the possible position for us. So, we've really tried to build a little more security into our supply chain by increasing our inventory's level. So, I think you see that this is a temporary and I think you see purchase product got down in Q2 and probably sales of produced methanol go up in Q2.

Okay, thank you. What about the inventory levels, so now in terms of days sales or you there yet where you want to be or do you have a little more stocking to go.

No, I think we are much more comfortable, I think we are in the bottom end of that range, but we are more comfortable that we can maintain the security supply that their customer savings.

Okay, thank you, and with the tax rate, should we be looking at 35% through the end of the year or 40%.

No, into Ian Cameron, our CFO to respond to that Don.

Hi Don. Our previous guidance had been 35%. There has been some verification regarding some tax legislation and soon that regarding timing of and an extend of certain tax reduction. So, that's allowed us to have a different view on our tax rate, so we believe today that the appropriate guidance would be about 30%.

For the rest of the year?

For the rest of the year.

And then looking into next year?

Of course, you have to look at your asset base etc. and but we would have a consistent view for 2005 today.

Okay. Do you have a decision on Middle East investment by the end of the year, is that fair?

It's over climbing on Don but these are big investments and they are big complicated projects and where, while we would like to make a decision and get on with it. We are not going to do that unless we have the Rock sort of circumstances. But those are short-term incentive plans, are based on making a decision this year.

Thanks, great great so. Now in terms of, are there a share buyback or dividend increase, you think after one of these of the two plants coming after one is up you might be able to make a decision on.... something along those lines

What we mentioned that when I compare where our Atlas project is today relative to where it was during our last conference call in January, that we made a lot progress, a lot of risks of disparage, we are a lot more confident today than we were three months ago. So, every month reduces and mitigates risk and that's what we are told we have got an eye on intensive timing for the next announcement.

Thank you very much.

Thank you. Our next question comes from Peter Butler, Glenhill Investment Research. Please proceed with your question.

I have two disparate questions. First is I think your AGM is the 13th of May.

Yes.

By that time you should have reduced the uncertainties significantly more, I would imagine and -- management always likes to have some good news to talk about the AGM, wouldn't have the exist time for you guys to address both your dividend and share purchases.

All right. We look at it every month and we took report whenever they meet Peter, so, it's good observation but you are not going to force me to make a comment.

Okay. Could talk a little bit about your competitive advantage, you have, you signed the guest related contracts for Chile and Trinidad way back wins, and if you were to expand Chile, would you have an extension of the original contract and it seems to me that the people in the Middle East and elsewhere that are now talking about doing projects have to account for guest at much higher price than the, may be the giveaway prices that you had years ago. And that delta should be a pretty nice positive for you guys, shouldn't it?

I wouldn't like to discuss those giveaway guest prices remind that our guest suppliers are listening on the phone Peter. I think it's a great deal; it's a win-win deal where we share on the upside. Our guest contracts in Chile extend out to 2029 as Alaska's contract this file so we have three expiry dates 2025, 2027, and 2029. We've basically locked in the low-cost gas structure to that period. And certainly an observation that I make is that gas prices throughout the world are increasing, driven by LNG, by high crude oil prices, by strong energy demand. So, I think your observation is correct that finding other locations of the world with equivalent economics to the sort of gas conjures we've in Chile is extremely difficult today.

Take the year, the Chilean asset in particular, and we look at our plant gas cash cost -- and what we've been able to do with the gas contracts, as well as the increments of capacity which are reduced to units fixed costs. We've been able every single year over the past ten years to reduce those plant gas cash costs, so your observation is right on, that asset in particular going forward continues to have to be very, very competitive and that's why being able to find improve logistics to supply China, Korea, and Japan from Chile by investments in terminals there makes a lot of sense. We enter that the -- the gas arrangements are not as favorable as they are in Chile, there is escalations every five years, but certainly the Chilean assets your observation is correct.

Okay. The comment about or the thought that people that are discussing projects now are looking at gas cost substantially higher than in the past. Does that change your thinking on what future mid-cycle pricing could be? Maybe, it's a higher number now than a $150 a metric ton?

I don't know, Peter. If we look at the cost curve of today there is probably two-thirds of the industry has costs that are within a plus or minus $20 a ton range of about Chilean and Trinidad assets. There has been one-third of the cost code that is extraordinary steep 15% of world supply still in the US Gulf paying $5 to $6 for gas. The Chinese are still burning methanol plants that have cash costs in $1.50 to $2.50 range. So, there is an extraordinary steep path of the cost curve. So, we do expect to see some volatility. We expect to see some new builds in the future, but I think putting together projects that can withstand the bottom of cycle pricing which is basically we think of a $115 a tone, I think it is extremely difficult in the environment where gas prices are higher. So longer term prognosis then is that the tail the high cost tail on the cost curve should remain and in times when the methanol market is reasonably balanced short we can expect to see periods of quite robust pricing. But really, we are crystal ball guessing, it's determining the dynamics of any commodity industry is something of a challenge.

Okay. Thanks for your help again.

Thank you. Our next question comes from Brian MacArthur with UBS Securities. Please proceed with your question.

Good morning. I was just trying to clarify, I mean you talked about the Trinidad tax issues, but then you also made a comment when you refinanced the tightened facility that they were some tax benefits from that if I heard you correctly as well going forward?

Yes.

Those additional tax benefit, is that all embedded in the 30% you talked about in the next two years, or is that additional benefit a deferred versus a current tax benefit?

We've reported that Brian that they are both related to each other that the clarification I could at a similar conduit, I guess maybe we're all asking because of I bet there are some other efforts there --

There are -- I would answer it in short answer and long answer. The short answer is that the tax rate in terms of guidance is little bit lower than we had before, it will be 30%. Having said that part of that is part of the clarifications that there also is significant tax efficiencies through those refinance we are able to finance and replace and approve our interaffiliate tax structure which has tax benefits. So, there are a lot of ancillary benefits. In addition to that there is a lot of supply chain advantages. When you have a project finance situation you're handcuffed to a certain extent in terms of your operating flexibility. So there's lots of advantages. From a dollars point of view the big advantages -- the interaffiliate tax structure.

Right it's okay, So, if I were at the long-run though, I mean do these I am Chile is sort of 35 want to get it set-up long term once you go on get. Trinidad, I thought was 30 longer term and then you know get them out to be whatever it's on British Colombia, I mean it'll be 48 or whatever it is at any given time, is that the way to think about it longer term.

Longer term, the way I would think about it is that we have two primary operating assets, one in Chile and it attracts a tax rate of 35%, and the other is Trinidad. And Trinidad, we have two assets, one is the Titan asset and it has a tax holiday that last to mid-2005, thereafter the tax rate will be 35%. For the Atlas project, there is a tax holiday, it's a little bit more complex as a staged tax holiday were its low in the 30, that steps-up over period of years. So, and when that runs out over time then it will reverse back to a 35% tax rate. But in the interim period it's low.

Great that helps a lot, thank you very much. Adjust in a toy different topic I mean just to be very clear. When we talk about this MPC player, we were talking about what I would consider MPC number. Three the one that's supposed to be at there for a while and this is 1m tons and it's may be finally getting in here. started MPC number four, do you have any intelligence from where that is at the movement?

We understand it's under construction and we have talked to people who have visited Iran six months ago, I understand the construction hadn't started. So there is some progress being made. It seems that the Iranians take a long time to get plants into operation. So, it feels to me that sales there in the future somewhere, but it is really not on the horizon.

Great, Thank you very much.

Thank you. Our next question comes from Joe Cadanach with Principle Capital Management. Please proceed the your question.

Hi good morning this is Alan Ruster for Joe Cadanach, couple of simpler questions. Is there any impact in terms of cash cost on startup of Titan plant or do you essentially start it full capacity?

I expect that we will have some variability in production rates for the first quarter that we operate that firm. So, this is a big plant and it won't run perfectly from the first day. So, I would expect that we will run at big capacity for periods, but we will also have some outages that would be fairly typical of a plant of this scale.

Okay that's helpful. Just as a simpler matter. What's left to spend to get Chile going next year?

Well, Chile and Trinidad together is $130m, $25m for Trinidad, and $105m for Chile approximately.

Okay thanks that's all for.

Thank you. At this time we have no further questions holding in the question queue.

Okay. Well I think we've been on the time for 45 minutes. I would like to thank everyone for their attendance and for their questions, for their continuing interest in Methanex. We are in a great environment and we hope to continue to be able to announced further good results to you in the future. So, I thank you for your attendance.

Thank you ladies and gentleman, this concludes the Methanex first quarter earnings conference call. We thank you participating and ask you that you please disconnect your lines now. Thank you from .