Methanex Corp (MEOH) 2004 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Third 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 Thursday, October 21st 2004. I would, now, like to turn the conference call over to Mr. Chris Cook, Director - Investor Relations. Please go ahead, sir.

Thank you very much Alice. Good morning, ladies and gentlemen. Before we begin our call today, I'd just like to take this opportunity to remind everyone that our comments and answers to your questions may contain forward-looking information.

As many of you are aware, this information by of 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 2003 Annual Report, for more information.

I would, now, like to turn the call over to Mr. Bruce Aitken, President and CEO of Methanex. Bruce?

Thank you, Chris, and good morning everyone. I apologize if my voice is a little croaky this morning. I'm recovering from a cold, but I hope that if croaky I'm at least intelligible. So welcome to the third quarter of Methanex investor conference call. I am in Vancouver, and have a number of my colleagues with me in the room.

We are delighted to have produced another excellent quarter. Net income of US $71 million significantly exceeded the Q2 net income of US $52 million. I would remind listeners that Methanex is a US dollar functional currency company. So all of the dollars that I mention will be US dollars.

Our realized price for the quarter was higher than Q2, $245 per metric tonne, compared to 222 per metric tonne. This increase was a little more than we expected, and was driven by strong demand from methanol in an environment of high North American natural gas prices. Higher methanol prices and the increasing sales volume of produced methanol substantially explain the increase in our earnings quarter-over-quarter.

We continue to operate in a very positive environment for the methanol industry. Demand for methanol in all regions in good. Inventories continue to be tight both at the producer and consumer ends. Spot methanol is in short supply, and typically is transacting at prices higher than contract prices. This in itself is an indicator of a tight market.

On the supply side of our industry, high energy costs continue to put methanol producers under financial pressure in a number of parts of the world. High North American gas prices have prevailed throughout the quarter, meaning that North American methanol producers are operating on slim or no cash margins.

Even following the short term of the Lyondell methanol facility, during September, there was still almost 4 million metric tonnes of methanol production capacity in North America, exposed by high natural gas prices. And while there is 3.5 million metric tonnes of new production capacity, starting over the next 12 months, we believe that in an environment where demand continues to be strong, and energy prices are high, then above average methanol prices are likely to continue to prevail.

You should note that in the numbers that I've quoted for new supply, I've not included new capacity in China, and the reason that I've done this is that much of that new capacity is in remote location, and satisfies local demand, but therefore, has little or no impact on global supply demand balances.

This is evidenced further, when you look at the level of imports for China, which remain rather reasonably steady, on a month by the month basis. Methanol prices remain at high levels and are stable. Looking forward at North American winter natural gas prices, we would expect to see some upward pressure on methanol prices, if natural gas prices remain at the levels close to the current forward curve.

The European fourth-quarter contractual price, was maintained at 230 euros, and is in line with October pricing in North America and Asia. The non-discounted contract price in all major global markets is in the range of $270 to $280 per tonne early in the fourth quarter.

I'll now comment on some of the issues that have influenced our results in this year. During the second quarter conference call, I commented at length on the gas supply situation in Argentina and Chile. I summarized during that call that our belief was, that curtailments of natural gas from Argentina would be relative small and not long-term.

In fact, since early August, we've suffered no disruptions to our gas supply. Apart from a short plan turn around at one methanol plant in Chile during August, our Chilean plants have been operating at high levels of capacity utilization. There are three events that have occurred in Argentina, that helped mitigate against further gas supply disruptions. Firstly, increasing domestic gas prices in Argentina, will encourage natural gas suppliers throughout that country to invest in gas infrastructure.

Secondly, more gas deliveries in the Northern Argentina from Bolivia, removes some of the pressure in the South of Argentina for that gas to be delivered to the North. And thirdly, our gas suppliers in the South are investing in new infrastructure that will increase further gas deliverability early in 2005.

Again, just to remind listeners, our plants run the deep south of the Chile, we access gas in Southern Argentina, so it's the dynamics around the south of that country that are important to us. So while there is some risk at gas disruption in 2005, we think, those three factors substantially mitigate against this risk.

I also commented, during our second quarter conference call, on the startup of the Atlas methanol plant in Trinidad. The plant has a significant positive impact on our earnings and cash flows, and the ups and downs that we experienced during the setup process, somewhat delayed this positive impact.

I am glad to report that almost from the day of our second quarter conference call, through to the end of Q3, the Atlas plant operated with greatly improved reliability. The plant has recently run a performance test, and yesterday we gave notice that we have accepted that -- that the plant has indeed passed that test. As our confidence with the successful operation of the plant increased, we took the decision to advise Lyondell to cease to operate their 750,000 metric tonne methanol plant in the US.

This plant ceased operation on September the 16th. While we still maintain production work over the Beaumont methanol plant in Texas, a similar size plant. In the current environment of strong demand in log inventories, we need to continue to operate at this plant, and as of today, we have no plans to cut back production.

Our Chile VI plant is progressing very well. We expect to commission this plant early in 2005. As a reminder, the numbers that we have often quoted, when talking about Chile VI and Atlas is that, those two plants combined have an ability to generate EBITDA increases, by $100 million per annum, at an average methanol price of $150 per metric tonne. Clearly today, is much stronger methanol prices, the positive impact on our cash flow earnings is even greater.

Another measure of the improvement in our asset base, after the completion of these two projects, is that we would expect in the future that a year of average methanol prices around $150, will yield similar earnings and cash flows, to what has historically been a record year with high methanol prices. Our low cost asset portfolio places us in an excellent position to generate strong results.

Looking forward to Q4. Assuming the prices remain stable, and that our plants operate with reasonable reliability, we would expect to generate results that are close to Q3's excellent returns. We expect, during Q4, to proceed with a restructuring of our New Zealand business, that will roughly have the number of employees that we have in that country.

A restructuring charge of about $3 million will result from this action. After this restructuring, we will maintain a capacity to produce up to 500,000 metric tonnes of methanol, from our New Zealand plant in 2005. Our actual rates of production will be dependent on gas availability, and our ability to generate positive turns. Our liquidity continues to be excellent.

At the end of Q3, we have cash balances of about $162 million, and an undrawn credit facility of $250 million. The remaining capital to complete the Chile VI project is about $68 million. You may recall that we also announced a normal course issuer bid back in May. At the end of September, we've repurchases 4.6 million shares, at an average cost of US $13.09 per share.

We expect to complete the purchase of remaining 1.5 million shares by the end of the year. It is (inaudible) with the reminding shareholders that this year, we have used cash to substantially improve our assets in Trinidad and Chile. We have paid down $182 million for the debt, and by the end of September have distributed $84 million to shareholders, by way of dividends and share repurchases.

We intend reviewing with our board in November, our current cash estimates, and as we have in the past, we will continue to employ a balanced approach in using this cash. So I'll perhaps stop at this point, and invite questions from the listeners. Thank you very much.

If there are any questions, please queue up, now. And the first question is Juan Plessis, Canaccord Capital. Go ahead please.

Good morning. Congratulations on a great quarter.

Yes. Thanks, Juan.

Just you mentioned the China plants coming on. Can you comment a little more on that, about the -- perhaps, the size of the plant, the number of plants, and maybe the demand coming from China as well?

Sure. As I would say -- and I think the analysts who follow this industry would agree that understanding and analyzing China is difficult, and getting precise information is challenging. There is a long list of new plants that had started up over the last 12 months, and there is a long list of new projects.

They're typically quite small plants. The largest amongst them tends to be 200,000 or 300,000 tonnes that compares with a 1.7 million tonne Atlas plant. So they continue to be small, their sub-scale, they typically use coal as a feedstock. Coal for us is -- reflect high energy prices, so coal costs are expensive.

Most of the plants in China -- and there is probably 4 million tonnes of domestic capacity that is on production this year in China -- is what we would regard as high cost. That is it would have delivered cash costs in excess of $150 per tonne. We have seen a lot of new plants coming on, and a lot of them are in remote locations. And transportation to the major markets on the East Coast is -- one, expensive, and two, limited.

So we haven't seen any of the new capacity in China, having much of an impact on the global demand and supply balances. So the methods that we concentrate on, and the category where our customers are, are along the coastline in China, and that's where imports are concentrated. And I think, if you analyze the volume of imports month over month, quarter over quarter, or over a long period of time, there is reasonable stability.

There are no doubts that imports increase, relative to domestic production and periods of low prices, and decrease a little on imperative high prices. But there is a genuine relationship, and there is a steady string of imports going into that country, despite increases in supply -- domestic supply.

Thank you. And the Atlas plant looks like it was producing at pretty high rates. I think you reported 157,000 tonnes. It sounds like it was running flat out for almost two months. And you sold, I think, 70,000 tonnes. Why is the sale of that so low compared to the production?

Well, it just goes into inventory. Yes. Well - maybe I should ask Ian to answer the question. Ian our CFO is here. Do you want to make some comment, Ian?

Well, I think, it's just a normal course production, put it into inventory, and then just sell it, and it's just that normal process. So the first stage is for the product to go into inventory. So it's just a normal course inventory flows, Juan.

Great. Thank you very much.

OK.

Peter Butler, Glen Hill Investment Research. Go ahead please.

Hey. Good morning. Again, congratulations. The answer to the question might be that you guys are going to putting money into the side drawer in the fourth quarter to, you know, running start on next year. But I'll ask the question, anyway. Why would your fourth-quarter earnings not show a significant increase from the third quarter, based on slightly better pricing, a lot better sales, and perhaps flat or even down cost?

Well, probably, there will be a few reasons, Peter. Certainly, our costs continue to increase. You know that our gas contracts are linked to the price of methanol. So there is -- as the price of methanol goes up, there is a lagging effect, where costs continue to increase.

We are exposed to North American gas prices, in - out in (inaudible) and our plant in -- we buy methanol from the Terra plant. So there is some exposure to the North American gas costs. So there is some outward pressure on our feedstock costs that is related to methanol pricing. Another factor at our New Zealand plants, if you go through our disclosures, I think, you would find that we have consumed all of our hedge -- New Zealand dollar hedge in that country.

And that was a very profitable hedge for us, which has quite substantially reduced our cost base. So that is now expired at the end of September. So we're exposed to a much higher New Zealand dollar. So less earnings, and that's earnings after tax out of our New Zealand plants as well. So those are a couple of factors. Ian, is there anything else that you think is worthy of commenting on?

I think, those are the major factors Bruce.

All right. So there are a couple of big factors there. I guess the other - the third thing Peter, is we did talk in the second quarter conference call about fixed price contracts, and those clearly kick into our results in the fourth quarter. So they have a modest impact as well. There are a number of things that will need to rethink, and our result it will be just a less than what we've currently got in the third quarter.

OK. A follow-up on a slightly different subject. Could you go over what you think are the most reasonable candidates for shutdowns in the '05-'06 period? Why aren't we seeing -- why won't we see more of a consolidation in Europe?

Well, I think we've might - I mentioned before there's 4 million tonnes of North American methanol capacity, and if you look at the forward gas curve at the moment hitting at the 7 or $8 through the winter, all of that capacity is under pressure even at term process. So there is potentially 4 million tonnes of North American capacity.

Beyond that we think, there is long tail on the cost curve in this industry of, I think, between 12 million to 13 million tonnes, including that 4 million tonnes I mentioned in the North America, that is above what we would regard as average cost structure. So above the 140, $150 a tonne. A lot of that's in China, and I talked about China as well. And there's about 4 million tonnes operating this year in China.

So we would expect a lot of that to be under pressure, in a much lower price environment. In Europe, we have methanol producers, who consume gas with a crude oil price linkage, who we understand are under a real cost pressure, even in today's environment.

So, if you think that energy prices are going to remain high, and there is any weakness at all in the methanol price, then certainly there will be a supply side reaction. There has been -- there have been plants in plants like India, that produce methanol from NEFA, and again in a high crude oil price environment, has a high cost plant that will be severely cash negative under any sort of price softness.

So, I think there is a large amount of capacity that has - what we would have got at very high cost, that will be under significant pressure to rationalize, under any sort of methanol price softness.

Good. Sounds good. Thanks.

OK.

If there are any other questions, please queue up now. Turan Katwala (ph), Scotia Capital Markets. Go ahead please.

Yes, hi. Just first of all two clarifications. One, did you say it was 3.5 million tonnes of new capacity that's coming online, and did you --- is there a timeframe on that that you have?

Yes. Between now and the end of 2005, and I did emphasize that that excludes China.

Thank you. And also storage at Trinidad, is that now 100% full in 80,000 tonnes?

No. I'm just looking at the table to see in my (ph) notes, we've got lots of storage, I think, there is 200,000 tonnes of storage there, so I know we've got plenty of storage capacity.

And in terms of your tax rate, could you give us some sort of guidance on what the average tax rate is going to be say for `05, `06?

I'll ask Ian to respond to that question.

Yes, in previous conference calls, we have given guidance that our tax rate is expected to be for 2004 and 2005 around 30%. I think that guidance still holds.

And '06?

'06, it should be around 30%, but it will trend a little bit upwards from that.

And with the cash to deferred sort of ratio remain at the 60/40?

Over the next couple of years, it'll be around 50/50.

And if I may, just one more question on New Zealand. There was some news out that you had some sort of success with gas field, is there any more new development on that?

Sure, Yes. And maybe, you know, I was just thinking about your question around the inventory in Trinidad, like all that 80,000 tonnes is not actually sitting in Trinidad. We ship that to our terminals in, both Rotterdam, and in the United States.

I must say, I'm not exactly sure how much storage capacity we had in Trinidad, it's a lot more than 90,000 tonnes, but don't interpret that, because we've -- the difference between sales and production isn't all sitting in Trinidad, waiting to be shipped. So the inventories actually in Trinidad are quite low.

So in New Zealand yes there was -- we have been participating in the funding and the appraisal world into existing gas field, so this is not exactly exploration and production risk, it's a --- we have an arrangement with a small ENP company, who have watch (ph) over an existing gas field in close to our plant.

They had their gas field in the ranks and we had some money, so we make a good partnership. So we plundered one well into that field, it was a little more successful than we expected, but its still a relatively small amount of cash. Our tactic really, has been to try and position ourselves so that we can sustain our business in New Zealand.

We - there is a lot of exploration going on by quite large companies, spending a lot of money looking for gas in that country. And in the event that someone finds our largest field, and we are the obvious customer for that gas. So are tactic really is to try and sustain ourselves, this gas is not gain changing or it will make - we expect we'll make a nice profit out of it, but it doesn't change the nature of our long-term position that country.

Thank you.

Ann Kohler, Independent Research Group. Go ahead, please.

Thank you. Great quarter, gentlemen. Question going forward, I know that one of the things that you'd like to do is be able to better serve the growing Chinese market, and I know that you're putting up the storage facility to be able accomplish part of that, but what about longer-term, any sort of update in term of plans for new plants, whether it be new construction or going into a joint venture...

Yes. We have - we mentioned early in the year, that we were setting ourselves a target that making a decision on our long-term supply position in Asia Pacific by the end of this year. And I would say it today, we are on target to do that. We've made very good progress in one location.

We have a couple of other irons in the fire, but we really want to focus our resources on one location We would expect to be in a position to make some announcements on that by the end of the year. By the sort of numbers that we have used historically is -- we think of gross capital, if we want to grow our business, basically at the rate of the market.

So we are not chasing market share, we are really just wanting to maintain our position. We need to spend about $50 million of capital per year. That typically doesn't occur at that sort of rate, it occurs in lumps, about once every two to three years.

Now we wouldn't spend too much capital, I don't think in 2005. We would be in the early pre-development stage, so we might think -- if we are successfully we might spend up to $20 million developing the project in '05. And then, if we - again, if we are successful, we would spend the bulk of the capital in '06 and '07, to develop the project that we are currently working on.

So we are quite optimistic, we set ourselves very tough targets. We want to have a cost structure, that's at the bottom of the cost curve. We need good shipping, we need to have to have a goal (ph) at the right sort of capital cost. We need it to be in a country that's relatively stable. So all those things, they are difficult to find in today's world, and I think we have been quite successful in doing that. So, hopefully there's more to come on that particular topic.

Great. Thank you very much.

Cherilyn Radbourne, RBC Dominion Securities Incorporated. Go ahead please.

Good morning, guys.

Good morning.

I just had one question, and it really just revolves around your comment that you expect the impact of planning your capacity additions in '05 to be offset by further shutdowns, because it's quiet in contrast to what the major industry consultants are saying. And I guess essentially, if you look at it you got, you know, 3.5 million tonnes being added next year.

You have the ability to shut down 850,000 tonnes. So then that would suggest that somewhere between 2 and 2.5 million tonnes need to be shutdown to balance the market. And I think you've given a fairly convincing explanation as to why that might happen out of the 12 million tonnes you've referred to. But I just wonder why you think the consultants are taking quiet a different view, and putting forth a forecast that would suggest prices are poised to drop quite sharply in the second half?

You'll remember that in these (inaudible) plants this year, we're operating more -- in fact we'll operate it over 1 million tonnes, it was 1.1 million tonnes this year. As we have spend a little more than we expected, early in the year and saying between 0.5 million and 1 million.

So we will produce nearly 1.1 million tones at our (inaudible) plant. And from my earlier comments, the maximum we are able to produce next year is 500,000 tonnes. And we would -- I would think it would be an extraordinary circumstance where we would produce at the maximum rate.

So probably around 350,000 tonnes is a more realistic number to use from these elements in '05. So, that sounds like we will take out 700,000 tonnes from the New Zealand plant. I don't have a crystal ball on North American gas prices, but I guess the consensus remains that -- North American gas prices will be higher in the next 12 months, and any sort of softness in pricing will encouraged that 4 million tonnes of capacity that exits today.

To think about rationalization, as we always say we have control of the Terra plants too. We have our own plant at Trinidad, which we will run throughout 2005. We will need to judge at the end of the year whether the deposit of cash flow, and the (inaudible) license for the plant -- what that looks like. So there's an element of control that what we have over that capacity.

Also there's a plant called M5000 that's in Trinidad that announced a deal with (inaudible), and the details of the deal were never provided. But the suggestion was that, when M5000 plant came up in the (inaudible) would shutdown some of the North American capacity.

But today (inaudible) have 3 methanol plants in North American, totaling nearly 2 million tones. So it does seem to me that the -- when you add those pluses and minuses that it's hard to imagine a collapse caused by oversupply.

Now I think one of the areas, where we took from a little bit from the industry analysis, is in the way we look at China. One of the analysts adds up all the Chinese cards, and just assumes a notable (ph) impact clubbed with the normal supply. But -- our view, and our analysis is, that it has much lesser impact on perhaps, some of the other people who analyze this industry think is the case.

OK, thanks very much.

Jacob Bout, CIBC World Markets. Go ahead, please.

Hi. Good morning. I just got a couple of quick questions here. Just can you comment a little bit on the structure of the European Methanol market? And just your thoughts there, as far as what'd take to shut it down, and the time you've got on a go forward basis, let's say over the next 3 to 5 years? And then also, can you just quickly comment on the industry-wide methanol inventory levels?

Sure. OK. So the European market -- I am trying to put a fence around it a little - I can start in Russia. There are a couple of methanol (ph) plants in Russia, that have competitively priced gas, but they are in the middle of Siberia, so the transportation cost to get Methanol to Finland, where we export it from are quite high. So those plants tend to operate, and export their production when oil prices are high, and they tend to withdraw from the export market when prices are low.

So, there is an element of flexibility out of Russia. The numbers of small sub-scale older methanol plants in what was Eastern Europe. And again, typically high costs, they operate when the market is good, and they don't operate when it's not so good. So, again, we see the history there of plants operating spasmodically.

The balance of the European industry, there is plant of (inaudible) Norway. That's our North Sea gas, I don't think that's the long-term survivor in this industry. It has low gas cost, but it was very high capital cost, but having spend the capital, don't expect them to continue to survive.

There are then in mainland continental Europe, a number of them are integrated. So they're not the easiest plants in the world to shut down, but I think they are very high cost. And I think in a softer methanol pricing environment, there is a much greater incentive to find solutions to integration issues.

There is a larger part in the Netherlands called Methanol that buys natural gas for -- as I understand a crude oil price linkage, and you'd expect that their costs are quite high today. So, that plant happens to be owned by people who manufacture formaldehyde (ph), so they are a little integrated into the industry.

So we (inaudible) introduce official knowledge of what their terms are, but if we just logically analyze the cost curve, it does suggest that there is capacity that it will be under financial pressure in lot of pricing environment. And then the second question, Jacob, was on worldwide inventories?

Yes, that's correct. Just as far as how the rebuild is actually going. Have we seen any of that taking price so far in 2004 or, is the majority of it going to take place in 2005? I think you've suggested in last conference call, that inventory levels were about half at where they've been historically?

Yes, we were in - and I can cover in detail about our inventory levels, and stipulate a bit more on the rest of the industry. At the end of Q2, we were at a almost desperate state of living hand to mouth. If you looked at our numbers, we have recovered a little.

So we are still probably, I think, I mentioned the number of 300,000 tonnes last time, we are probably still 150,000 tonnes short, of what we've regard as a minimum efficient inventory operating level. So we are still struggling a little, in terms of inventories, having them in the right place at the right time.

150,000 ton is from Methanex itself?

That's right. Yes. And you see -- I don't have the numbers precisely in my head, but I think, if I remember correctly inventory at the end of second quarter is about 700,000 tonnes, and is now about 850, so we would prefer to run with (inaudible) or million tonnes of inventory...

OK.

...when we're running efficiently. And that's - I wouldn't regard that as full, we regard that as an efficient operating level. Certainly, the impression I get from customers is, that at the customer level, people are running at the bottom of tanks. We're, I think, still overwhelmed with demands from customers that we're unable to satisfy.

So my impression of the global inventory is still very short. And I think, the fact that stock prices are remaining high in all markets, this is again evidence that the world is short of methanol, and that nobody hasn't -- there isn't a lot of stock floating around, because if people were getting low on inventories, you'd see a more sporadic (ph) spot market.

Right. Thank you, very much.

Peter Butler, Glen Hill Investment Research, go ahead please.

I had two follow ups, please. In this discussion of supply/demand, you left out that consultants could disagree on how much demand growth you're going to be having next year, and that's a big number to add into the equation. And then secondly, I think the industry has been running at the unsustainably high level this year, and in -- is subject to significant outages in the next year or two also.

Yes. On demand growth, there is probably not a lot of disagreement between ourselves, and the analyst community. One of the bigger area of uncertainty is for MTBE. MTBE -- I think our numbers are very considerate. We continue to forecast the removal of MTBE from the gasoline pool in the United States by 2008, and that still remains, I think a very conservative estimate.

So, MTBE demand growth has been stronger this year. Again in a high-energy environment, you would expect that MTBE is a very useful octane component in the gasoline pool, and I think that's why we've seen stronger demand this year. So, in an environment where gasoline components are short, we can continue to expect to see, perhaps stronger than expected MTBE consumption.

And certainly, 12 months ago we saw states like New York and Connecticut pulling out of -- or banning MTBE in their states. More recently, we've had a state about New Jersey saying that, they think that the better focus, rather than to rushing to ethanol, the better focus is to fix their underground storage tanks.

I feel like (inaudible) like somebody is being logical and rational for a change, because really that's the nub (ph) of the problem with MTBE if you're -- if you don't release gasoline into the environment, you don't have problems with MTBE in the water table. So, I think, there's huge uncertainty around MTBE, and I think based on our forecast of a lot more upside than downside.

So, our demand growth forecast is basically 1 million tonnes per annum. So, you need a new 1 million ton plant every year just to sustain growth. So, and I think that that's conservative. If you're talking unsustainably high levels of operating rates, I think you're right Peter, when you look at history.

Have people learned to operate their transfer reliably? I don't know. These ethanol plants are not the easiest base to run. They operate at high temperature, at high pressure, and they can be quite temperamental. So I think your position is quiet rational, but we don't have any (inaudible) knowledge.

OK. Bruce what are you folks considering doing after this current share repurchase program is completed? You guys keep mentioning this $250 million credit facility, are you hinting that you could be using some debt leverage in an expanded share repurchase program?

I wasn't hinting at anything Peter, I just hinted that we would be talking to our board in November, and really you got to look at our track record. We've taken a very balanced approach between this (inaudible) industry, maintaining a very prudent balance sheet, and returning cash to shareholders. And I think our track record, over the last five years, and even over the last 12 months speaks for itself.

Clearly, we're in an environment where we've got lots of cash. Cash flows are very strong. We're almost completed our capital spending programs. I've talked about the potential for growth capital in the future, and its not huge numbers, and it's out there a little bit.

So, truly we had excess cash flows, and the things that we would look at is -- what is our balance sheet going to look like going forward, and what appetite do we have to fill (ph) the distributions for shareholders, and that's what we will be discussing with our board in November.

OK. Well, I think sometimes investors get skeptical when they hear managements talk about having balance sheet flexibility, that's usually a code word for management wants to do some acquisitions, but I think you guys have shut the door on that, so therefore all the cash should go to owner shouldn't it?

No, we are certainly looking - in terms of growth capital, we do like to invest growth capital in our own industry. So, to extent that there might be an acquisition within the methanol industry, we might be interested in that, but if we have to meet them all of the target points (ph), and hurdles that what we've got.

And I would say that was a speculative comment (inaudible). But to the extent that there is an acquisition that improves the quality of our methanol our business, we might like to (inaudible).

So, that would be another consolidation move presumably, which would be positive for pricing...

You would hope that that's the case. Yes

Yes. OK. Well, great job.

Thank you.

If there are any more questions, please queue up now. Brian MacArthur, please go ahead.

Hi, Bruce. Congratulations on the results. I just want to clarify New Zealand now. I mean, you're talking about the ability to do 500,000 tonnes next year, but more likely 375, 350. You're now talking about restructuring cost in the fourth quarter, and obviously, there's a lot of capacity still sitting there.

Is this restructuring just -- we're going to run one plant, as opposed to the four or, are we actually taking the plants down, so they don't have flexibility to start up in the future? You mentioned there is still obviously, a lot of capacity. What actually are you doing there, and how much, you know, real capacity is going to remain there? Is it the full 2.3 million tonnes theoretically, or is that actually going to start to come down now?

Well, in order to access the full 2. -- 32.4 million tonnes, we would need to spend capital, so the -- we are consolidating our workforce into one site.

Right.

That one plant site, which has the capacity to produce 500,000 metric tonnes. The remainder of our methanol capacity is on different site, and we have two plants there, and three distillation columns. We would need to spend some capital, basically they've reached there point in time where we need to do a major turnaround.

So, we do not want to spend any capital, to renew catalyst, and repair those plants. We think it's better to leave them in a safe and dormant state, and certainly in the next two to three years the amount of capital required to restart them is relatively modest. I think beyond that two to three year period, you begin to get more serious deterioration of the equipment and the capital costs will begin to escalate.

So then the capital will begin to look more like a replacement, than just a restart of an existing plant. So, I feel as though we have a two to three window of opportunity, and if someone finds a lot of gas we might get lucky. But that's probably how we should regard those assets.

OK. But we're not starting to take equipment out of the second site?

No, those stocks stay there, they remain there, and if someone found a lot of gas tomorrow, and want to sell it to us at the right price, we could settle in a very short order, and with not too much capital.

And then you've been also hinting to that you may or may not find some other solution in Asia, to put in another plant in Asia or Middle East whoever it is to supply Asia. Would you be able to or, would you look at taking equipment off that site?

No.

OK.

No, we would not. It tends not to make much sense, so we've looked at that a number of times before. And our observation is, you end up spending almost as much capital, and you end up with an older inefficient plant in the new location. So, it tends not to make any sense. Especially in today's high steel prices, you're actually better off. You make more money scrapping it, than you do shifting it anyway.

Right. So, this is really a 500,000 tonnes plant, with a three-year option of 1.8 million tonnes, that's basically that ...

That's a good way to think about. Yes

Great. Thank you very much.

OK.

And there are no more questions.

OK. Well, thank you very much everybody, we're obviously -- we are delighted by the results that we produce. We think that we are in a really strong environment, and we've got more of the same to come. So, thank you for all your support, and we look forward to being able to produce more positive news for you in the coming quarters. Thank you very much.