Methanex Corp (MEOH) 2005 Q4 法說會逐字稿

Welcome to the Methanex Corporation fourth-quarter earnings conference call. At this time all participants are in a listen-only note. Later we will conduct a question-and-answer session. As a reminder this call is being recorded on Thursday, January 26, 2006. I would now like to turn the conference call over to Ms. Wendy Bach, Director Investor Relations. Please go ahead.

Good morning ladies and gentlemen. I'd like to remind our 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. Certain material factors or assumptions were applied in drawing the conclusions or making the forecast or projections which are included in the forward-looking statements. Please refer to the bottom of our latest news release and to our 2004 annual report for more information.

I would now like to turn the call over to Methanex's President and CEO, Mr. Bruce Aitken, for his comments.

Thank you, Wendy, and good morning everyone. Welcome to the Methanex fourth-quarter investor conference call. I'm in Vancouver and have a number of my colleagues in the room who will be available to answer questions a little later on.

I'm very pleased to be able to present results that represent a strong finish to 2005. We recorded EBITDA in the fourth quarter of $128 million which was a big improvement of our EBITDA of $69 million in the third quarter. Our net income before unusual items was 61 million or $0.52 per share. This was a little less than First Call consensus estimates and this difference is explained almost entirely by the mark-to-market on stock based compensation as stock increased by about 26% during the fourth quarter and this resulted in an added cost of about $4 million or $0.03 per share.

There is one other impact on our earnings that is worth noting. You might recall that in Q3 we recorded an unusual item of 17 million which represented an after-tax effect of a retroactive tax charge made by the Government of Trinidad and Tobago. I advised during our last conference call that the government was reconsidering the retroactive date and that we hoped that this issue would be clarified in the fourth quarter. The good news is that the government has confirmed its intention to change the retroactive date from January 1, 2004 to January 1, 2005. And in fact legislation to this effect is currently before the Trinidad Parliament.

Unfortunately accounting rules do not permit us to recognize this change in the fourth quarter. And we now expect that the $17 million unusual item will be reversed in Q1 2006. There are two key reasons to explain the improvement in our EBITDA during the fourth quarter. Firstly our low-cost assets in Chile and Trinidad operated at a much higher rate of utilization in Q4. These plants produced about 1.36 million metric tons in Q4 compared to just a little over 1 million tons in Q3. This translated into much higher levels of sales of low-cost methanol with a substantial positive impact on our margins.

And secondly, the increased price of methanol in the fourth quarter, $256 per ton, compared to 240 in the third quarter, also substantially improved our earnings and cash flows.

2005 has been a significant year for our Company. Ten years ago we embarked upon a strategy to position all of our assets at or near the bottom of the industry cost curve. And during 2005 with the start of our Chile IV plant, we achieved our objective of transforming our portfolio of core methanol assets. We now own 5.8 million metric tons of low-cost capacity that enables us to generate much stronger earnings and cash flows at all points of the methanol price cycle.

During 2005 we also shut down our final North American plant. It is worth noting that this one plant reduced our net after-tax earnings in 2005 by about $70 million. This start also had quite an impact on our earnings in the fourth quarter. We came into the fourth quarter with quite high inventories of Kitimat product and this had the effect of reducing earnings in the fourth quarter by about $13 million. These losses were a function -- these losses at Kitimat were a function of both the high price of natural gas in North America and costs that were incurred in shutting down our facility.

Also in Q4 we idled our sole remaining plant in New Zealand. However, we regard this facility as a flexible asset that will operate when we're able to source competitively priced natural gas. The net result of these decisions is that we begin 2006 with a unique portfolio of low-cost assets and a global supply chain represented by ships and storage tanks that today is extremely difficult if not impossible to replicate in this industry. During our Q3 conference call, I detailed factors that we thought would lead to continued to relative strength in methanol pricing. The scenario that I painted during that call has in fact come to pass.

As a result of high energy prices we saw the rationalization of about 2.5 million tons of global methanol capacity in the period September to December 2005. This has only been partly offset by the startup of a new 1.8 million metric ton plant in Trinidad. However, in the current environment of healthy demand for methanol, these changes in supplies have led to lower global inventories and escalating prices.

I also described in the Q3 call the rationale behind our view that China would continue to be an important importer of methanol. In contrary to the expectations of some methanol industry commentators who forecasted declines in imports this year, imports into China have been more or less flat year-over-year between 2004 and 2005.

So we enter 2006 with demand steady, prices increasing, inventories low, further rationalization possible and no new supply outside of China expected to influence the market until at least late 2006 or early 2007. With a high price environment and our core low-cost asset base, we are well positioned to generate substantial cash flows. Our plants have been operating very well over the last few months and so far in 2006 all of our plants have a 100% reliability rate.

So what challenges do we face? Most listeners will be aware that we have suffered gas curtailments in Chile during the last two winter seasons in the Southern Hemisphere as a result of redirection orders from the Argentine government. We have not suffered any such curtailments since mid-August but do again expect to experience curtailments in 2006. We have recently visited all of our gas suppliers in the South of Chile and Argentina and discussed the situation with them. There has been some increase in gas availability in the region where we source our gas and hydro capacity in both Argentine and Chile is reasonably positive.

Capacity to deliver gas to the north of Argentina is a little higher this year but limited pipeline capacity still constrains the volume of gas that can be shipped north. All things considered we believe that curtailments in 2006 should be similar to 2005. Although I want to stress that it is difficult to make precise forecasts of these potential disruptions because there are so many variables such as weather that can impact the outcomes.

We have described in the past that a potential mitigation of this issue is access to further gas in Southern Chile. Our Chilean gas supplier, ENAP, is currently drilling an exploration well and they continue to be very optimistic that significant reserves of hydrocarbons exist in the region close to our plants. We expect to have further news on this exploration program over the next three to six months.

A second challenge for 2006 is expected to be the decline in demand from MTBE for fuel in the U.S. During 2005 about 2 million tons of methanol was consumed in MTBE in the United States. With the removal of the oxygenate standard in May 2006, most refiners are choosing to deselect MTBE in favor of other gasoline components. Our expectation is that demand for methanol into MTBE for fuel purposes in the U.S. will decline in 2006 by about half. However, we do not expect to this to have much impact on the global methanol market. For methanol derivatives other than MTBE, we anticipate global growth of about 5% which more than offsets the declines in MTBE.

The third challenge for 2006 is to make a final decision on our project in Egypt. The project has an excellent gas contract. We have very a favorable site adjacent to a deep water port. Egypt has an attractive fiscal regime and the project fits well into our global supply chain. The challenge is whether we are able to build a project with reasonable capital costs. It is our observation that large-scale capital intensive projects have become a lot more expensive to complete over the last couple of years. Many of the materials and equipment to form part of a methanol plant have escalated in cost quite dramatically. We are therefore expecting this project will be more expensive than any other plant we have constructed.

However, we think that Egypt is one of the lowest cost countries in the world to build a new methanol plant and we've chosen a simple but robust technology. We are about halfway completed with a front-end engineering and design package which will help us better understand capital costs. Our current expectation is that the project will make good economic sense.

I'll change topics now and make a few comments regarding liquidity. Our cash flows from operating activities during the quarter were $83 million, compared to $29 million in the third quarter. During 2005 we completed our major capital spend program. We paid $100 million of debt and returned $179 million of cash to shareholders via both dividends and share repurchases.

We repurchased about 7.7 million shares at an average cost of about $17 per share. We started 2006 with excellent liquidity. Cash on hand of about $159 million and an undrawn credit line at $250 million. In May last year we announced a normal course issuer bid for 5% of our outstanding shares. And we expect to complete this bid in the next couple of weeks. We have discussed with our Board the outlook for our business over the coming year and I'm happy to advise that we have approved or that they have approved an extension to our normal course issuer bid to the maximum permitted level or 10% of our public float. This decision is subject to regulatory approval.

Once given we will have the ability to acquire a further 5.9 million shares before mid-May of this year. This decision demonstrates our continued commitment to maintain a balance between growing our business and returning excess cash to shareholders and is a signal of our confidence in the future.

Before stopping for questions I want to make a few comments regarding our expectations for the first quarter. I've already mentioned that all of our low-cost plants are operating well and we have no planned maintenance for the first quarter. We've also recently restarted our New Zealand plant which has an annual capacity of 530,000 metric tons. Our current plan is to operate this plant for about two months. However, we continue to try and secure further reasonably priced natural gas. Our preference is certainly to run this plant for quite a few more months as we believe that the industry needs this capacity to maintain a reasonable balance between demand and supply.

I talked a little about prices earlier. The European quarterly price for Q1 increased $60 per ton compared to the Q4 price. The price settled at EUR268 compared to EUR220. In North America, the non discarded price for methanol was $340 in January and we've recently announced an increase in February up to $358. In Asia, January prices are $320 per ton and the price trend is upwards.

As a result of these movements, we would expect to realize a price that is at least $15 per ton higher in Q1 than our realization in Q4. This combination of factors of low-cost production and higher prices is pointing to a very strong quarter for earnings in the first quarter of 2006.

So at this point I will stop and ask for questions.

(OPERATOR INSTRUCTIONS) Sam Kanes with Scotia Capital.

Hi, Bruce. Question on MTBE and we've read this morning Lyondell's outlook -- big producer and lots of confusion going into midyear. Has anybody you've seen yet pulled out of producing MTBE in the States? And do you expect it all to happen effectively June 1st or June 30th? Do have anymore to say about that?

I might ask, I have John Floren here, our Senior VP of Global Marketing and Logistics in the room. So I might ask John to just make a few comments on that, Sam.

Good morning. The only company that stopped with MTBE today is the people that started up again late last -- late 2004. They have switched at company [B]. Everybody else is continuing to produce MTBE at fairly strong rates due to the high prices of around $2 a gallon. We would expect some of those companies to stop using methanol for MTBE and stop producing going into April, May. But some of the companies have already indicated they will continue to produce and export. So that is what we currently know, Sam. It is a cloudy picture.

Just extending on that just to get my math right. Bruce, you mentioned in print about 2 million tons of consumption there. But, it seems to me that its 2 million tons used for production and an additional 1 million tons for imports if I understand the math being 200,000 barrels a day split roughly two-thirds one-third. Is that what you're referring to is just domestic production versus imports?

Our balances show that around 2 million tons, 150 to 160,000 barrels, are consumed in the United States, not 200,000 -- for fuel.

For fuel. Yet Lyondell says its 200,000 because there is 50, 60,000 barrels of imports either direct of MTBE or indirect through -- (multiple speakers)? There is. So therefore, there is a total consumption of 3 million tons?

I can review the numbers with you, Sam, off line so that we can get to the exact numbers. We would have a little different view of that.

Okay. It's just that's what Lyondell had said -- they are the world's largest MTBE producer.

I understand.

Okay, thank you.

Peter Butler with Glenhill Investments.

Good morning. Bruce, when you look at -- when I look at my cashflow statement or an analysis this year, do you anticipate any unusual uses of cash that we don't know of now, pension fund payments, debt repayments, etc., etc.? And where do you -- where might your debt be by the end of the year?

The only element of unusual payment is while we have accrued all the costs for Kitimat, the Kitimat closure costs, we will pay them out in the first quarter and I think that number is about $40 million, Ian?

Yes, that is right.

It's around $40 million. Okay, so we've paid some. We've paid 10. We have another 30 odd to pay. That is about I think that is the only unusual thing, Peter, that I can think of. Our debt is about 500 million at the moment. There will be small payments on the Atlas project debt but it will still be close to 500 million by the end of next year or this year.

I guess you're comfortable with that debt at that level relative to your equity?

We could certainly handle more debt. That is below our target levels.

Okay. And the same sort of question on your earnings per share. I'm tempted to take your first-quarter results, multiply by four and maybe adjust in the third quarter for your Argentina outages. Is that the way you guys are looking at it?

That is probably not unreasonable. (indiscernible) just forecasting the price for the whole of 2006. Certainly we're starting off the year very strongly with strong high prices and demand looks good throughout the year. I've talked a bit or we've talked about MTBE. So that is a bump in the road I think. And there is no big new supply. I don't think your position is unreasonable in terms of an expectation for 2006.

I'm a bit handicapped because I don't know the real definition of very strong to the Kiwis. You characterized the outlook for the first quarter as very strong. Does that mean that we're going to stand up and salute when we see these numbers or how would you characterize it?

If you look at the price increases that we've managed from December to February we were up $17 a ton in North America, $60 in Europe, $35 in Asia. Those are numbers, discounted numbers and they don't apply to all of our sales contracts. So when you distill that down all of that impact doesn't flow directly to our bottom line. But a lot of it does and we're still very leveraged to the price of methanol in this business. And those are sort of high prices and we still continue to see an upward trend and upward pressure on prices, and that sort of pricing environment we're going to earn a lot of money.

Thanks for the help.

Bob Hastings from Canaccord.

Bruce, just on the New Zealand you've got some gas reserve that you're going to use I think 85,000 metric tons of product you can make. You are trying to get more gas. Can you give us a little bit more dynamics there? And particularly if you have people sort of sitting there looking at the availability of the plan -- I mean employees? Is there an ongoing cost we should be putting into our numbers whether New Zealand is running or not?

Yes, you are right. We have enough gas to make it. It's roughly 80,000 tons give or take. So we have enough gas in our reserves to make about that quantity of methanol which will keep that plant running for about two months. We have been in discussions with our gas suppliers for a number of months. There is certainly a willingness and an enthusiasm to see that plant continuing to run. And the entire discussion at the moment is around pricing.

We would expect that some reason will prevail and that there is a reasonable price that is good for gas suppliers and good for us that will enable us to run that plant a bit longer. We need to make a decision so we do have about 100 people employed at that plant. I don't have a number off the top of my head. Do you have a number, Ian, in terms of monthly run rate costs for that plant if it's not operating?

I don't have exact -- 3 million a quarter.

3 million a quarter. So about $1 million a month, Bob, is what the fixed cost would be without any operation. But we would not expect to sit around for a long period of time in this year with that plant being idle. Either we can secure this gas and we can continue to operate or we will make a decision to close the plant permanently.

In terms of the gas discussions and obviously I'm not going to ask you a price on the phone here where your suppliers are probably listening to you. But in terms of the availability on a timeframe basis, do think there is opportunities to just go month by month or is there maybe something where you could maybe at the right price get it for a longer period of time?

We are certainly trying to lock in at slightly longer period of time. We would certainly like to get through the winter period or the North American summer period. So that is really what we're trying to secure.

That would help with Chile I assume then?

It's a little bit mitigation of that. We still make good money out of unused earned assets. That would be our expectation as well.

Have you ruled out the possibility of dismantling the plant and taking it over to Egypt or somewhere else?

No, no, we've actually -- we're spending quite a lot of money on looking at just that. We had five redundant methanol plants around the world. There's three in New Zealand, one in Kitimat and one in Medicine Hat. We think the opportunity for relocating is actually quite good in this environment of high steel costs and high plant construction costs. So we are doing the engineering and understanding the costs of doing just that right at the moment and we then need to find good locations to relocate those plants. Whether it's Egypt or another location, we haven't made those decisions yet.

That is great. And one last question, utilization in your Chilean and Trinidad facilities was good if it was on an annual basis in the fourth quarter. But you've just done major turnarounds. Are there any other operating issues or residual operating issues with that new big plant in Trinidad in particular?

No, they've both been operating quite well. I think all through December and January from memory we've had no trips or outages at all. We're really quite pleased with the work that was done during the various outages that occurred during 2005. That does seem to have resolved some of the bugs that we had for that plant.

Going forward for this year for Atlas assuming a 96% capacity utilization rate would be okay?

Yes, that is probably reasonable. That's a little aggressive given that we were under -- we were at 84, 85% during 2005. Now that was a very bad year and we're very dissatisfied with that. So we should expect some outages but I think around 95, 96%. We certainly budget at that level, Bob, and my reward is based on that sort of performance so I certainly hope that is what we achieve.

Good luck to you and that is great. Thank you very much.

Jacob Bout with CIBC World Markets.

Good morning. I'm trying to strip out the operating results of Trinidad and Chile versus New Zealand and Kitimat. If I understood you correctly outside of the onetime items, Kitimat essentially was a drag of 13 million in the quarter? Is that correct?

Yes, that is correct. We came into Q4 with if I remember right it was 30 or 40,000 tons of inventory from Kitimat. And that was all produced with natural gas that was probably north of $8 or maybe north of $10. It was a reasonably large chunk of quite expensive methanol sitting in inventories. And then we operated during the month of October, again natural gas prices were extraordinary in that period. That is correct, that number is about $30 million for is the impact of our operating earnings from Kitimat in the fourth quarter.

Just switching gears. There was an article out a couple of weeks back that Sipetrol is looking to possibly pipe natural gas over the Andes to supply Chilean operations. Can you give a little color on that?

Well, there is quite a lot of interest in natural gas in Southern Argentina and in Southern Chile, for that matter. Sipetrol are a subsidiary of ENAP who are, I guess, a supplier in Southern Chile. Sipetrol also -- they were quite a small supplier to our Chile IV plant, so they're one of a consortium of suppliers. They have been quite public in describing their ambitions to expand their exploration program in Southern Argentina.

The other thing that's happened is Pioneer who is another one of our gas suppliers has recently sold their business in Southern Argentina to Apache, which I think is an interesting move as well. Apache have a record of being quite aggressive in terms of pursuing exploration opportunities, and I'm sure they didn't buy this asset with the intention of sitting on it. So I think it does point to certainly a lot more activity in terms of exploration in Southern Argentina and in Southern Chile.

How long would it take to realize? Like are we talking two years out, five years out?

Probably, yes. I think ENAP and Southern Chile have told us that their expectation is they would be able to deliver extra volumes to us in 2007.

My last question is just an accounting question. Just from the statement of cash flows, from operating activities there is one line there for the cash payments of other long-term liabilities of 13.5 million. What is that exactly?

I'll leave Ian to answer your question, Jacob.

Part of it is in December of this year, there was some redemption of long-term compensation which was recorded as long-term liabilities. And there was some payment on some site restoration, on the site restoration accrual -- against the site restoration accrual.

How much of it was that, roughly?

Ten for the compensation part and three for the site restoration, against the site restoration accrual.

Great, very helpful. Thanks, guys.

Jaret Anderson with UBS Securities.

Good morning, Bruce. Can you give us your most recent thinking on what the capital costs will be at Egypt, or at least give us perhaps more guidance than higher than Chile?

Well, we put our 5.8 million tons of low-cost capacity in place for an average of about $300 per metric ton. It's tended to vary from plant to plant, and they're not all comparable. For example, our plants in Trinidad, we buy oxygen over the fence, so we don't own the oxygen plant, whereas our plant in Chile we own the oxygen plant. So there are some variations. But when you average them all across we've spent about $300 per metric ton of capacity to build those plants.

What we've seen I think in the last two years is an escalation probably of 50%. So our expectations we would probably spend up to $450 per ton and maybe more on our plant in Egypt. The biggest impact is certainly the higher price of steel and equipment. It is a greenfield site so that always generates a little more cost, however it's a very good site, it's very close to Deepwater Port and there are utilities and facilities adjacent to the site.

So I think this is an issue I'm sure not just for us but I think anyone who is planning to build a large-scale chemical facility or an LNG plant anywhere in the world that costs are substantially higher in 2005 and '06 than they were in 2003 and 2004. I think the good news for us is we've put all this capacity in place with a much lower capital base. The challenge is it's hard to justify the numbers going forward. But I think the combination of things and that's why I purposefully mentioned that we had great gas contract; good access to Deepwater; fantastic supply chain into Europe from Egypt; and a very attractive fiscal regime in Egypt as well. That combination effect as we think will lead to a good project in that country. We need to finish the work before we make that decision.

That is helpful. The 450 per ton would before any sort of taxes then is there other incentives to (multiple speakers).

Yes, exactly. That's right. And when we quote capital we include all of our earnings costs and capitalized interest and it's very much an all-up cost.

Thanks very much.

[Adam Kamora] with [Interest Capital].

Thanks a lot. I had just a couple of quick ones. The first is have we started shipping the Univar yet?

I'll ask John to answer that question.

The contract with Univar will be fully in place by around June of this year. We have started shipments. Univar was a small customer of Methanex before we signed this new arrangement and the plan is to scale up the full amount of the contact by June.

So we're at about 50% kind of number now?

I really wouldn't want to comment on the exact number but it is scaling up. It's been a mild winter in Western Canada. Most of what Univar uses is for dehydration. We will scale up to 100% by June.

Got it. And if I understand correctly that is being priced off of a Western Canadian price for methanol?

Yes, we've established what we call Western Canadian distributor price for all of the distribution business we have in Western Canada. And it's over CAN$500 a ton today.

Got it. Okay, CAN$500 a ton Canadian. And can you just give us a ballpark figure order of magnitude how big this relationship is with Univar? I think they were buying a couple hundred thousand tons previously.

We've announced that we are their exclusive distributor now in Western Canada. So Manitoba, Saskatchewan, Alberta and British Columbia.

Okay. And they used to buy about a couple hundred thousand tons?

They are a significant buyer in Western Canada.

Okay, fair enough. The other thing I just wanted to touch base on is typically in the past you said it takes about three years to construct a world-class project. It looks like '06 and '07 we're in pretty good shape here. Any early read yet on '08 or is it too early?

Well, interesting observation, Adam. There's lots of projects out there that have been announced and this industry has been littered with those for the last decade, as long as I've been in this industry. If you look out three or four years, there's this long list of projects that someone's going to build. And the experience has been that they get delayed, canceled, changed and many of them just fall over and never eventuate. What we know today is the only plant that is actually under construction is this plant in Iran. The uranium plant was supposed to start up originally in 2004. They are now saying late 2006 and some of our intelligence is suggesting early 2007. So here's a plant that has been under construction for a long period of time and it's two to three years delayed.

The Iranians have another plant that is under construction and I wouldn't like to speculate when that will start up, but you've got to think it's a couple of years away at least. To our knowledge outside of China there is no other plant that is actually started construction. There's a long list of projects but no one else has actually started anything.

You said three years. We would think about thirty months from the time you start construction, thirty months is probably a good period to begin construction and then begin making methanol. So it does seem we continue to have this window in front of us where there are no large-scale plants coming up that we think will be particularly disruptive to the global demand and supply balance.

I've also got just one other question. The way you define cash flow from operating activities, I'm just looking at page 16 in the release. It looks like you also generated 27.5 million from working capital. Is that correct? So if I include working capital, cash flow from Ops is really like 110?

That is correct.

And my last question is what is the monthly production -- I'm sorry I missed it -- that we're going to be going -- that we're going to be producing New Zealand at?

It's a 530,000 ton plant. So the monthly production is around 40,000 tons per month. And we will be running about (multiple speakers).

And in theory it sounds like that you’re producing just to keep the market balanced. So if the MTBE if we lose that million tons or 80,000 tons a month it sounds like we sort of absorb half of that just by reshutting down New Zealand?

We think the market is actually quite short, Adam, so certainly our own inventories are skinny. And then the fact that prices have been increasing so steadily is indicative that the world is really short on methanol. We would like to run it just to continue to be able to supply our customers. We think the world needs it. That is our objective.

There are a number of other plants that have announced shutdowns this year. There's a methanol plant in Western Europe that is running at a low rate at the moment. They said they will shut down midyear. There's a Celanese plant up in Edmonton in Alberta that they've announced shutdown later this year. So there is some rationalization going on as well in this environment of quite a tight balance between demand and supply. That helps to reinforce our view that we actually need this production in New Zealand to keep our own system in balance and to keep our customers supplied.

I guess is that the methanol facility in Western Europe? And if you add all that up of new shutdowns that we could see in the first half, what does all that total to?

I don't know whether it's the first half of 2006 but it's probably one million tons -- John, of that sort of order?

In Eastern Europe.

In Eastern Europe. There's a few plants in Eastern Europe that are suffering high gas presses as well. It's just a continuation of what we've seen in the last couple of years. Plants at the top end of the cost curve are making no money and are under significant financial hardship.

I just want to also say it's good to see you guys aggressively back repurchasing shares. Thanks a lot.

Fai Lee with RBC Capital Markets.

Thank you. Bruce, I just wanted to get your thoughts on Repsol's announcement today that they're cutting their reserves by 25% largely in Bolivia and Argentina. And just more thinking about the long-term implication if there are any for Methanex?

That is news to me, Fai, so I hadn't seen that. My expectation is that Repsol is a very large holder of natural gas reserves in Argentina. But their biggest reserves are in the [Center] and the [Newcom] Basin which is an area of Central Argentina, that supplies gas to the Buenos Aires area and also it's the main supplier of gas into Northern Chile as well. They have a much smaller position in the South, they are one of our suppliers down there but then they do have gas reserves.

So I don't know where specifically they are reducing their reserves. I think your question goes to a bigger issue though and what is our prognosis, our long-term outlook for gas availability for Southern Argentina to our plants.

We really think that there needs to be new discoveries of natural gas preferably in Southern Chile but to the extent they are in Southern Argentina that's helpful as well. Gas from the south of Argentina to the north will always be pipeline constrained so there will always be capacity limitations. So to the extent there are other discoveries in Southern Argentina I think that's helpful to us. But that country is short of natural gas supply and they will work out to try and find alternative supplies to keep their industry and their economy growing. Any reductions in reserves are not particularly helpful would be a short answer.

Okay and do you have any sort of estimates of reserve life around your plants, have you done any studies --?

Most of the reserves are that being discovered the supplier plants are relatively recent. There would be within the last decade I would say I'm guessing a little but I know some of them are more recent than that. And we certainly have in support of our natural gas contracts we had reserve certifications done that certainly demonstrate sufficient reserves to satisfy all of the obligations under our contracts. Again it would be my intuition rather than my knowledge. My intuition is that the gas reserve numbers in the south of Argentina are a lot more robust than those that are in the north and the center of the country.

Okay. And under your contracts, the sellers are obligated to supply a specific amount of gas? Is that correct?

That is correct, yes.

So you're protected for at least a period of time?

Yes, to deliver a pay obligation. That is correct.

I have a second question just on the dividend. Given that obviously your Board had considered the share buyback program this time and I think in the past there might -- you might have said something along the lines of if you would consider a dividend increase if there was a step change I guess in your operations. Given that I don't see any new plants -- or you don't have any new plants this year, which I would consider a step change, is there any contemplation on a dividend increase this year in (multiple speakers)?

We discuss with our Board continually the implication of our cash flows and we've described a balanced approach with frequency. We want to be able to grow our business. We want to maintain a tidy balance sheet and we want to make sure that we reward our shareholders with both dividends and share repurchases. And we have increased our dividend four times now or we initiated it in 2002 and we've increased it every year since then.

And we think there is further scope for increasing the dividend. We typically have a look at that at midyear. So this is not really the time of year when we review dividend. And we will continue to look at that every year. I guess if there's a step change it's the number of shares outstanding. We continue to buy back shares. I think at the end of the year we're down to about 140 million shares -- Ian? Something like that. And we've just announced another 5.9 million shares. We should expect by mid year to be around maybe less than 110 million shares.

We can maintain the amount of cash we're paying out in dividends and have a nice percentage increase in the dividend payout ratio. I think there is opportunity to further increase our dividend.

Okay, great. Thank you.

Peter Butler with Glenhill Investments.

Why is that the final question. It's only 11:45?

It's lunchtime for the operator.

I'm sorry. There was no one else in the queue. That's why.

It seems to me that there's been a major positive change in your story compared to say what some of your friendly Canadian analysts have been saying for years. It looks like you've disconnected the price of methanol from gas. And you look back years and anytime gas would come down anything close to 50% in a several week, several month period, your stock would have been killed.

Yes.

And it's obvious now it's starting to sell on the really tight longer-term supply/demand for methanol. I'm wondering if you guys want to dream about your stock price and hope for a higher multiple, that would be the way to go just keep pouring on the coals. But it looks like just the back of the envelope if you had -- if economy grows slow in '06, '07, you're right on the new additions to supply and we have the shutdowns that you could have two years in '06 and '07 where your free cash flow would be maybe twice the amount of your current debt. Which says that we either get the multiple up maybe by being more charming or second maybe you dust off the plans to go private.

I think they are all good observations, Peter. And your numbers are right. I think it's a very viable scenario. But it is a scenario. I don't know how I can be more charming, Peter. I'm trying very hard. We are often asked about whether our Company represents a better model as a private organization. And I must say the amount of time and effort we spend on things like Sarbanes-Oxley, it's more and more tempting to think about that.

Again, something we just continue to review with our Board is our strategy, our organizational structure, our financial structure. It is something we pay a lot of attention to. And I think the market should reward us for our great results. It's happening slowly but it would be nice to see a multiple that's a bit more comparable to some of our peers in this industry.

Well you have no peers.

Well we make money, you mean?

Thanks again for your help.

Thanks, Peter. Are there any other questions in they queue there, operator?

There are no questions holding in the queue at this time.

Excellent. So you were quite correct and it is the last question. I thank you everyone for your participation on the call. We are positioned to enjoy a very strong first quarter and another very good year in 2006. As we've mentioned, prices are high and rising. The market is tight. We’ve got our low-cost assets operating well, and this is all very positive for Methanex.

So I thank you for your continued support and good morning to everyone.

This concludes the Methanex Corporation fourth-quarter results conference call. Thank you from Teles.