Methanex Corp (MEOH) 2007 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation fourth-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, January 24th, 2008.

I would now like to turn the conference call over to Mr. Jason Chesko, Director, Investor Relations. Please go ahead.

Good morning ladies and gentlemen. I would 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 information. Please refer to the bottom of our latest news release and of our 2006 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, Jason, and good morning everyone and welcome to the Methanex fourth-quarter investor conference call. I have a number of colleagues with me in the room and they will be available to answer questions a little later.

I'm delighted to report that we've completed a record quarter and another excellent year of results. For the fourth quarter, we generated EBITDA of $270 million and net income of $172 million, or $1.72 per share. These results represented a substantial increase compared to Q3. This very strong quarter also completes another excellent year in which we generated EBITDA of $652 million.

Earnings in the fourth quarter were significantly higher on the strength of record high methanol prices. We ended the fourth quarter with tight market conditions and very low global inventories. During the quarter, global demand remained healthy while plant outages continued to impact industry supply, keeping markets tight. This resulted in escalating methanol prices through the quarter. We achieved an average realized price of $514 per ton in the fourth quarter compared to our average realized price of $270 in the third quarter.

Our earnings in the fourth quarter were also positively impacted by a couple of factors. Firstly, we benefited from our produced sales volume being higher than our production in the quarter. Secondly, it is normal in a transition pricing period that our earnings will be impacted either positively or negatively by the cost of inventory, whether this was produced or purchase. This was the case in the fourth quarter as our earnings were positively impacted by selling lower-cost inventory from the third quarter into the fourth quarter. Those of you that have studied our results will note that we earned a $36 million margin on traded methanol, and this very good achievement is partly the result of a rising price environment.

I will comment more on first quarter pricing and our earnings expectations later in the call, but first I'd like provide you an update on our operations for the quarter.

Production from our large low-cost plants in Trinidad during the quarter was once again excellent. We produced a total of 498,000 tons, which is above total design capacity for those plants of 481,000 tons. Our site in Chile produced 288,000 tons during the quarter, up from 233,000 tons in the third quarter, but well below production capacity at that site of 960,000 tons. We did not receive any gas from Argentina during the quarter and this is the reason for our production shortfall.

Our production increased in the fourth quarter as both our gas suppliers in Chile increased gas supply to our plants. As a result, we're now operating at roughly one-third capacity in Chile and operating two plants at reduced rates. Again I will comment more on our outlook for natural gas to our plants in Chile in just a few moments.

Our plant in New Zealand was off-line for about a month for planned maintenance during the fourth quarter, but operated well during the rest of the period and produced 75,000 tons of methanol. We currently have contracted enough natural gas to operate our 500,000 ton Waitara Valley plant until the middle of this year. We're now in the process of securing more gas to continue to operate this plant longer or possibly to switch production to one of our larger 900,000 ton plans in our Motunui location in New Zealand. Switching to the larger plant will require that we spend some capital and the decision on this with depend on our ability to secure sufficient gas on economic terms. I expect we will be able to announce some progress on this initiative in the next few weeks. Assuming that we are successful with this initiative, we will have effectively replaced one Chile methanol plant at economics that are superior to using gas from Argentina.

Switching topics now to the industry and pricing outlook, entering the first quarter we remain in a very high methanol price environment with non-discounted methanol pricing averaging $775 per ton across all regions in the month of January. Recently, we have seen downward pressure on spot prices as the industry has been achieving a higher operating rate in recent months. However, while industry supply has improved, we continue to believe that overall global inventory's are still at reasonably low levels. Our own inventory continues to be well below the level at which we like to operate. Yesterday, we announced the Methanex non-discounted list price in the U.S. for the month of February at $2.10 per gallon, or about $700 per ton. This is a reduction from $2.50 per gallon, or $830 per ton in January. So, while prices are trending downwards, they continue to be very high. As we saw last year, in a high methanol price environment, China has the incentive to operate at higher production rates and export more methanol. And while China remained a net importer of methanol through November, we believe that they became a net exporter of methanol over the last month and this has been a factor in the recent decline in spot prices.

It is interesting that most of the exports from China have been gas-based methanol and that most are re-exports of product previously imported from other countries. Exports of the lower quality coal-based methanol which is more typical in China have been quite small as this product is not suitable for many international customers.

In addition, I have commented in previous calls on how the production costs and costs for producers in China to export have continued to escalate. As feedstock costs have increased, export tax rebates have reduced and the domestic currency has continued to appreciate. This trend continued in the fourth quarter as the NDRC, the main economic planning body in China, increased natural gas feedstocks in November for gas-based methanol producers who represent about one-third of total production in China. We are also aware of a significant increase in coal prices in both inland and coastal markets. We have been very consistent in our belief that in a more moderate pricing environment, China will become a more substantial importer of methanol. This continues to be our view.

Contrary to what some industry followers have indicated, we have seen little negative impact on methanol demand recently, despite very high prices. While there have been some pockets of weakness, such as formaldehyde, in some regions overall demand remains steady with strong demand growth in fuels and energy-related uses, such as MTBE, DME and fuel blending.

While I commented on the last conference call that we anticipated that we might see reduced demand in energy-related uses in the fourth quarter as a result of very high methanol prices, the high energy price environment with oil in the 90 to $100 a barrel range has kept these energy-related derivatives competitive.

I will switch topics now and talk about some of the opportunities and challenges that we face. Firstly, natural gas to our plants in Chile. As I mentioned earlier, we continue not to receive any gas from Argentina, and this has been the case since mid-June. The situation has changed little from the last conference call when I provided an update. There is sufficient gas production capability in Argentina to supply us with our full contractual entitlement. All pipeline capacity to transport natural gas from southern Argentina to the more populated areas in northern Argentina is full, and gas today is either shut in or being reinjected. In a recent development, the governments of Argentina and Chile have established a bilateral committee with government representatives from both countries to study energy policy between the two countries. We understand that this committee is going to make some recommendations in the coming weeks and this may provide some clarity on our situation. However, we're not particularly optimistic that natural gas exports will resume anytime soon.

As we have discussed in previous calls, the solution to our challenges related to gas supply from Argentina is to secure more natural gas in Chile and we continue to see good progress on this initiative. Firstly in late November, we announced a long-term supplied with GeoPark in which we provided $40 million in financing to accelerate gas development and exploration in the Fell Block near to our plants. GeoPark increased gas supply to our plants during the fourth quarter and we expect further small improvements during this quarter. They plan to be supplying us with up to 10% of our total gas needs in Chile by the end of this year and ultimately up to 20% of our total gas needs. In addition, our main gas supplier ENAP has also increased gas deliveries to our plants during the fourth quarter which allowed us to begin operating a second methanol plant in November. ENAP is also continuing a substantial capital expenditure program in southern Chile and they announced the commercial discovery of gas last year in the [Dorada Riquelme] Block, which is very near to our plant and adjacent to GeoPack's gas-producing Fell Block. We are optimistic about the development potential of this block and believe it has the potential to be supplying us with gas as early as next year.

And on November 15, the government of Chile finalized its international bidding round of oil and gas exploration blocks and awarded nine blocks to several international oil and gas companies, including three of our current gas suppliers -- Total, Apache and Pan-American. The successful companies are in the process of finalizing their contracts and we expect exploration activity to commence in the next few months.

In summary, I'm pleased with all of the gas development activity occurring in southern Chile. When we total the monetary commitments of the various companies operating in Chile, we expect that there will be more than $600 million spent in the next three years exploring for and developing natural gas.

On the basis of these commitments, I continue to be optimistic that our Chile plants can be back to operating at full capacity over the next few years with gas supplied from Chile. As we demonstrated with our recent GeoPark agreement, we are focused on initiatives to accelerate gas development in southern Chile and I expect we will commit further capital to these initiatives over the next year.

The next opportunity I wanted to provide you an update on is our new methanol plant in Egypt. The project is proceeding on schedule and is now almost 20% complete. We have established an excellent relationship with our contractors and the various other stakeholders on this project and I am confident we can deliver this project on time and on budget. There are several hundred people working on this site with current construction activities including site preparation, construction buildings and piling. Most of the equipment and bulk materials have now been committed with material deliveries such as structural steel expected before the end of this quarter. When this project starts up as scheduled in early 2010, it will be among the lowest cost plants in the world and will contribute significant cash flow to our shareholders while reinforcing our leadership position in the global methanol industry.

The last projects I wanted to discuss are our DME projects. Firstly, our joint venture project, a DME project near Shanghai in China, in which we own a 20% interest. The plant began operations in early November and is operating well. We are supplying 100% of the methanol for this plant and the DME is being sold to LPG distributors in China through the existing distribution business of our joint venture partner. As I mentioned earlier, despite high methanol prices, demand for DME has been good as the high energy price environment has led to high LPG and DME prices in China.

Last month, we also announced the signing of an MOU, to be a minority participant in a DME project in Egypt similar to the scope of our DME joint venture in China. This project demonstrates the exciting growth potential for methanol to compete in energy around the world. This project also supports Egypt's energy and environmental policies as it allows Egypt to use our natural gas resource to develop a clean new fuel and substitute imported LPG. This project underpins my optimism for the growth potential of DME globally as I believe there are many countries around the world that would benefit from using DME as a clean alternative fuel.

I will change topics now and make a few comments about our liquidity. Our cash flow from operating activities during the fourth quarter was $188 million before changes in working capital. During 2007, we generated almost $500 million of cash flow from operating activities which once again is a demonstration of our ability to generate cash. We returned a total of $54 million to shareholders in Q4 and $260 million during 2007 (inaudible) both dividends and share repurchases. As of a couple of days ago, we had repurchased 4.9 million shares under our current normal course issuer bid and we continue buying back shares every day. We have a number of uses for cash as part of our consideration of managing our balance sheet. Firstly, we're in a strong position to meet our commitments on the Egypt project. Secondly, we will continue to focus on opportunities to invest to accelerate development of gas in southern Chile and to improve the security of natural gas supply to our Chilean plants. And finally, we will also continue to explore initiatives to invest -- to expand demand for methanol in energy markets. In the strong cash flow environment we're operating in, we are well positioned to meet all of these objectives while continuing to return excess cash to our shareholders.

Before stopping for questions, I will make a few comments regarding our expectations for the quarter.

We ended the first quarter with very high methanol prices that we do not believe are sustainable or particularly good for our industry. High prices have been successful in bringing demand and supply back into some semblance of balance and assuming a reasonable operating rate for the global industry in the coming months, we expect that inventories can recover and that prices should decline to reflect the energy value of methanol and impact the top end of the cost curve.

As I mentioned earlier in the call, there are a couple of factors positively impacting our fourth quarter results which I would not expect to occur in the first quarter.

Firstly, while sales volumes should be similar in the first quarter, in the fourth quarter our sales of produced product were higher than our production and we expect the reverse to occur in the first quarter because of inventory [flows]. Secondly, as I mentioned earlier, we've benefited significantly from inventory timing in the fourth quarter as we saw produced and purchased inventory that reflected lower third quarter costs. Again, I would expect this to occur in the first quarter given the similar pricing environments of Q4 and Q1. Also, there is a risk of some reversal on the gain of purchased product that we earned in Q4 if prices were to decline in this quarter.

So in short, while a strong pricing environment will lead to another good quarter, I would not expect the first quarter to be as strong as the fourth quarter for the reasons just mentioned.

So at this point, I'm happy to stop and I will take any questions that you might have.

(OPERATOR INSTRUCTIONS) Jacob Bout, CIBC World Markets.

If you could comment a little bit on inventory levels from a global producer prospective. Where do you think things are at right now? Is there any evidence here of a [build at all]?

No. I believe that inventory levels are still quite low, Jacob. I commented that our own inventories continue to be well below where we optimally operate our Company and we have been reluctant to build inventory simply because the cost of doing so is prohibitive. So we have continued to try and operate at minimum levels.

I notice in China declining inventory levels in coastal provinces, and just in recent weeks and months, really recent weeks rather than months. There has been some noise in the European market. We understand that is mostly related to the fact that one of the major storage operators has removed one large storage tank for maintenance and limited the amount of storage capacity in the European market which has put a squeeze on some importers when they have had vessels arriving and no place to store that product. We think that's a temporary situation. We think the decline that we've seen in spot pricing in Europe has been overdone and we think we'll see -- at least some retracing of that decline.

So, I think in anecdotally, Jacob, our belief is that inventory is still at a very delicate state, and any significant disruption to the supply side of our industry will lead to a further shortage that we've seen in the fourth quarter.

And then just turning to the Argentinean gas issue and the gas -- Argentinean gas reserves in Tierra del Fuego, if you were to speculate, considering some of the infrastructure issues that they have there, is there any chance that they're going to be -- or your thoughts on them viewing that as a strategic reserve and essentially just leave it in the ground until needed or until they twin the pipeline out of there?

Well, I don't like to speak (inaudible) because it's not for me to do so. That's a better question to ask the gas suppliers in southern Argentina what they think the Argentinean government is thinking of. I guess we entered into those contracts on the strength of a protocol that existed between Argentina and Chile. We have very strong gas contracts with international gas suppliers, backed by guarantees. So I feel that we have been left in a very poor position by the actions of the Argentine government and by gas supplier and it's a very disappointing situation. But that said, I think you should taken from my comments that we are putting most of our efforts now into Chile and we see long-term solutions with gas supply in Chile, and that is where we see our future.

Okay. Then just turning to that, if you were to look at your Chilean supply of natural gas, assuming that you don't get any from Argentina, what do you expect as far as the ramp-up? At this point, if I understand you correctly, you are still running two plants, but at a slightly lower rate. How does that look going into 2008 and 2009?

The immediate ramp-up occurs from the two suppliers that I mentioned -- GeoPark and ENAP. Both are drilling, both are adding infrastructure, both are increasing gas supply at our plants, albeit at a relatively modest rate but there was incremental supply. It happened during the fourth quarter and we expect further in the first quarter and frankly during the balance of this year.

But to be realistic, the international bidding round that I mentioned, people will begin work on that in the next few months and we shouldn't expect to see gas from that probably before the end of 2009. But we're certainly aware of some activity from one of our gas suppliers in one of those blocks, that they expect to be producing in 2009. And I just continue to be encouraged by the fact that there are a lot of very credible companies who have very substantial positions in southern Argentina, have taken a substantial position in southern Chile and committed a lot of capital to develop in that area. And these are smart people. They wouldn't do it if they didn't think there was good potential.

In 2009, is that in the Fell Block?

No. Certainly, the Fell Block will continue to increase capacity. But even blocks, like we haven't talked about [Lago Mercedes] for awhile, but there is some activity occurring in the Lago Mercedes Block, and we could expect to see some gas out of that by 2009. And there is one other block that I was referring to that we have also been told there is an expectation for further gas by 2009. So I think we will just see a steady increase in supply from Chile, but it's not going to be instantaneous.

Peter Butler, Glenhill Investments.

Simple question -- what do you guys project for your CapEx and DD&A for '08 and '09?

Simple questions need simple answers, Peter. We have -- CapEx, I have a number for the next three years of about $800 million, and that includes all of our commitments in Egypt, it includes spending a chunk of money in Chile. By the way, a lot of that assumes success of the money that we have in our budget for Chile. Much of it is not approved by our Board and would only be approved based on success of existing initiatives. We expect some more modest investments in the energy space, and then there's other bits and pieces, Peter. So there's a chunk of money that we think we can invest to continue to grow and develop our Company and build our leadership position in this industry.

And the DD&A in the next couple of years?

It will be similar, Peter, to what we have seen in the last couple if years -- 115, $120 million.

Did I hear the voice of Mr. Montgomery?

No, that was Mr. Cameron.

Okay. I lost my train of thought here. What do you suppose the next step is for you on these ME projects? Are you going to really push this business, or what do you think? (MULTIPLE SPEAKERS) When you look back five years from now, what will we be seeing?

I think you will see DME as a substantial demand source for methanol in this industry. In the same way, again, [DBE] has grown to be 15 to 20% of this industry. Despite all of the gloom around that particular product in recent years, it continues to be a very valuable end product. Just out of interest, (MTBE) is trading at record prices in the month of January. It's double this year than it was last year. Demand continues to be very strong and it has drawn into many markets in the world, excluding the United States for reasons that we have traveled before. And I think we'll look back and see DME following a similar demand growth profile in the feature.

I think the big prize in DME is as a diesel substitute. The Japanese have been working on DME as a diesel substitute for quite a number of years. Mitsubishi Gas Chemicals have demonstration -- or are building a demonstration plant in (inaudible), Japan and I understand today that they are running trucks and buses on DME. People like Volvo are building buses dedicated to run on DME and the Shanghai Municipality is buying DME-powered buses to run their transit fleet.

So there is a lot of only activity occurring that I think demonstrates the viability of DME, and the great news about it, it's a very clean fuel with very low emissions. And to the extent that it can be made from methanol, then I think it's very economic and very competitive, particularly in a high-energy environment.

Is there any reason to expect you might change your policy of the last couple of years on share repurchases and dividend increases?

Peter, we've been very consistent and I quoted the numbers earlier. We gave back $260 million to shareholders in 2007 out of our total operating cash flows of $500 million. So 50% of our cash flow went back to shareholders. So I feel as though we have been very consistent with our view that when we have excess cash flow, we return it to our shareholders. So that has been our policy. I think, when I looked at our stock price, looked at it this morning and reflected on the financial performance of the Company, like a company of our size, we've generated to $1.5 billion of EBITDA over the last two years. Doesn't feel to me that we are receiving the valuation we deserve. So when we feel like that, we are obliged to look at other alternatives. And I guess that's all I really want to say, Peter.

Maybe you should send some of these very positive press releases of yours to some of the domestic analysts up in Canada.

I'm sure they read them all, Peter.

They do?

I think so.

Okay, thanks for the help. You're doing a great job.

Bob Hastings, Canaccord.

Great quarter, [stunner] quarter. The (inaudible) China production, you have sold a lot of third party production, and I'm wondering where you source that. Was that in China?

All over the place. It's one of the things that I think as a Company we have really improved in the last three or four years. We now source in Europe, Asia and in North America. We have been purchasing actively in China in December and January. We've been part of the exports. We've been re-exporting methanol that we have sourced from other countries into China and we have been re-exporting it into places like Korea. So yes, we have been very active in trading methanol in the last two or three months.

And I believe you said that was basically all gas-based methanol, correct?

Certainly all of the stuff we're handling is gas-based, but there are small amounts of coal-based methanol have being exported. Some of it turned up in the U.S. Gulf and sat around for awhile because it could not find a home. I think it's all gone now. But there is no doubt that coal-based methanol is harder to place. And customers are reluctant to take methanol that doesn't meet the international specification.

Great. Can you help me on the accounting for how you do the third-party purchases? So for instance, you have produced more product -- or you've sold more internal product than you have produced, which means you've pulled out of inventory. Would a lot of the purchases that you have done be sitting in inventory now at higher pricing? I know you alluded to that, but would you be through all your own internally -- in terms of your inventory positions, will you through your own internal production?

No. The only guidance I'll offer, Bob, is that our inventories at the end of the fourth quarter are very similar to the inventories at the end of the third quarter. And from our point of view, we are more or less at the bottom of the tank. That said, we need a lot of inventory to keep our vessels operating and we have inventory sitting in our plants, inventory sitting on ships and inventory sitting in the marketplace. So when we are at the bottom of the tank, it still means we have hundreds of thousands of tons of inventory. So the real answer to your question is that the mix between produced and purchased has changed a little. We have more purchased in inventory now than we had at the beginning of the quarter and a little less produced methanol.

Okay, thank you for that. And one last question. On Chile, can you give us some sort of guidance as, you sort of talk about how much you hope to get some more gas out of GeoPark, etc. But based on what we know now on the reserves there and the gas that is available, what would you suggest without any changes from Argentina, what kind of capacity utilization would you expect Chile to be running at this year?

That's very hard to say. We're going to be -- if you assume no gas in Argentina, and I think that it's certainly the highest probability, but I wouldn't say we've given up on Argentina. We still think there is good sense for Argentina to approve some exports of natural gas and maybe good sense will prevail in the coming months.

If we were to receive no gas from Argentina, then I think between 1.2 and 1.5 million tons this year is probably a realistic view of where production should be. And then I think we will just see a steady increase. I expect that by -- we've set ourselves 2010, 2011 to be back operating at capacity again as a realistic target.

So without new gas finds, I know next year, one of your gas contractors from Chile runs our mid-year, I think it is.

No, next year, 2009. There is a change, that's right.

Right. So without new gas finds, would you be stepping down next year?

No, not really. It's a bit of a complicated situation because there is gas that continues to be available from that supplier. That supplier has (inaudible) delivering to us and they have undertaken to maintain deliveries based on their contractual commitments. It's a little bit complicated, and I don't really want to go into the details of it. It's all a bit commercially sensitive, Bob. But I'd just stick with the guidance that I think we will see a small increase this year on what we are currently producing, and then I think we will see it fairly step up in 2009 as well.

Okay. If you're able to find more gas and we get more production out of Chile, how will you handle that? Because I guess the market has sort of rebalanced at this point.

It has only rebalanced because the price of methanol is $700 a ton. I think at lower prices, you will see some supply disappear and you will see some stronger demand. So I think there is some elasticity, particularly when prices go to the extreme levels that we've seen in recent months.

Fai Lee, RBC Capital Markets.

Bruce, you mentioned something about formaldehyde being a weaker spot of demand. How much of an impact has the U.S. housing market slowdown had on formaldehyde demand?

We think it's a couple of hundred tons of methanol, Fai. It's not -- in the context of a 40 million ton industry, it's not huge. I mentioned MTBE before. Our MTBE customers are drawing down maximum contract volumes at the moment that we never expect never expected to be the case, particularly in the winter. Sometimes in the summer when demand for gasoline is higher in the Northern Hemisphere, we see strong demand for MTBE. So we have seen some offsetting impacts on demand that we never really anticipated. So I think if you look at why has the market apparently rebalanced, we think it's mostly supply related. It's not demand related and that's a very different prognosis than you read from some of the newsletters who write about this industry.

So you think about a couple of hundred thousand tons on an annualized basis?

Yes.

And just in terms of Argentina, if the Argentinean gas supply restrictions aren't lifted, and you talked about the sustainability of prices and how you expect them to come down to the lower level. What kind of level would you expect based on your cost curve analysis would make sense if you don't get gas back from Argentina?

We think the top end of the cost curve is comfortably over $300 a ton at the moment. There is nothing like $80, $90, $100 crude oil to have driven up the cost of production, particularly in China. There's some very high cost production that's operating today in China that we don't expect will be sustained in a more moderate pricing environment. So I think -- I hate providing press forecasts because I know there's too many other moving parts. But based on (inaudible) today at $300 to $400 a ton, it's in a range where we think there is a degree of sustainability.

And this higher end of the cost curve, is that in China or is that somewhere else?

No, that's mostly in China. The real top end of the cost curve is in China.

Okay. I might have missed this, but did you talk about your realized price expectation for Q1?

No. What I did provide was the price in the month of January, which is the same as the month of December, and then a modest dip down in the month of February. So you can expect that our realized price will be I think similar, maybe a little higher in Q1 than it was in Q4.

Charles Neivert, Morgan Stanley.

As far as operating rate movement in Chile, you said you were at about a third now, we were at 30% in the fourth quarter. You think, where can we be, again assuming no Argentine gas, is it reasonable to assume that Chilean gas could get up 40%, 45% by year's end (MULTIPLE SPEAKERS) given what they're telling you so far?

Yes. I think 40% by year's end is realistic. The one challenge is, there is some seasonality to gas availability in the middle of winter. There's certainly more demand for residential natural gas in southern Chile. The good news is, there's not too many people there, so it doesn't represent a huge chunk, but it does -- any increase in gas demand and in the local towns comes off of our allocation. So we do expect slightly lower rates during the winter and then slightly higher rates as we come into the spring and summer.

And then on any additions you get over the next few years, are we looking at a price situation for that gas similar to what you have currently, meaning a shared deal as the price of methanol goes up?

Yes, that's right. I think one thing we've demonstrated in this industry is that the industry has a capacity to pay more for natural gas than we thought we could pay when we entered into those original contracts. So I think our gas suppliers are generally very happy with the realizations that they're receiving out of our industry.

And that would be substantially lower than Argentina, given the tax or whatever they [did put] out.

Exactly. That is correct.

The Motunui startup, if it occurs, that has been down for quite awhile I suppose. How long would it take, assuming you make that decision to get it up and running at let's say something in the -- a normal clip, 80, 90 (MULTIPLE SPEAKERS).

The plant has been down for three years. It has been under nitrogen blanketing, so we expect the internals are quite well preserved. There's certainly some additional work to do on some of the small bore piping and we would need to replace catalyst. So we need to do what would be a major turnaround for that plant. We typically to do a turnaround, we plan for a year and then we take 30 days to do it. We've accelerated our planning, so we're going to do a lot of planning and execution at the same time. I think in about three to four months time, we could expect to see that plant operating (MULTIPLE SPEAKERS).

Once you've made your decision?

Yes, once we have -- we have not made that decision, and that is dependent on closing our gas contracts.

Last question is obviously because of Chile not being able to fully operate, you've had some spare shipping space around. Can you give us an idea about how much you might have gotten out on backhauls and things where because of that available space you might have picked up some money on the shipping side?

I think we have done very well on shipping. We have continued to utilize our vessels. So if we typically don't talk about backhaul revenues and backhaul margins, we just net them off against our logistics costs. So we have seen our logistics costs go up in the last 12 months, but that would mostly be driven by increase bunker costs. So far as vessel utilization is concerned, it continues to be at very high levels and the disruption in Chile has not had any significant impact on their shipping costs.

That's good. I'm glad you've been able to absorb them. I think that's it for me at this point. Thank you.

Brian MacArthur, UBS Securities.

A couple of questions. Can you remind me whether you're using FIFO or average inventory?

FIFO.

FIFO. So effectively if I look at the last -- if I look at the report, you can sort of say you've drawn down about 500,000 tons over the last three quarters so now we're pretty low in the tank. So then you said your proportion of purchased material sitting in there is probably a couple hundred thousand tons. Is that the right way to think about it?

I think directionally, you're right. I think your 500,000 tons is probably a little bit high.

I was just looking at what you reported here between company produced and production, and then company -- under sales, company produced sales.

The numbers are a little bit high. We don't publish volumes of inventory, but your number is a little bit high. But there's no doubt, the inventories have come down over the last 12 months substantially and we are operating at minimum levels and we have been quite -- the level of inventory is reasonably stable between Q3 and Q4.

And just to be very clear on the FIFO, obviously you had some in inventory from produced in Q3, and then you start to go and buy in Q4 and you probably bought throughout Q4. When we do FIFO, is that like all -- the extra produced stuff went out first in the fourth quarter, so we sold then we sold more of the purchased stuff in the back half of the quarter. What I'm getting at is, are we sitting with a disproportionate amount of high stuff priced in December that is really going to hit us in Q1?

There's some of that, Brian, but I don't know want to -- this is very complicated. We struggle with it ourselves. So I have some sympathy with the analysts who are trying to follow our inventory flows as well. There's certainly an element of that, but -- it's not only purchased methanol that's sitting in inventory, as the price of methanol went up of course the gas sharing mechanism increases the cost of produced methanol. So that's another that has increased the holding cost of inventory at the end of the quarter.

Mechanically, I have it right, getting the actual number (MULTIPLE SPEAKERS).

Mechanically, you have it right. Getting the number will be an interesting challenge for you.

Maybe something a little easier. Just going back to New Zealand, just to be clear, when we talk about starting at Motunui, are we talking about closing the other plant as well?

Yes. We would only have enough gas to run one or other plant, and we only have the human resources to do the same as well. It does allow us some optionality, however. We could have -- if we started up the larger plant, we could then look for additional gas to allow us to run both plants. It would require is to go and recruit some more people. So it would require us to have a longer-term view that we needed 1.4, 1.5 million tons out of New Zealand. So to me, it's is nice optionality. I think it would be top early to make that sort of call, but certainly that exists as an option for the future.

And just to follow up, you made a comment about how in a sense, that 900 replaces one plant in Chile and it would be more competitive than running Chile on Argentinean gas. Does that statement refer to site costs, or does it refer to delivered costs -- (MULTIPLE SPEAKERS)?

Diluted cash costs.

So you're doing the transportation and advantage [as age of] differential and all that as well too?

Exactly. And the gas pricing is a reasonable price. It has gone up a lot from what we use to pay, but I think there is a reasonable mechanism for sharing with gas suppliers and for leaving profitability for our own business as well.

Right. Then you get the transportation differential, which makes it all work.

That's correct.

Dax Vlassis, Gates Capital Management.

In reference to the $800 million of CapEx that you talked about spending over the next several years, can you be a little bit more specific on what you expect to spend on CapEx this year?

Do you have a number, Ian?

We have our -- obviously have our ongoing maintenance capital, and (inaudible) it's around $40 million a year. We also are building Egypt, as you know, and it depends on whether you measure our equity contribution or whether you include the whole thing. But we have roughly $200 million to go. It will be heavily weighted to 2008, 2009. So say 50/50 there. So just the highest (inaudible) guidance. Bruce mentioned earlier that we wanted to spend a little bit of money to accelerate the development of gas in southern Chile. We've talked about providing some capital to accelerate gas development in the Fell Block, $40 million. [That will be provided 14 to date], so there's some more capital there. And there's some other plans not yet approved that we would spend to help develop gas in southern Chile. So really, those are the big items that we would expect to see over the next year or two.

I think you previously said that your equity contribution for Egypt would be around $175 million. How much had you spent through the end of the 12/07 quarter?

It is disclosed in our MD&A, but we have about $190 million to go of our equity contribution as of the end of the year.

119?

1-9-0. So the numbers you have in terms of what the total equity contribution -- I don't know if there -- at what point in time you received those numbers. So what we're saying is we have $175 million of equity contribution to go the Egypt project.

As of the end --

As of the end of the year.

Okay. And then as far as your buyback goes, I guess the $4.4 million runs out at the end of May. It that correct?

No, the middle of May, that's right. We always expect to complete those purchases when we start them and we still have that expectation.

And how do you view, as far as utilizing any leverage in excess of your cash flow, how do you view your willingness to use the balance sheet to repurchase shares. And how it is that reflected as far as your equity contribution for Egypt versus the part of the CapEx that is going to be funded from financing, project financing?

I think our approach to this has been very consistent over the last five years. We've talked about a balanced approach where we like to take opportunities based to invest in our industry, and I think we have a very successful track record of investing prudently and successfully and providing good returns on those investments and then returning any excess cash flows to shareholders. We have also had an increase in dividend over the last six years. So that has been a very consistent approach. But as I mentioned to a questioner just a little earlier, when you look at the valuation of our Company relative to our performance, you cannot help but feel a little disappointed. So that forces us to look at other models. And there is no doubt that we're constantly doing that and we're reviewing it with our Board all of the time. So I don't really want to be more specific than off of those general comments.

I understand. As far as Chile goes, did I hear you correctly in saying that in a couple of years, you could basically -- you were thinking with the investments that you're making and the increases in the sector that basically the entire Chile -- your plants in Chile could operate at full capacity?

Yes, I think that's a realistic expectation. And I will reiterate again, people have committed to spend $600 million over the next three years. So it's a big chunk of money and these are not -- these are very smart companies. People like Apache and like Total, there are substantial commitments there, and they would not be doing that I don't think unless they foresaw a significant potential.

Would it be realistic to assume that on that, if it did ramp up, that the contracts would be similar to the ones that were cut for Argentina that are not performing, or would it be a different economic sort of model?

I would say similar, except of course there will be no export duties. I think the model that has worked really well for our Company are these sharing agreements where we share increasing methanol prices. And it has meant that we have provided I think outstanding rewards to our gas suppliers over the last 12 months and particularly in the last quarter. And I think it's a demonstration as I said a little earlier that our industry cannot afford to pay higher prices at certain stages in the cycle and we have gas suppliers who are willing to participate in that cyclicality and I think it has been a superb investment for them. And I'm really pleased that our gas suppliers have done will as a result of these gas contracts because I think it helps the sustainability of our business.

So I understand that correctly in that it's that the participation is 30 to 35% of the incremental (MULTIPLE SPEAKERS).

Roughly, yes, that's the guidance we've provided. It's around 30% when prices are above $150 a ton.

Bob Hastings, Canaccord.

In terms of your Motunui plant, have you gotten any early indications of what the spending might be required to get that up and running?

It's a few tens of millions. I mentioned earlier, it's like a big turnaround, Bob, and we can spend $20 million in a normal turnaround. So you could say $20 million plus something, so it's not huge. And relative to the potential cash flows that flow out of it, it's an extraordinary quick payback.

Would you have sort of a break point on your gas price that you require? I understand prices there have come off a little bit.

Yes, I think prices -- well, I would tell you in a different way -- prices have not gone up so much in New Zealand as they have in -- as we've seen in North America or Western Europe, for example. I think the sort of contracts we can structure in New Zealand are similar to the ones that we have in Chile and in Trinidad where our gas suppliers can make a very good return and when methanol prices are strong.

And there's no caps on when your gas sharing or your methanol sharing mechanism is in Trinidad, is there no caps on that?

No, no caps, no.

Charles Neivert, Morgan Stanley.

Will Motunui, if it does come up and you shut down the other unit, will it be able to swing in the same way that the other one does, or is it going to be a little bit too big to pull the same kind of sort of -- or to deal with in the same manner?

No, we can operate in exactly the same manner. So we still regard it as swing capacity and that's certainly our forecast looking forward, Charles. We need that capacity to continue to operate our supply chain, and I think the global methanol industry needs it as well. And the reason that we're enthusiastic about it is it represents much more reliability than depending on Argentinean gas.

And the last question is, has there been any progress from your standpoint, I know not so much in selling, but on the MTO, MTP side of things for methanol?

You keep reading of people who are looking at it. I see [Basel] has announced a project in Trinidad which is an MTP project I think very, very early stages and we're following that with a lot of interest. There's an MTP project that is under construction in Iran. (inaudible) I know nothing more other than the fact that it has been announced and it's under construction. And of course, the Chinese continue to develop at least one MTO project, maybe two. So it is all a little new. I really don't see this having much impact on the methanol industry per se. Methanol is part of a big chain of investments in those projects and I think the chances of the methanol plant operating when the rest of it's not operating is quite low. So it doesn't seem to me that it represents either a threat or an opportunity to our industry.

I guess the plus is, if Iran manages to do it, it just takes that much methanol off the marketplace.

It certainly takes some of their methanol off the marketplace, that's correct.

Which I guess has the potential of occasionally being disruptive.

Yes, that's correct.

Great. Thank you very much everyone for your attendance on the call. Certainly as we ended 2008, this is as an exciting time as ever to be a Methanex shareholder. I think as the last year has shown, there is new demand forming for methanol in energy applications that could see our industry grow at much higher rates than it has historically. We also have what I think is a great project in Egypt. We would be producing methanol for our customers and strong cash flow for our shareholders within the next couple of years, and that's not too far away. And we continue to look for opportunities to sponsor new demand for methanol in energy applications, and I think that is good for our industry and good for our company as well.

So, again, thank you very much for your support and good morning to all of you.

Thank you. Ladies and gentlemen, this now concludes the Methanex Corporation fourth quarter earnings conference call. We thank you from Telus.