Methanex Corp (MEOH) 2011 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation fourth-quarter and year end results conference call. As a reminder, this call is being recorded on Thursday, January 26, 2012.

I would now like to turn the conference call over to Mr. Jason Chesko, Director of 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 today may contain forward-looking information. This information by its nature is subject to risks and uncertainties and may cause the stated outcome to differ materially from the actual outcome. Certainly 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 our latest MD&A and to our 2010 annual report for more information.

For clarification, any references to EBITDA, cash flow or income made in today's remarks reflect our 60% economic interest in the Egypt projects. Also, please note that starting this quarter, we have changed our definition of adjusted EBITDA to exclude the mark-to-market impact on share-based compensation. We have made this change to EBITDA to make it a better measure of underlying operating performance which we expect will make analysis of our results more straightforward for you. 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 to everyone and welcome to our fourth-quarter investor conference call. I've got a number of colleagues with me in the room and they'll be here to help answer questions a little later on.

So firstly, some comments on our fourth-quarter results, and I'm pleased to report on what I think is a very positive quarter with higher EBITDA, $133 million, net income of $64 million, or $0.68 per share. Both of them significant step ups from both Q3 and year-on-year comparisons. We reported our highest quarter of produced methanol sales since 2007 and the highest level of quarterly sales since 2005. We also achieved an averaged realized price of $388 per tonne, so $11 higher than it was last quarter. Higher volumes of sales and higher prices of course drove the improvement in EBITDA.

The results also confirm that we have not seen much in the methanol industry resulting from the economic uncertainty in recent months. Demand from methanol has remained quite stable, and prices have also been relatively stable. We also reported a lower than normal tax rate of 14% during the quarter, which provided a further benefit to our earnings. While the structural tax rate guidance that we provided in the past of 25%, it is normal for our tax rate to vary from quarter to quarter due to the variability of where our sales are sourced from. In Q4, more sales were sourced from lower effective tax rate jurisdictions. And I will provide some more comments related to our expectations of future tax rates in just a few moments.

I'm also pleased to report a significantly better results for the entire year 2011. We achieved record sales volumes of 7.5 million tonnes, and reported EBITDA of $427 million, which was 50% higher than our 2010 results. There is significantly more upside potential to our results, as we are expecting further step up in production this year and over the next few years. I'll be commenting more on the growth initiatives, as well as our expectations for the first quarter and the industry and pricing outlook a little later on the call.

But before I do that, I'll make some brief comments on our operations during the quarter. Our Trinidad operations produced 375,000 tonnes of methanol compared to production capacity of about 0.5 million tonnes, as both plants operated below capacity. As we mentioned on prior occasions, the Atlas plant has been operating at about 70% rates since the third quarter as a result of an equipment failure. In early January, we commenced the maintenance outage at the Atlas plant and we're now completing the repair. We expect the plant will be down for about 40 days and back operating at full rate in mid-February.

The Titan plant operated at 80% in Q4, primarily as a result of the need to complete some repairs at the plant, and some gas curtailments experienced at the site. As I mentioned on the last conference call, the natural gas delivery system in Trinidad is not well established to manage outages in the upstream, and this has been the primary cause of these supply disruptions. All of the downstream gas users in Trinidad are engaged with the government to find a solution to this issue. But until this issue is resolved, we expect to continue to see some shortfall in gas supply commitments.

Our Motunui plant in New Zealand operated very well in the fourth quarter, running at full rates and produced 211,000 pounds of methanol. I'll comment shortly on the outlook for New Zealand and our recent announcement related to the second plant at Motunui later this year.

In Chile, we continue to operate one plant at about 40% capacity and produced 113,00 pounds of methanol, which was similar to last quarter. We are working closely with all the gas suppliers in the region to manage the seasonality of gas demand with the objective of running our plants at more stable rates through 2012. I'll also comment on the outlook for Chile in just a few minutes as well.

The Egypt plant produced 132,000 tonnes in the fourth quarter based on our 60% interest. In November, civil unrest increased in various regions in Egypt, leading up to the parliamentary elections, including in Damietta where the protests were in the area near our plants. For the safety and security of our employees, we curtailed operations at the plant for about a month. In early December, conditions stabilized in Damietta and we restarted the plant. Since that time, the plant has been operating very well, at about 102% of capacity. We are particularly pleased with the performance of the plant in Egypt during 2011. Our 100% -- by 100% capacity rates, we produced-- by 100% ownership, we produced 887,000 tonnes of methanol. This is, just to remind you, this is a 1.3 million-tonne plant and the plant started up in February. So that represented a reliability rate during the year of about 94%, which for a new plant, is an exceptionally good result.

Finally, our plant in Medicine Hat, Alberta operated very well in the fourth quarter as well, producing 130,000 tonnes of methanol, which is above the expected capacity for that plant. Over the last quarter, we (inaudible) a natural gas supply on the acre of gas market that will underpin production at the plant until October 2013. We are confident that long-term natural gas dynamics in North America will support the long-term operations of this facility.

So turning now to industry conditions, as I mentioned earlier, methanol demand overall has remained relatively stable. While there have been some minor pockets of softness and some traditional derivatives, these have been offset by areas of strength, such as DME, which has benefited from higher demand in China with the recent colder winter temperatures. Early indications are that demand will remain steady in the first quarter. We're currently in the Chinese New Year holiday period, which tends to result in a temporary slowdown in manufacturing activity. However, there is an expectation that demand will pick up after this holiday.

It is interesting to reflect back on global demand over the past year. While there has continued to be weakness in developed economies, global methanol demand grew at about 6% during 2011. Strong industrial production in China has driven healthy growth in chemical derivatives, while the high crude oil price environment has continued to support strong demand growth into energy derivatives, such as gasoline blending and DME in China.

Turning now to supply, as is normal in our industry, there were a significant number of planned and unplanned outages in the fourth quarter, including in China where operating rates remained low. Recently, we have seen natural gas-based methanol plants in China operate at lower rates, as more feed stock is directed for heating purposes in the winter. Overall, methanol markets have remained fairly balanced and pricing environment has been relatively stable.

This morning, we posted methanol prices in the US for February at the same level as January pricing. Longer term, demand growth is expected to significantly outweigh new supply additions in the industry over the next several years. This implies that a strong pricing environment will be needed to entice higher costs industry capacity to operate, and this outlook matches well with our plans to increase production over the next few years.

So on this note, I'll switch topics now and provide you with an update on our key initiatives to increase production and capitalized upon the favorable industry outlook. Firstly in New Zealand, as we announced last week, we are very pleased to have secured a 10-year gas supply agreement with Todd Energy and are planning to restart the second plant at Motunui in the middle of this year. This will increase the capacity of the site by about 650,000 tonnes to 1.5 million tonnes and underpins a long-term future for our operations in New Zealand. The remaining capital required to restart the plant is about $60 million. Our success in increasing production in New Zealand is underpinned by improving natural gas supply position that has developed in that country over the last several years. And the completion of this long-term supply agreement with Todd is a reflection of the improving fundamentals. We expect the new agreement to supply us up to about 750,000 tonnes of methanol production over the next 10 years, which translates into about $3 billion of additional methanol revenues in today's pricing environment. And based on the low capital costs required to restart the plant, this project is expected to grow significant value for our shareholders.

To enter our Chile assets, as mentioned earlier, we've continued to operate one plant at about 40% capacity, and we expect similar operating rates over the next few quarters. While we expect the short-term to continue to be challenging in terms of natural gas availability, longer term, we continue to believe that natural gas supply from Southern Chile can sustain a multi-plant operation. We expect gas exploration to yield gas flows in a number of new blocks this year, and a new fracking campaign is currently underway that has the potential to improve delivery volumes over the next year. The Chilean government is also in the process of granting five new exploration blocks in Southern Chile to GeoPark, Repsol-YPF and Wintershall. These blocks are located on the island of Tierra del Fuego, most of them close to existing infrastructure.

In addition to supporting gas development, we are also aggressively developing other projects to increase production from our Chile assets. We've made excellent progress on the project to relocate one of those Chile plants to the US Gulf. As announced last week, we secured land in Geismar, Louisiana, which is an excellent location for a methanol plant and a region with a very positive business environment. There are significant methanol consumption within very close proximity to the plant site, extensive infrastructure, which is in place, which will simplify the scope of the project and reduce capital expenditure.

We're currently working on permitting and detailed engineering, and expect to make a final decision on the project in Q3 of this year, after we have better defined capital costs. We are working to an aggressive timetable and targeting for the plant to be operational in the second half of 2014. The project benefits from the low natural gas price environment in the US and it can be completed at a lower capital cost and in significantly less time than new Greenfield methanol plant. The site we have secured in Louisiana has faced (inaudible), so we will consider further and future expansion.

We've also continued to examine the viability of converging one of their plants in Chile to operate on coal sourced from Southern Chile. We're in discussions with coal suppliers for getting feed stock supply and with engineering firms to assist different coal gasification technologies. We expect to complete the engineering studies later this year, and assuming the project satisfies our investment criteria, we will be producing methanol from coal in Chile in early 2015. Similar to the relocation project, we believe coal gasification may offer an opportunity to lever our existing assets and offer a competitive cost position compared to a new Greenfield plant.

So I'll change (inaudible) and make a few comments regarding liquidity and capital allocation. During the fourth quarter, we generated $122 million of cash flow from operations. We have conservative leverage, $200 million undrawn operating facility and a cash balance of $351 million at the end of the year. We plan to continue committing capital to gas development in both Southern Chile and New Zealand, and are spending about $60 million this year to restart the second plant in New Zealand. We are well positioned to set aside these initiatives and our planned maintenance expenditures.

And as mentioned, we are aggressively working on relocating a plant to Louisiana and are assessing the coal projects in Chile. We believe these are all excellent projects that will provide great return to shareholders and that we have the financial capacity to fund these projects from existing resources, debt capacity and cash generation. And with our production and cash flow generation having significant upside potential, we expect to be in a position to continue growing our regular dividend over time, and over the next few years, to be able to build on our strong track record of returning cash to shareholders through share repurchases.

So before stopping for questions, I'll comment briefly on our expectations for the first quarter, and as ever, there are lots of moving parts and assumptions that will evolve over the quarter, so it's difficult to provide precise guidance. But firstly, contract prices are a little below Q4 levels, so we'd expect a slightly lower price realization in Q1. Secondly, while it's difficult to forecast produced methanol sales, you will notice that produced methanol sales have exceeded production in Q4, and with that that's currently down for maintenance and some of our assets operating below capacity over the past quarter, it would be a reasonable assumption to expect the sales of produced methanol will be lower in Q1 compared to Q4.

Thirdly, we're taking advantage of an opportunity in the face of a weak shipping market to rationalize our vessel exposure and storage capacity. We expect this transaction to be cash neutral. However, it will result in a one-time charge of about $7 million after tax in Q1. We recovered this charge in the form of lower shipping and storage costs over the next couple of years. Another factor that will impact net earnings is stock-based compensation expense. The recent strong increase in our stock price will result in increased expense. And assuming a stock price of $28 at the end of Q1, we'd expect the total charge for stock-based compensation for the quarter of about $0.15 per share.

Finally, we expect our tax rate for 2012 to average between 20% and 25% with a bias towards the bottom end of the range given our current production mix. And based on all of these factors, we expect lower EBITDA and lower net earnings in Q1. However, assuming reasonable methanol price stability, we would expect improving earnings as the year progresses, with incremental production from Atlas and later in the year from New Zealand. I think that 2012 is going to be a very good year for Methanex. So at this point, I'm happy to stop and we'll take any questions that you might have.

(Operator Instructions) Jacob Bout from CIBC.

Question here on the ability to secure gas, a gas contract at Geismar, what is your current thinking right now?

We've been working with four or five different natural gas suppliers in the Southern US, and I'd say getting a very positive reception. A year ago when we were talking about gas contracts at Medicine Hat, I think gas suppliers were very neutral or not particularly enthused by the idea of entering into long-term commitments. But I think of the developments that we've seen in the natural gas markets over the last 12 months has created a different environment where people are now prepared to think about making longer term pricing commitments. So I'm -- I'd say there's a very high probability that we over the next 12 months will be positioned to enter into a longer term contract. And the commercial terms of that, I'm -- it's still too far away to even think about it, Jacob. But really--

Could we assume a contract of 10 to 20 years with a methanol light gas price, is that--?

Well, I'd say 10 years is probably a reasonable expectation. I think the further out you go, the greater uncertainty there is and the harder it is to sign something sensible. In terms of the pricing mechanism, we're really-- we'll be open minded we will discuss that with the other suppliers. What I would say, though, to the extent that we're not successful with signing a long-term contract, our view is this disconnect between the value of natural gas and the value of crude oil, which is the arbitrage that methanol plays into very nicely, we believe that's a sustainable gap for a long enough period of time to recover our capital and make a decent return on investment.

So regardless of whether we secure a gas contract or not, this will not be one of the points that we're waiting for from an investment decision. As I mentioned in my comments, the only thing we're really waiting for is just to have more definition around capital. We think we have a pretty good handle on capital, but we don't want to ask our Board to spend the capital until we know with a bit more certainty exactly what that number is. Now let's say today, and we're proceeding as though this project is going ahead, we're not -- there's no hesitation in our approach to executing this project.

And then maybe as a follow up, just on Trinidad, the gas curtailments that you've seen there, what's your expectation for the remainder of 2000-- does this get resolved by--

Very frustrating issue. Because there's no shortage of natural gas at Trinidad, so I'll make that as an opening statement. This is all about a contractual position. And without going into too much detail, there's a government company that sits in the middle between the upstream and the downstream, and they have insufficient contracted gas to supply the downstream whenever there's any outage in the upstream. So it is a contractual issue. It's not an issue around physical molecules.

And it's a little bit of a pricing issue between the upstream and the government. So-- and the poor old consumers at the end are the ones who are paying most of the price for the disagreement that continues. Our approach with other consumers in Trinidad, is to point out to the government the losses that are occurring across the broad industry, and that's hurting everybody.

So we're told that there is more robustness being built into the system and by the end of Q1 and by Q2 deliveries should be normalized. But I think the underlying problem is the contractual problem, and until they resolve that, I think we're going to continue to be a bit frustrated. I'd say that the downstream users are putting more and more pressure on the government. So I think some of them will realize at some stage that it makes sense to solve this problem and that there is a simple solution.

Thank you very much.

Hassan Ahmed from Alembic Global.

Two part question. One, on the demand side of things coming out of Q4, one of the big sort of producers of acetic guided down substantially for the fourth quarter fairly recently and was talking about major inventory destocking happening, particularly in Asia. So and as this sort of came out in their press release, they did talk about restocking beginning again. So the first part of this question is that, how do you see that playing out in Q1 and potentially Q2 on the methanol demand side of things as it pertains to acetic? So that's one question.

And the other one is slightly different geography, but on the Iranian side of things, what sort of activity are you seeing over there, particularly in light of the round of sanctions and the headlines that we seem to be reading these days?

Okay, I'll ask John to cover those questions, Hassan.

Sure.

So on demand quarter over quarter, Q1 over Q4, not specifically acetic but the market in general, we're seeing flat to slightly a little bit of growth demand. As we come out of Chinese New Year, as Bruce mentioned, we are expecting in Q2 an increase in demand. As Bruce mentioned as well, we are seeing pockets of softness and certainly the acetic acid market is a bit long right now and I think pricing was reflecting a long market where I think it's almost equivalent right now to methanol pricing. So there are pockets of demand around the world where we are seeing some softness, but overall when we look at the total demand, mainly because of the energy applications, we are seeing flat to growth. So we would expect that to continue and grow throughout 2012, provided we don't have some major economic event that we're not thinking about right now.

Fair enough.

Iran, it's getting more and more difficult for the Iranians to collect their molecules, as these sanctions continue to be increased. And companies in Asia, some of the trading companies that used to have no problem in handling Iranian molecules for 2012 made decisions not to handle Iranian molecules, so we are seeing a two-price tier system appearing, especially in Asia, where Iranian molecules are selling at a discount. We don't have perfect information on that, but we do understand that there perhaps has been some curtailments of (inaudible) because of lack of the ability to place molecules in the market.

India and China still have large markets for Iranian [molecules] and we don't see that changing in the foreseeable future. As well as shipping companies are getting more and more concerned about going in and picking up molecules in Iran. And our expectation is that the sanctions will only get more severe than stay where they are today, and this could be an issue that needs to be watched as far as supply throughout 2012, unless the issue of the Iranian nuclear situation gets resolved.

Perfect. And one final one, if I may again on the Iran side of things, I mean there tends to be this perception that as one thinks about the cost curve and where Iran sits on the cost curve, that gas is sourced at maybe call it $1.25 a million BTU in Iran, but there's enough charter that gas price escalation has already happened out there and possibly companies like NBC are sourcing their gas at prices closer to $3. So if you could shed some light on that.

Yes, again, we don't have perfect information about Iran. But what we understand is a few years ago, the industry was privatized to, in part, to local people in Iran and part of that was an increase in the gas price. And we've heard it ranges depending on methanol pricing, because we understand there is a sharing formula, up to $4 for gas. So it's-- we would agree with your assumption that it's no longer the $1.25, $1.50.

Very helpful. Thanks so much, guys.

Steve Hansen from Raymond James.

Yes, good morning, everyone. Bruce, your commentary regarding potential timing now on the coal gasification project, I think you suggested early 2015 for startup. It seems that or suggests that there's a good chance you would pursue both of the Chilean options in parallel, in other words, the gasification conversion as well as the move, am I reading that correctly?

Well, I'll tell you where the relocation move is ahead of the coal gasification only in so far as we've done more work and we have more certainty around the economics, Steve. I'd say we still feel a little bit, I say in the dark, a little. We don't quite have enough knowledge around the economics of that project. So I'd hesitate before I become too aggressive on the-- whether we will go ahead with that project.

Okay, that's fair. And then just as a follow up on with the new gas supply agreement in New Zealand, which sounds like a great step towards a longer term situation there, you still got the smaller idled Waitara facility there at 530,000 by memory. And I think there might even be some infrastructure there that would help benefit the second plant, the Motunui plant if I'm not mistaken. Is that plant not really on the table for restart there, and if so, what would it cost?

Well, there's some interesting opportunities here. So the capacity that we now have in Motunui is 1.5 million tonnes, which is limited by distillation. And we have surface distillation at the other plant site that you mentioned, Waitara Valley which is about five or six kilometers down the road. So there's a few things that we're thinking about. One, debottlenecking distillation to bring the Motunui side up to probably 1.7, 1.8 million tonnes. So we'll certainly think about that.

The second thing then is, is there enough gas for a sustainable operation of the Waitara Valley plant for a few years? I think the jury's still out a bit on that, Steve. And we want to cross each bridge as we get there. At the moment, we're very focused on starting up the second plant. We had some ideas around debottlenecking, but it's certainly in the back of our minds that we have more capacity there and we're very positive on the natural gas environment. So I would certainly don't eliminate it, but again, I don't want to oversell it.

Okay, great. On the debottlenecking, is there any opportunities in Medicine Hat?

Yes, there are some interesting opportunities there. Reasonably modest capital and it's probably 100,000 tonnes of that magnitude. So relatively small amounts of capital to get an interesting quantity of incremental methanol with great economics.

Okay, great. Thanks very much.

Robert Kwan from RBC Capital Markets.

Good morning. Bruce, you were talking about on the US Gulf Coast really what you want to see on the feed study is to kind of source out what the capital costs are going to be. Have you given some thought under your assumptions as to what type of ceiling before you think the project's economics become marginal?

Well, it feels like a long way away, Robert. From everything we've done, we've got a rough capital number that produces an incredibly robust project. So we can afford for that capital number to be, I'd say, Ian, probably 50% higher than our kind of rough estimate and the project still makes sense. So I think there's a lot of value in this project, which is why we speak about it so positively.

Right, and I guess about 50%, that's pretty close than to what Greenfield costs would be with a lender but--?

You could--you could almost spend Greenfield costs and still think this is a decent project. Now why we think we're spending a significant discount on Greenfield costs.

Right, okay. Appreciate the color. And then just last question on pricing, I know you haven't posted the Asia price yet, but is there any color you can give on that? And just from an overall pricing perspective, you've got kind of let's call it slightly bullish view on how demand is going to work its way through into Q1 and Q2, but then there seems to be some hesitation on the general commentary. Can you give some sense at to where you think the overall pricing bias is? Have we seen the slippage because of seasonality, or are you seeing a few things going on around the world, inventory and methanol movement, that type of thing?

Yes, it's John, Robert. So obviously we don't forecast pricing. We price based on the supply/demand fundamentals that we see in the market and that's really based off the cost curve, which is at the high end in China today. We see the cost curve around the levels that we're seeing in China today, maybe slightly a little lower. Our customers like pricing that's stable. They didn't like to see ups and down spikes. So when we make pricing decisions, we try to do them with quarters in mind, not months in mind.

So stability is what we see and I think based on the supply/demand fundamentals that we see for 2012, with very little new production coming on, as demand picks up in the second half, then you would expect higher cost production would have to run to keep the market balanced. So that would be our current view.

Okay. That's great. Appreciate the color.

Bert Powell from BMO Capital Markets.

Thanks. Bruce, I'm just wondering if you can give us a little bit of color on the contracts that are underpinning the New Zealand production, the nature of how those work and just maybe contrast it relative to how we typically think about the system-wide cost structure that, outside of Medicine Hat, that typically has been associated with Methanex?

Sure. So as you know, we don't like talking about individual contracts and individual geographies and there's a lot of commercial sense sensitivity around that, and we provide some global guidance on natural gas prices to all of our facilities. So all we can say about the Todd contract is that it is consistent with our global guidance. So when you add that production into the mix, the global guidance are still-- is still correct.

Okay. And just on, outside of just straight gas costs and the variable components and the fixed components, how have conversion costs been trending through the system?

Well I said, and over the last four or five years, this isn't going up for sure and so there's a few drivers here. One is exchange rates. We don't talk about exchange rates very often because we're in a US dollar business. But we pay all of our people in local currencies, and if you look at where we're operating, most the local currencies have been relatively strong. So in New Zealand, Canada, Chile for sure, the three countries that have had strong currencies. So that tends to flow into plant operating costs.

The second thing that we've been, I'd say has had a negative impact that offers opportunity for the future is because our production levels have been lower, we've had less production to spread our fixed costs out. And so that will be particularly relevant in Chile. So as we are now recovering capacity, I think that's something for the future that we are seeing in our own budgeting and our own forecasts, lower fixed costs per unit of production as we increase production. Now as we're expecting to produce an incremental million tonnes of methanol this year compared to last year, and our SG&A stays about the same. So you can do the math on that.

Okay, fair enough. I think that's two, so thank you.

Okay.

Charles Neivert from Dahlman Rose.

Good morning, guys. Couple of quick questions. With you guys, your production rates are going to be down a little into the next quarter. I'm assuming sales volumes aren't going to change radically and may go up. Do you guys feel like there's going to be any issue in terms of getting your hands on the methanol you're going to need to maintain that?

We came into the quarter with a little bit of extra inventory because the Atlas plant outage again on January 6, so we anticipated that. So I don't know, what do you feel like the forecast for Q1, John?

Yes, it's John. Again, I think I mentioned last call that for 2012, we've kept our sales levels about the same as 2011, trying to get more of our sales with purchased product as opposed to -- I'm sorry, with produced product as opposed to purchased product. And traditionally the first quarter is not as strong as the fourth quarter. So we would expect sales levels to be similar, maybe a little lower, but not because of demand, but more because of the way we structure our sales contracts. We also have back ended our sales this year a little bit into the second half, recognizing New Zealand coming up and those sales would be in Asia.

Okay, and then sort of, I guess secondarily, I got a couple of them, but one, who is doing the gas-- if you choose to go through with the coal gasification, is that your (inaudible) or is it somebody else's that you're going to basically pay the cost of whatever it is that they are doing? Are you going to buy the output or are you going to actually own the plant?

And then secondarily, I've been looking at MTO and MTP units that are moving around or coming up in China and it looks like there's a fairly aggressive pace of building there, could you comment a little bit on that?

Okay our preference is usually to own, Charles, but that said, we're open minded. And there is a different model where others could provide the gasification capital and we could buy some gas. So I'd say we're not close minded on it, but our bias is towards doing it ourselves and owning it.

MTO I'd say is an incredible story and it's like a lot of things in China, that the, the first plant was extremely successful. Our plant over by Shinwa started up I guess early last year, John, it's operated extremely well. There are now four MTO plants operational. Three of them are back integrated into methanol and even back integrated into coal, and one of them purchases merchant methanol. So our -- historically we've never talked too much about MTO because we never thought it had much impact on our industry. And what we're discovering as the industry unfolds at an incredibly rapid pace, that it's having a significant impact in consuming merchant methanol.

There are two other plants that are under construction in the coastline in China that are also going to source merchant methanol. Whether that's local coal based or imported methanol, that will be a function of economics. So it's a function of the cost curve that John talked about earlier and the price of methanol as to where those guys source their methanol from. So I think that MTO will have a significant positive impact on demand growth in our industry.

We've also done a bit of work on the economics of it, as we wanted to understand ourselves what was driving this. And when you compare basically coal to plastics in Northeast Asia relative to (inaudible) is a significant economic advantage in the coal to plastics prices. So it's not hard to understand why they're enthusiastic about it. Now that they've demonstrated the viability of the technology, it's now all about kind of capturing the economic rent between the coal prices and the (inaudible)prices. I don't know, John, any points to add? No.

(Inaudible).

Thanks. Bruce, some gas producers talk about longer term natural gas prices being significantly higher due to factors such as LNGX [boards], increased demand, such as methanol producers relocating to the Gulf Coast. Is that--

One methanol producer relocating fine.

Well, and other factors. And I'm just wondering, is that factored into your outlook, like a higher gas price environment? And how much-- I guess related to that is how much higher would gas prices have to go before you would rethink this move?

Well we certainly-- we haven't put $2 something into our models, if we did, these projects would be ridiculously profitable. So as much as we'd like that, that's not what we're anticipating. I think as I mentioned before, there is this delta between natural gas values in North America and crude oil. And we believe that's a sustainable delta. So if you go back historically, natural gas was supposed to trade at six times oil, and it hasn't been at that level for a long time. It's now more like 15 to 20 times. And I think it's the [shale] gas phenomenon that's caused that gap to open up. So I have no doubt that the natural gas industry will take actions like constraining supply or sponsoring new demand that will increase the price of natural gas. But I think the day when we see six to one gas to oil again is a long, long time in the future. In the meantime, I think there's a lot of opportunity to make money making products like methanol in North America.

And say the other thing, you mentioned LNG. It takes a long time to build enough LNG capacity to make a meaningful difference. I know there are a number of projects here in BC and they seem to be making progress. By the time you've built and begun to consume, that's a lot of years. And you need a lot of plants to make any real difference. So I don't see that as much of a threat. I think the supply side of the industry is probably the area where you'll see more constraint supply and potentially some inching up of pricing.

But that said, what we observe is a lot of activity in the liquids-rich reservoirs that produce natural gas also. And in those reservoirs, natural gas is a by product, and they have to make it go away. So we've seen a lot of that occurring in the last couple of years and that seems to be the trend for the future as well.

Okay, and I guess the other question I have is if it makes sense to relocate one plant from Chile to the Gulf Coast, is there anything that-- why you wouldn't want to relocate a second plant?

Well, I'd say we've always been a bit conservative as a Company. I know I've said this many times and many different examples, here's another bit of conservatism that we've never done this before and we don't want to be naive about it. I think we're going to learn a lot in the next 12 months about the process, about the complexity, about the economics. And also in the next 12 months, we're going to learn a lot more about natural gas in Chile. So there's some really interesting things happening in Chile today that could completely change the outlook for us.

So it would be foolish of us to make a decision too soon to foreclose opportunities that are occurring in Chile today. So I think two things. We're going to be a little bit cautious around relocation until we know for sure what the outcome is likely to be. And two, we want to be sure that we don't foreclose opportunities in Chile. So in another year's time, it seems like a good time to be thinking about exactly what you're asking of.

Thank you.

Peter Butler from Glen Hill Investments.

Stocks frequently appear cheap, only because analyst numbers are too high. And today we're reviewing your fourth quarter numbers for last year, but the much more important question is what will your fourth quarter look like this year? Do you -- does Methanex have a better crystal ball than other people? What are you folks seeing late this year?

No, that crystal ball is as clearly as anyone else's I think, Peter. And as John mentioned before, we don't like to forecast methanol prices and I think it's a hazardous game forecasting any commodity. So what we do is look at demand and supply. What we see in front of us is demand continues to be I think stable through a very difficult economic environment. And given I think a more positive outlook for 2012, and certainly the year started out with a positive outlook, I think we can hope and expect that the economy, the world economy will be more robust this year than it was last year. If that's the case, we're going to see stronger demand growth in methanol and there's very little happening on the supply side of our industry. So what that implies is that pricing is going to be strong.

Now, what does strong mean? It doesn't mean more than today, I don't know, Peter, I hesitate to try and answer that question. But the other thing, of course, that's happening by Q4 is that we will have more capacity operating, we'll have our New Zealand plant operating. I mentioned before that we're producing another million tonnes of methanol this year relative to last year. So Q4 production's going to be somewhat higher, or a lot higher than Q4 2011 and Q1 2012. So this combination of-- we're in a very positive environment, which is supportive of high prices and more value, both of those things say that earnings should be very strong this year.

Okay. Well it sounds like the way you're looking at this year is the volume gets better, the pricing hopefully gets better and the fixed costs as a percentage of sales declines, so, which raises the question that I've needled you about for several years. Currently Methanex has like $350 million in cash earning nothing. And at the same time, we have our charming Management going to numerous brokerage-sponsored events presumably to urge investors to buy Methanex stock. So I mean, the obvious question is, so does our charming CEO want other investors to buy while insiders and the Board of Directors sit on their hands? When are we going to see some action on the dividend and the share repurchases?

Wouldn't say we've been sitting on our hands, Peter, it feels like we've actually been working quite hard. With this-- you look at all of our production areas, we've changed a lot in the last couple of years. And this Company is growing rapidly and I think we're changing both internally and we're having an influence on the global methanol market as well. So that doesn't feel like sitting on our hands, Peter. I think we have been very successful as a Company and I think the outlook for the future is incredibly positive.

So the big question is, why do we have $350 million worth of cash? If you add all the projects we've got, we have a way of spending that and when projects that generate really good returns for shareholders. So I'd say in terms of our priorities, if we've got really good projects that have great returns, that improve and strengthen our Company, we're-- we will do those projects. And if we need cash resources to do that, then we're inclined to be a little cautious and hang on to our cash to do that.

If we don't have good projects to grow the Company and we have excess cash, then we will distribute it to shareholders. And that's exactly what we've done in the past and exactly what we intend to do in the future, Peter. So we're not sitting on our hands. We're being very active in growing shareholder value, which is why we go along to the conferences to dissuade shareholders that there's a lot more value at stake here.

Okay. Well you're doing a fine job. I just-- every once in a while, I like to pull your tail feathers just a little bit.

Yes, I think you pulled them out this time, Peter.

Brian MacArthur from UBS Securities.

Good morning, Bruce. I just wanted to go back to New Zealand for a bit. You made a-- obviously we've got the Todd contract underpinning the higher capacity at Motunui the 1.5 million tonnes, but you've sort of opened up the possibility of opening the other plant. I also know you're generally fairly conservative. Does that -- should I read between the lines in that you feel pretty comfortable that you can, even though you've only got half capacity covered in the long-term gas plant, that you can run that 1.5 million tonne for the next number of years or is there some reason why you would open Waitara before you fill up Motunui?

No, we feel pretty good about the next few years, Brian. There is-- we need to do a major turnaround on the Motunui 2 plant and it's just the planned turnaround that comes up every three or four years. And I think that's at the end of 2013, [Michael], at the end of 2013. So it's a chunk of capital that we'll spend at that time and maybe it's a time to do some debottlenecking as well. But clearly every year goes by and we know more about the gas availability and the methanol market and demand and supply. So all of those things factor into our decision making.

What I feel very good about is we've got all the gas we need basically to run those two plants through to that turnaround. And I think we have a very high expectation that we will complete that turnaround. And then, and probably the debottleneck, and then have a longer term life at high capacity. I think Waitara Valley is just-- is another step that either the next year or so, something we'll spend more time on. We certainly like the idea of it, but we want to focus on doing a good job with what we're currently doing today.

Okay. Just maybe one more thing, if I remember way back, at one time I thought Motunui had like 1.9 million tonnes, now you're talking about debottling that from 1.5 million to 1.7 million. Is something like taken away or changed, or could you ever get back to 1.9 million?

Well it's a little bit complicated, if you run high CO2 gas through the facility, you can increase the capacity of it. And there is -- one of the gas fields in (inaudible) has high CO2 gas. We don't access that today. And even if we did access it, we still don't have the distillation capacity to take advantage of the additional capacity. So to the extent that we debottleneck, we might try and secure some of that higher CO2 gas that adds even more capacity. So there is-- you are correct that we have run that facility more like 1.9 million tonnes in the past.

Great. Thanks very much, Bruce, that helps clarify that a lot.

Good, okay.

(Operator Instructions) Steve Hansen from Raymond James.

Yes, just a follow up. I was curious about the $7 million charge in Q1. You mentioned it really briefly in terms of what was going on there, but can you just clarify for me, please?

Well it was just-- we wanted to provide it, because it's going to hit our Q1 earnings, so it's helpful to have you bake that into your estimates. We've been-- we have a shipping fleet that is designed to carry all of the methanol we produce. And we do a lot of back hauls as well. And historically, we've made lots of money at the back hauls. And we have an opportunity in front of us now where we can rationalize a vessel in that fleet and we can take out a little bit of storage capacity that's a bit (inaudible) requirements. We can do it for virtually no cash, but when the numbers flow through the accounting system, we end up having to write off about $7 million of asset value. Now we get that $7 million back very quickly in terms of lower logistics and lower storage costs. So in terms of the NPV of this, it's a very good project that makes a lot of sense. So the only real reason to mention it is it will have an impact on Q1 earnings.

Okay. No, that's fine, I just wanted some clarity. That's great. And then the one thing that's not been mentioned thus far is the BP asset sale process. I understand you guys have been active in that, but it's still ongoing, [fees] was previously December 31, I presume that it's just the function of time at this point and whether or not they decide to sell the asset?

Yes, we always said that we're-- we would be keen to buy that asset. I think as a Company, we know that asset better than anybody, we know all of the risks and opportunities around it. We valued the BP share and submitted our bids along with others, we understand. And BP is working through that process. Now, originally it was going to complete in June last year and then August and then the end of the year, and here we are near the end of January and it's still ongoing. So you need to ask BP what's happened to the process, not us.

But if we are able to buy that plant at the price that we've offered, then we'd be very happy. If we're not, then that's fine as well. So I think as I say, we know what the value is. We're prepared to pay fair value for it, but we're not prepared to pay $0.01 more than that.

Okay. I appreciate the clarity. Thanks.

Paul D'Amico from TD Securities.

Bruce, I know you're not going to give clarity on potential CapEx to move the Chile plant, so assuming you get a green light in third quarter, can you just give a rough estimate in terms of what the split would be? Like I know the heaviest CapEx would be in 2013 through the year, is that like about an 80% of whatever the full number would be, just so we get--?

Probably there'd be a chunk coming out of 2014 as well. So I'd expect 20/40/40 is probably about the split. Now, we have said probably that we think the number's around $400 million. No I always really offer a bit of hesitation around that number. We have got a lot more work to do and we want to get some comfort around that. But we think roughly that's about the number that we're going to be spending.

And lastly on the coal gasification, I missed it, you would expect, I know you're doing some preliminary, but you were talking about 2015. So a green light would come when before that would be a reasonable date?

Probably another 12 months, probably Q1 next year I would say before we get to a green light on that project. There's probably certainly more engineering to do. It's a complicated project. So, yes, I don't really want to provide too much(inaudible) So whether it be a little bit of spending this year and if to the extent we go ahead, then the spending falls mostly in 2013, 2014.

All right, thanks.

Okay. Well, thanks, everyone, for participating on the call. I hope you've gleaned from it that we're very positive about the future of the Company. 2011 from an earnings per share point of view was the third best year in the history of the Company, and that's despite the fact the-- we hit some interesting challenges in-- with our project in Egypt and some interesting challenges around the world with the economy. So despite all of that, we've had a really great year in 2011.

And then we're going to have a lot of things on our plate in terms of a way to grow the business. We've talked today about the New Zealand plant starting up shortly, the coal gasification project, the relocation project, which is making fabulous progress. All of this coming at a time when the industry is short of supply and prices are strong. So I think we're really uniquely placed in this industry to grow our position, to provide greater assurity of supply for our customers, to increase our value proposition for customers. So I look forward to, as this year unfolds, to reporting better and better earnings as we continue throughout the year. So thanks for your support and I look forward to talking to you again at the end of next quarter.

Thank you. That concludes today's conference call. Please disconnect your lines at this time, and we thank you for your participation.