Methanex Corporation

Good morning, my name is Julie Ann and I will be your conference operator today. At this time, I would like to welcome everyone to the MESINEX Corporation 2023 Third Quarter Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, please press star one again. I would now like to turn the conference call over to the Director of Investor Relations at Methanex, Ms. Sarah Harriot. Please go ahead, Ms. Harriot.

Thank you. Good morning, everyone. Welcome to our third quarter 2023 results conference call. Our 2023 third quarter news release, management's discussion and analysis, and financial statements can be accessed from the reports tab of the investor relations page on our website at methanex.com. 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 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 our third quarter 2023 MD&A and our 2022 annual report for more information. I would also like to caution our listeners that any projections provided today regarding Methanex's future financial performance are effective as of today's date. It is our policy not to comment on or update this guidance between quarters. For clarification, any references to revenue, EBITDA, adjusted EBITDA, cash flow, adjusted income, or adjusted earnings per share made in today's remarks reflect our 63.1% economic interest in the Atlas facility, our 50% economic interest in the Egypt facility, and our 60% interest in Waterford shipping. In addition, we report our adjusted EBITDA and adjusted net income to exclude the mark-to-market impact on our share-based compensation and the impact of certain items associated with specific identified events. These items are non-GAAP measures and ratios that do not have any standardized meaning prescribed by GAAP and therefore unlikely to be comparable to similar measures presented by other companies. We report these non-GAAP measures in this way because we believe that they are a better measure of underlying operating performance, and we encourage analysts covering the company to report their estimates in this manner. I would now like to turn the call over to Methanex's president and CEO, Mr. Rich Sumner, for his comments and a question and answer period.

Thank you, Sarah, and good morning, everyone. We appreciate you joining us today as we discuss our third quarter 2023 results. For the third quarter, our average realized price of $303 per ton and produced sales of approximately 1.5 million tons generated adjusted EBITDA of $105 million and adjusted net income of 2 cents per share. Adjusted EBITDA was lower compared to the second quarter due to a lower average realized price and lower produced sales. Through the third quarter, we saw improving method market conditions, with stronger demand from certain sectors, as well as moderation in global operating rates, mainly from various supply outages in North America, Middle East, and Southeast Asia. Methanol demand improvements were primarily driven by stronger demand in China, with increased demand for MTB and other fuel applications, as well as improved demand for methanol to olefins, with a number of MTO plants restarting operations in the third quarter. We are currently seeing very high operating rates across the MTO sector, which we believe is driven by the completion of planned downstream expansions, as well as some improvements in affordability from a higher energy and olefins pricing during the quarter. However, we believe economic pressure remains on this sector under current market conditions. We can continue to carefully monitor the global macroeconomic environment. And during the third quarter, we saw relatively compared with the second quarter. Coal pricing in China increased during the third quarter from around 800 RMB per ton to above 1,000 RMB per ton currently, which we believe was primarily driven by various industry supply disruptions. We currently estimate the global cost curve to be over $300 per ton based on current coal pricing in China. Overall, continued high energy pricing and improved supply-demand fundamentals has led to slightly higher pricing throughout the third quarter and into the fourth quarter. Our November posted prices in North America, Asia Pacific, and China were posted at 549, 370, and $360 per metric ton, respectively. And our fourth quarter European price was posted at 375 euros per metric ton. Based on our October and November posted prices, we estimate our global average realized price to be approximately $310 to $320 per metric ton for these two months. In the third quarter, we had lower production due to scheduled turnarounds in New Zealand and Chile and seasonal gas restrictions in Chile. We are encouraged by the pace of gas development in Argentina and the continued supply rates from ENAB in Chile. Increasing gas supply from Argentina allowed us to restart our second Chilean plant in September, earlier than previous years. We expect both plants to run at full rates from the end of September through April 2024, the southern hemisphere summer months, and are increasing our Chile production guidance for 2023 from a range of 800 to 900,000 tons to a range of 900,000 to 1 million tons based on improved gas availability from Argentina. Earlier in October, we also announced that we signed a two-year natural gas agreement with the National Gas Company of Trinidad and Tobago to restart our fully owned Titan plant and simultaneously idle the Atlas plant in September 2024. I want to thank our team for their hard work to ensure that we maintained operations in Trinidad, which is a strategic part of our global portfolio. The gas situation in Trinidad in the near term is challenging, which is reflected in the short term of the new gas contract. We remain committed to working with the NGC and the government to secure long-term economic gas supply. We entered the third quarter in a strong financial position with approximately $500 million of cash and $300 million of undrawn backup liquidity. Our capital priorities are to complete the Geismar III project and allocate any excess cash to repay rather than refinance the $300 million bond due at the end of 2024. Construction of our G3 project is progressing safely to plan. Construction is nearly complete and the team is in the final handover, testing and commissioning phases. We expect to achieve commercial production around the end of the year and within our budget range of $1.25 to $1.3 billion. The remaining $140 to $190 million of cash expenditures, including approximately $50 million in accounts payable, is fully funded with cash on hand. Looking ahead to the fourth quarter of 2023, we're expecting higher adjusted EBITDA with a higher realized methanol price and higher produced sales. We remain focused on delivering strong operational results from our existing assets and completing the G3 project. We are well positioned during this period of economic uncertainty with growing cash flow generation capability from G3 and a portfolio of assets that can generate cash flow across a wide range of methanol prices.