Methanex Corporation

I'd like to welcome everyone to the MetaNext Corporation 2024 First 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 this time, simply press star followed by the number one on your telephone keypad. If you would like to withdraw your question, press star one again. Thank you. I would now like to turn the conference call over to the Director of Investor Relations at MetaNext, Ms. Sarah Harriot. Please go ahead, Ms. Harriot.

Good morning, everyone. Welcome to our first quarter 2024 results conference call. Our 2024 first quarter news release, management's discussion and analysis, and financial statements can be accessed from the financial reports tab of the investor relations page on our website at metanex.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 forecasts or projections, which are included in the forward-looking information. please refer to our first quarter 2024 MD&A and to our 2023 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 reflects our 63.1 percent economic interest in the atlas facility our 50 economic interest in the egypt facility and our 60 interest in waterfront shipping in addition we report our adjusted ebitda and adjusted net income to exclude the mark to market impact on 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 first quarter 2024 results. For the first quarter, our average realized price of $343 per ton and produced sales of approximately 1.7 million tons generated adjusted EBITDA of $160 million and adjusted net income of $0.65 per share. Adjusted EBITDA was higher compared to the fourth quarter of 2023 primarily due to a higher average realized price. Our business delivered a strong quarter financially despite $25 million of G3 delay costs, recognized and adjusted EBITDA during the first quarter, which was comprised of costs associated with monthly utilities take-or-pay contracts and employee costs, as well as the accounting recognition of over-hedged gas costs through the third quarter projected restart. The safe restart of G3 continues to be our company's top priority. We announced in mid-February that the startup of the G3 plant was delayed due to complications in the autothermal reformer during the late stages of the initial startup process. Since that time, we've been working hard to understand the root cause of the issue, expedite repairs, complete comprehensive reviews of all remaining plant systems, and implement any necessary changes. These work streams are all progressing well. We estimate that the repair cost will be approximately $15 million, and expect the total capital cost for the project will remain at approximately $1.3 billion. The remaining capex to be spent on G3 is $70 million, which is fully funded with cash on hand, and we expect it to be spent evenly over the second and third quarters of 2024. Giving the progress to date on all work streams, we believe we will be ready to start up the plant in the third quarter of 2024, and I want to thank all of our global and regional team members for their continuing efforts in responding to the delay and continuing to safely manage our business. Another critical activity for our company during the first quarter was the major repair of the syngas compressor unit and resulting restart of our Egypt plant. We're happy to report a successful repair and safe and quality restart of the plant, all of which was executed in the timeframes we previously disclosed. And I also want to recognize our team's efforts and expediting these activities to bring us back online in Egypt. Now turning to the first quarter methanol pricing and market dynamics. Our first quarter global average realized price of $343 per metric ton was $21 higher than the previous quarter as global methanol markets tightened with constrained production leading to a global inventory draw and increasing prices in all regions. Compared to the fourth quarter of 2023, global methanol demand was slightly lower, primarily due to two large methanol to olefins units completing turnarounds during this period of supply constraints, while global demand for chemical and energy applications remained steady. Methanol's cost competitiveness in the current elevated energy price environment, as well as its clean burning attributes, continue to support strong demand in energy applications such as biodiesel and MTBE. On the supply side, operating rates were constrained by seasonal natural gas restrictions in Iran and China. Supply was also constrained by planned and unplanned outages in the Atlantic Basin, and overall reduced methanol production led to a drawdown of global inventory. We estimate the current methanol marginal cost of production to be between $260 and $280 per ton based on current coal pricing in China. We continue to see relatively stable methanol pricing in China at between 290 and $310 per ton, and all other major methanol markets pricing are at premiums to these levels. Our second quarter European price was posted at 525 euros per metric ton. Our North America, Asia Pacific, and China prices for May were posted at $645, $400 and $390 per tonne respectively. We estimate our April and May average realized price range is between approximately $345 and $355 per metric tonne. Looking ahead into the second quarter, we anticipate both supply and demand to gradually increase and exceed first quarter levels as gas restrictions are expected to ease and seasonal construction and mobility demand improve. Through 2024, from a supply perspective, we continue to monitor the potential startup of the project in Malaysia later in the year, and we expect the net supply impact from the planned startup of G3 to be somewhat muted given the significant offset from our supply reduction in Trinidad on similar timeframes. From a demand perspective, we continue to closely monitor the macroeconomic environment and have seen some positive economic indicators that support a stable and moderate growth rate for traditional chemical applications, with favorable energy pricing and policy support, particularly in China, continuing to support methanol demand into energy applications. Now turning to our current financial position and outlook, we ended the first quarter with approximately $378 million of cash, and yesterday we announced the renewal of our $300 million revolver, with the addition of a $200 million tranche. This provides us with additional financial flexibility to manage the business and to repay the $300 million bond due in December 2024. Looking ahead to the second quarter of 2024, we're expecting similar adjusted EBITDA and similar realized methanol price and produce sales, with higher Egypt production offsetting the impact of lower Chile production as we move into the winter period in the southern hemisphere. As for annual estimates, we've updated our 2024 equity production guidance to 7 million tons. This production has been adjusted lower for the planned startup of G3 in the third quarter, with full rates through the fourth quarter, and the Egypt outage which lasted to mid-February of this year. Actual production may vary by quarter based on the timing of turnarounds, gas availability, unplanned outages, and unanticipated events. We believe the planned startup of G3 in the third quarter represents a significant improvement in the asset portfolio and cash generation capability of our business. As a reminder, on a run rate basis at $350 per ton realized price and 8.3 million equity tons, the business generates approximately $850 million in adjusted EBITDA and $450 million in free cash flow per year. We believe we're well positioned to maintain a strong balance sheet, profitably grow the business, and return excess cash to shareholders. We'd now be happy to answer questions.