Ladies and gentlemen, thank you for standing by. Welcome to the Methanex Corporation Q4 2019 Earnings Call. I would now like to turn the conference over to Ms. Kim Campbell. Please go ahead, Ms. Campbell.

Thank you. Good morning, everyone. Welcome to our fourth quarter 2019 results conference call. Our 2019 fourth 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 conclusion or making the forecast or projection which are included in the forward-looking information. Please refer to our fourth quarter 2019 MD&A and to our 2018 annual report for more information. I would also like to caution our listeners that any projections provided today, regarding Methanex' 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, cash flow or income made in today's remarks reflect our 63.1% economic interest in the Atlas facility and our 50% economic interest in the Egypt facility. 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. We report these non-GAAP measures in this way to make them 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' President and CEO, Mr. John Floren, for his comments and a question-and-answer period.

Thanks, Kim. Good morning, everybody. As a result of the low cost investments we've made in our company over the past number of years to substantially increase our production capability, Methanex was able to produce a record 7.6 million tonnes of methanol in 2019. We also had a record quarter for methanol sales in Q4. However, our excellent operational performance was overshadowed by a lower average realized price in 2019, compared to 2018. We recorded adjusted EBITDA of $566 million and adjusted net income of $71 million, or $0.93 per share for 2019. In the fourth quarter, we recorded higher adjusted EBITDA of $136 million and adjusted net income of $10 million or $0.13 per share, compared to the third quarter, despite a lower methanol price environment. These results compared to adjusted EBITDA of $90 million and adjusted net loss of $21 million, or $0.21 per share that we recorded in the third quarter. The higher adjusted EBITDA, we delivered in the fourth quarter was based on higher sales volumes of Methanex-produced methanol supported by our record production results and improved costs, which were partially offset by lower average realized price and the 68,000 tonne inventory build of produced product. Our flexible cost structure were over 60% of our natural gas contracts are linked to methanol revenue, allows our assets to be competitive across the price cycle. Our average realized price for the fourth quarter was $256 per tonne, and reflects the decline of $16 per tonne from the $272 per tonne that we recorded in the third quarter. In addition, our fourth quarter adjusted EBITDA results include an insurance recovery associated with our Egypt outage from April to August 2019 of $25 million. Pending final settlement which we forecast to be slightly higher than the $25 million, this amount…

Thank you, Mr. Floren. [Operator Instructions] The first question is from Mike Leithead from Barclays. Please go ahead.

Thanks. Good morning, John.

Good morning, Mike.

I guess, first on methanol pricing. You guys appear to have gotten a nice uptick in February pricing. So, can you maybe just talk about the demand environment that you've seen so far this year? And just on the supply side, you mentioned in the prepared release last night, a few new industry projects you expect to ramp. So, I guess, how upbeat are you on further pricing momentum over the next couple quarters here?

It really goes to the two issues you mentioned supply and demand. Prior to the current run up there were four MTO plants in China that had announced maintenance during the first quarter. So that's going to happen and that obviously will have a negative impact on demand in the short -term. The other derivatives are performing okay, so, there's nothing really to worry about. There, I'd say, that coronavirus is a big unknown. We always expect China around Lunar New Year to take some downtime, and that does impact demand, but that’s year-over-year issue. How long this goes for, it's a guess. So, the demand for Q1, I think based on some unknowns might be okay, might be a down a little bit, it's really hard to say. Supply is really what's driven the price increase. We had really good production results from the industry for most of 2019. And as we headed into 2020, we saw a number of unplanned outages and the big unknown is Iran and the gas being diverted in that country. So, that certainly will impact the supply side in Q1. So, like I mentioned in my remarks, we expect pricing to be a little higher in Q1, but it's really difficult to predict how much higher.

Got it. That's helpful color. And then, just to follow-up on Geismar 3, if I'm interpreting correctly, you're prepared commentary about engaging with the bank. It sounds like you're expanding the scope of potential options beyond just looking at a strategic partner, is that the correct read there? And I guess, can you maybe just flush out what other options you would consider here such as I guess, maybe a financial partner for the project?

Yes, we're considering all the options. We're still talking to our strategic people we have been talking to. So, those discussions are ongoing. We just decided from a resource point of view as we widen our scope and we're going to need a bit more resource. So, it made sense to hire an investment bank to help us screen more potential partners. Then, yes, we'll broaden our scope here from just strategics to other potential partners, they could be financial, they could be other companies interested in investing that maybe don't have the same strategic principles as current ones we're talking to. But we thought from a resource point of view, we needed to have a bit of additional help as we broaden our scope here.

That's helpful. Thank you.

Thank you. The next question is from Joel Jackson from BMO Capital Markets. Please go ahead.

Hi, good morning, John.

Hey, Joel.

Just on your Q1 soft guidance there. So, you talked about EBITDA being similar, sequentially, you talked about production being similar but pricing being up. Maybe you could drive talk about some of the cost impacts that must be driving EBITDA down to be similar, because you think the price pick up would be helpful? Thanks.

Yes, I said pricing will be up slightly, right? And I said, production will be similar, we had the Egypt recovery in the quarter as well. We are going to experience higher costs on fuel for freight. So that's the significant difference in the cost structure. So that, ultra-low sulfur diesel is quite a bit more expensive than heavy fuel oil. So, that's driving our cost structure up on the freight side. So, that's a guide around the same and it really depends on what marks pricing ends up. I'll remind you, Q1 for Europe is lower than Q4. So we're honed into that price for the whole quarter. So that, when you compare up or Q4 to Q1, we experienced lower pricing in Europe. So on balance, we expect pricing to be a little higher and depends on what happens on the supply side, as I've already mentioned. And it's really difficult to predict what happens in Iran. And the MTO, I mentioned, is going to have four plants there that were in planned turnarounds prior to this lap on pricing, so we expect those to go ahead. And then the coronavirus, it's a bit of an unknown. So, based on all the balances and all puts and takes we expect it to be about the same.

That's helpful. And then following-up I mean, you just outlined a lot of caution a lot of puts and takes, a lot of unknowns, like you said. You talked before about for a share buyback to continue to start again. You want to have I think $300 million cash, plus you want to have methanol prices at least $300 realized. As we get into the second quarter, if these price levels hold, you should be there. Could you be in position? Did you share buybacks, even though you're starting to get into the large spend the G3, if you're over 300 or with some of these unknowns way on you? Thanks.

Yes, whether we're building G3 or not in this current price environment, we wouldn't be buy back any shares. So, I think that's an important point to make. What I've guided to in the past that a 300 plus environment, there's room to complete the project on our own, have a meaningful sustainable growing dividend and to do a better share repurchases. Now, how much above 300, will impact that share repurchases. Now, we have ways to go to get to that $300 million target. So, we've seen one month here of uptick in pricing. So, the guidance remains the same. I mean, we'll want to keep 300 million on the balance sheet as we complete G3 and if we have excess cash beyond that, and we see pricing being sustainable above the 300, we will consider opening up another share repurchase or NCIB. But, I think, that's in the future. And, let's see how pricing and supply-demand work out here in the next months and before we get the cart before the horse here.

Thank you.

Thank you. The next question is from Steve Hansen from Raymond James. Please go ahead.

Yes. Hey, John. Just wondering if you could give us some context or color around the key sticking points you might be facing on the current gas contracts at this juncture? And just give us a flavor for whether you continue to roll these temporary agreements going forward or at what point you have to draw a line in the sand with the government, just trying to get some better color around the probability of tight running all year. Thanks.

Yes. We're working hard to get this done. We want to run the plant. The government wants us to run the plant. We're trying to find the solution that's a win-win for the upstream, the government and ourselves, and that's what we'll continue to do. I'm not going to negotiate in public. Our teams are working hard. But there does come a point where, you make a decision. Are these negotiations going to get you to a place where it makes sense for all parties or does it not? We're not there yet. And we're happy to extend the interim agreement. We know what our cost structure is in Q1. So, I always said, I would not enter into running up plant, we're not running like cost structure. I do know what my cost structure is and it's acceptable under current methanol prices. So we'll continue to negotiate in good faith. I would say all parties want to deal and that's always a good thing. And we're optimistic, we can get it done. And we'll continue to negotiate with the government and the NGC.

Okay, that's helpful. And just to follow-up if I may, on the financial partner, you alluded to testing it out broader if you will, to some financial parties. Should we read into that to mean that the strategic discussions or the discussions with the strategic parties have not done as well as you'd hoped? Or is it just that you're being more comprehensive in the broader search? I'm just trying to understand why strategics are not still the priority.

No, they are the priority, that would be misunderstanding what I said. I think that as you're getting into more discussions, we have a limited resources internally to have multiple discussions. We've made the decision to widen the scope of who we're going to look for to be a potential partner and G3. Our preference and our strong preference is to have a partner for 30%. So we looked at all of that. It made sense to hire some additional resources. So, we agree with a banker to help us with the screening process with the negotiations. And, as you open it up to more than two to three parties, we need a lot of quite a bit more resources. So, that's what we've done. We're still talking to the same parties. We're making progress. We have made progress during the last 90 days. But we want to broaden our reach and talk to a number of different parties. And it's just a matter of getting some additional resources.

And, do you think you can get that done in the first half of this year the back half of this year? What was the timeline?

Well, we're working hard. And we'd like to - the next step would be to have a head of agreement with a potential partner. And, we'll see what the timing, where we get to. But it's a top priority. We've got more resources on it now and we will continue to broaden our view and see what makes sense.

Okay, very good. Thanks for your time.

Thank you. [Operator Instructions] The next question is from Hassan Ahmed from Alembic Global. Please go ahead.

Good morning John.

Hey Hassan.

John, a quick question around Asian polyethylene margins, they've been extremely negative over the course of the last couple of months. And, 2020, globally is supposed to be a pretty big sort of ramp-up year in terms of polyethylene supply. So, I'm just sort of wondering, how one should think about sort of the MTO side of things, in a pretty sort of strong supply growth environment for polyethylene, particularly in Asia?

Yes, I think we see currently the MTO guys a bit more affordable than NAFTA. So, we have seen ethylene propylene prices pretty at the low end of the historical cycle. We understand there's some more supply going on. What I can comment on is the behavior of the MTO players and all of the MTO players up to now run at very high rates, unless they're doing maintenance or have had technical issues. So, we continue to watch it very closely. It does impact methanol pricing and the affordability; we look at that as well. So, this is a key issue for us that we're going to continue to watch. And right now we see high operating rates at the MTO, where prices go on all offense, anybody's guess, but we know that they were at the lower end of the cycle now, and probably a little bit better economics on the MTO than the NAFTA producers. But what happens to the price of NAFTA? Who knows?

Understood, understood. Now as a follow-up, decent pricing momentum over the last month or two, but as I understand, they've been fairly sort of large industry outages I mean, some outages out in Malaysia, I've heard natural gas supply disruption related outages in Iran as well. Were they large contributing factors to some of this recent pricing momentum that we've seen? And what are you guys hearing in terms of the Malaysian and Iranian capacity coming back online?

Yes, so I mentioned that, we saw really high operating rates in the industry for most 2019. And as we got into 2020 at the end of 2019, so basically a month, we've seen some unplanned outages, the ones you've mentioned in the Iranian gas situation. It's impossible for us to predict what's going to happen in Iran with gas, and what other unplanned outages there might be. So, we're seeing production reduced in January, does that carry through to February probably. How much longer, it's difficult to predict. I'd say inventories have been lowered quite a bit as well. If you look at the coastal China inventories, they've come down substantially. But, as I mentioned early on the other side, we've got some MTO planned outages for maintenance. So, the demand will be impacted a little bit, February, March. So again, it's really hard to predict right now with all these variables. The net impact on pricing.

Understood, understood. Thanks so much, John.

Thanks.

Thank you. The next question is from John Roberts from UBS. Please go ahead. Mr. Roberts, if you have a question, your line is now open. Hearing no response. We will move to the next question. The next question is from Eric Petrie from Citi. Please go ahead.

Hi. Good morning, John.

Good morning.

So Henry Hub prices have crossed below the $2 per MMBtu level. So, how do you see that impacting the cost curve as well as future development projects in North America?

Yes, it doesn't impact the cost curve at all - cost curve set China today. That's where most of the high cost productions a bit in Europe. But it's really set in China. And that's based on natural gas and coal in China. And there's quite a bit of material, the cost curve I mentioned, 260 bucks a tonne give or take, and it's quite a bit of production at that level. So really, you'd have to see, tens of millions of more capacity being built in the United States with a price of $2 before you see the cost curve really impacted.

Okay, helpful. And then longer-term, do you see any risks at MTO utilization due to the single use plastics bans announced in China?

Yes, again, it's early days and I think it's what's that going to impact demand and maybe impact the future growth of supply. I think that stuff that we see running today and the MTO is a fraction of the overall olefins market. Even though, it's a huge impact on the demand of methanol. It's a blip in the overall supply of olefin. So, our view is that these plants will continue to run, and if there is a downturn in demand in olefins, which has grown quite nicely over the last 10 years, because of single use plastics then we would expect future supply to be less robust than maybe what's planned today.

Thank you.

Thank you. The next question is from Nelson Ng from RBC Capital Markets. Please go ahead.

Great. Thanks. So just in China, I was just thinking in terms of methanol demand, have you seen any, like, early indications of any potential drop off in demand or supply due to the coronavirus? And how long do you think it'll take before you notice any of these impacts?

Yes, like I said, we're in Chinese Lunar New Year anyway. So, every year we see a downturn, this time of year when the whole country basically goes away for a week. So, that has an impact each and every year and they stock-up a little bit ahead of that, and then they start producing afterwards. I had said in my remarks, we think that's been extended in some part or great part of the country by 10 days. So, give me a couple weeks, and we'll see what the impact is. I'd say, how much longer does it get delayed, is it another - if it's just 10 days, I think then the impact will be quite minimal. But, if you remember SARS, there was quite an impact on global GDP for that period. So, I think it was, if I recall around 1%, so 1% of global GDP is not insignificant when for 55% of the traditional derivatives. And then we've got the MTO and other energy in China. So, I think it's how long and I'm not in a position to predict at all, how long the expansion of the virus continues, and the impact on the Chinese government's decisions to run industry in the country.

Okay. And then my follow-up question relates to Geismar 1. You mentioned that the debottlenecking and the improvement in production would be completed in the first quarter. I was just wondering, do you have to take downtime to tie in the pipeline? And I guess, should we expect a turnaround while you're taking downtime?

Now, if you recall, when we did the first G1 turnaround, which the plant has been running for five years now, believe it or not produced to 5 million tonnes of product. We did the unnecessary work at that time to be able to tie in the CO2. So what needs to be completed now is the actual pipeline of the CO2 into the plant. There will be no downtime associated with tying in the CO2 to the plant. We're looking as timing at the end of Q1, so don't expect any real volumes in Q1 and as we tie-in, does it get bled into Q2 a bit possibly, current view is end of Q1 but probably, we're talking 100,000 tonnes here is 25,000 tonnes a quarter. So, probably minimal impact based on how product flows through our FIFO layers in Q2. So, I think just directionally, we're getting it done and it's another 100,000 tonnes of low cost capacity. That's the way we look at it, and for really small amount of capital.

Okay, thanks, John. I’ll get back in the queue.

Thank you. The next question is from Jonas Oxgaard from Bernstein. Please go ahead. Mr. Oxgaard, from Bernstein. Your line is now open.

Oh, sorry about that. Good morning. We've seen some reports that your competitors have had some operational issues in the fall. Could you give us some update on the U.S. operational performance? And how you expect 2020 to play out from a supply standpoint, especially since I believe that Methanol 1 is still scheduled to come online at some point in the year?

Yes, I don't sit around the desks of our competitors, so I can't really give you any insight into how their plants are performing. I'd say that the production issue that we saw in the U.S. in the fourth quarter, outside the U.S. and Iran and really at the end of the year last year, so it's really impacted January. So we've seen some issues in the U.S. How they're going to run in 2020, I don't have any special insight.

Okay.

Thank you.

Thank you. The next question is from Matthew Blair from Tudor, Pickering, Holt. Please go ahead.

Hey, John, good morning. There's some news earlier this month, that China was suspending its 10% ethanol mandates for 2020. And just want to get your reaction, I mean, do you view this as a pretty positive announcement for Methanex? And, do you see this taking a pretty big risk off the table?

Well, I think when it was announced, they were going forward that we - I got a lot of questions about it. And our view was they have to build quite a bit of ethanol capacity to use all that corn. And I guess, the decision ultimately became that didn't make sense. And now they've said they're not going to do it. So, I don't think it's negative, but it's probably - I've said for a number of quarters now and maybe a couple years that really the methanol use in China will be high level blends. And that's where they've always been focused. Methanol 100 engines that Geely are manufacturing, the taxi fleets in a couple of cities that are now up to 20,000 taxis running on methanol 100, consuming 400,000 to 500,000 tonnes of methanol per year. And those are trials, those are trials. So those aren't even full blown program. So, our focus and we think the focus of the Chinese government is on high-level blends for methanol. It may open up room for ethanol imports from the United States, as a free trade deal gets done in phase two, then I think that could open up room for ethanol exports from the United States into China for low level ethanol blends as we've seen in the United States. So, I think there's room for both, we've always said that. And the growth and the focus for methanol will be in the high level blends. It doesn't mean as they're not going to use low level blends of ethanol that we might see a bit of an uptick, but I wouldn't really think it's going to move the needle too much on the demand side in China.

Makes sense. And then, I heard the maintenance CapEx number 150 for this year. Did you provide an estimate on the G3 spending? And I guess if not, do you think - I don't know maybe $400 million in 2020 would be pretty reasonable here.

Yes, that's the guidance we've provided before is about $400 million for 2020.

Sounds good. Thank you.

Thank you.

Thank you. The next question is from Cherilyn Radbourne from TD Securities. Please go ahead.

Thanks very much, and good morning. One of the industry publications recently reported that the U.S. has imposed sanctions on several Iran-linked petchem firms, including, I guess, at least one that was an exporter of methanol to China. Can you offer any insight there on what you think the implications may be for the flow of Iranian methanol into China going forward?

It depends if the Chinese respect the sanctions. I think we've seen the same information you've seen. And that company does get involved in quite a bit of the exports and imports into China. We've seen the same sanctioned information. How do they behave and how does China behave? Again, I don't have any special insight into that. But it is interesting that the sanctions continue to grow, especially around Iran. And, I think it's more and more difficult for them to sell product to get shipping, to get spare parts to run not only their methanol plants, but many other industries. So, I think that the tension is continuing to be ramped up. And where it ends, I again, I really don't know how it's going to end. But I think the sanctions, if I'm Iran are not positive.

And what about the flow of Iranian methanol into India? Is that still a free flowing or might some issues crop up there as well?

We haven't seen anything similarly announced in India. I think India is different, obviously different market than China. There's a lot more players, traders, smaller players, and it's been a real important market for Iran. So, I haven't seen, and India as well as pretty public about using more methanol in its energy space, especially in its automobile fleet, truck fleet. So, I think they're reviewing methanol as a strategic raw material going forward. So, how that pans out into sanctions or sanctions, and whether they follow the sanctions and the relations with the U.S., et cetera. Again, that's not something I have any special information on.

Okay. And if I could sneak in a last very quick one, when you say that you expect Q1 EBITDA to be similar to Q4, I assume that's versus the $136 million?

That's correct.

That's all from me. Thank you.

Thank you.

Thank you. The last question is from Steve Hansen from Raymond James. Please go ahead.

Hey, John. This might be better offline, but I just wanted to follow-up again on the Trinidad gas discussion. Can you give us any context around again, what the issue might be? Presumably, they're looking for a higher price or sort of certainty but, is the concept of floating scale formula still on the table? Or is it the base price is set to be? Just trying to get a sense of what the outcome might be here as we think about modeling going forward?

Well, I think, we’re going to pay a higher price for gas in Trinidad. We want to pay a price that we can still earn EBITDA and invest in the plants. So, it's usually around price, when you have these negotiations, and that sliding scale related to methanol will - we're continuing to be in place. And we just want to make a deal that we can make sure that we can survive in the low end of the cycle and do well at the high end of the cycle. So, I think you should model it higher, but we're not going to sign a deal that doesn't make sense, where we can earn profits from that plant. We'd rather shut it down than to run it for no profit.

That's very helpful. Thanks, I appreciate it.

Thank you. There are no further questions registered at this time. I would now like to turn the meeting back to Mr. Floren.

Well, thank you. Commodity cycles are anticipated part of our business. We've witnessed many cycles in the past and assume we will see more in the future. We remain focused on what we can control by further strengthening our global leadership position in the methanol industry, through low cost growth opportunities and by operating our plants safely and reliably. This enables us to consistently deliver quality, reliable methanol supply, maintain our competitive advantage and our preferred supplier status to customers around the world. Our balanced approach to capital allocation remains unchanged. We believe, we're well positioned to meet our financial commitments, execute on our growth projects in Louisiana and deliver on our commitments to return excess cash to shareholders through dividends, and share repurchases. Thank you for the interest in our company.

Thank you. The conference is now ended. Please disconnect your lines at this time and we thank you for your participation.