Methanex Corporation Q4 FY2025 earnings call

1. Outlook for methanol industry is favorable with prices rebounding, healthy demand recovery, low inventory, supply challenges, and positive energy environment. 2. Strong financial position with over $800 million cash on hand at end of Q1 2021, strategic partnership with Mitsui OSK, and ability to generate ~$125 million free cash flow per quarter at current prices. 3. Decision to restart construction on Geismar 3 project which has capital and operating cost advantages, low CO2 emission intensity, and expected to strengthen asset portfolio and cash generation. 4. Capital allocation priorities include maintaining financial flexibility, holding more cash, targeting lower leverage, and increasing weighting on flexible distribution vehicles like share buybacks with sustainable dividend. 5. Strategic partnership with MOL to expand methanol shipping relationship and advance commercialization of methanol as lower-emission marine fuel.

1. Outlook for methanol industry is positive with expected demand growth of ~16 million tons over next five years and ~14 million tons of new capacity additions. 2. Intend to fund remaining G3 capital costs with cash on hand and future cash flow, expecting to fund without incremental debt at prices ~$275 per ton and above. 3. Expect G3 to substantially increase cash generation capability and support significant increase in future shareholder distribution potential when prices ~$325 per ton or higher. 4. Policy not to comment on or update guidance between quarters.

Q: Just on the revision in capital costs lower from previous estimates, how does that square with labor inflation and material cost inflation?

A: Mike Hurst said they've done a lot over the period in care and maintenance to take risk out of the project. 95% of engineering is complete, equipment is on site, reducing risks like vendor delivery, equipment arrival, etc.

Q: What the impact on earnings will be from the sale of the minority state concern?

A: Ian Cameron said proceeds of ~$145 million will go to equity line, with accounting complications but recorded as equity.

Q: How should we think about the priorities for excess cash flow beyond G3?

A: John Florin said first use of excess cash is to maintain dividend, then retain flexibility in return of cash, hold more cash on balance sheet, and de-lever when opportunity arises.

Q: Is potential strategic partner off the table?

A: John Florin said not off the table but less likely at current conditions as project is de-risked and additional liquidity from MOL obtained.

Q: How the gas will work for G3?

A: Part of North American portfolio gas strategy, like Medicine Hat, will have most gas fixed, with hedges for Geismar 1 and 2, and plan to do same for G3.

Q: Balance between China MTO plants moving upstream and China cracking down on CTOs?

A: Vanessa James said numbers include backward integration of methanol merchant plants to CTO, and further environmental restrictions on burning coal for chemicals in China continue but included in supply demand forecast.

Q: If MOL's entire fleet ran on methanol, what would the demand be?

A: Dan Lizzo said MOL has ~800 ships, average 45,000-ton vessel burning methanol all year is ~12,000 tons, but conversion of current ships unlikely, new builds more likely.

Q: Key items that could still impact G3 budget and schedule?

A: Mike Herz said key risks are construction labor and bulk materials. Labor market good, bulk materials mostly fixed or firm in price.

Q: Decision to raise the dividend versus share buybacks?

A: John Florin said disappointed to cut dividend last year, fixed dividend part of distribution strategy, considering volatility in methanol pricing, want to remain flexible in cash distribution.

Q: Potential to increase shareholder distribution during G3 construction?

A: John Florin said at prices sustained above $325 a ton, first priority is keep enough cash to complete G3, then de-lever and consider buybacks.

Q: Concerned on gas issues at Titan and New Zealand and its part in restarting G3?

A: John Florin said won't comment specifically close to quarter end, will comment more in 10 days.

Q: Embedded cost of freight to Asia in IRR calculation and need for additional ships for G3?

A: Vanessa James said embedded freight rate ~$70, part of conservatism, and fleet renewal program with 8 vessels being delivered over next two years, all dual fuel.

Q: China capacity additions of 6.6 million tons, gross or net and upside to estimated committed industry capacity additions?

A: Vanessa James said includes backward integrated MTO plants, gross number, expectation of zero to 2 million tons closure in China, outside China have good view on what's being built.

Q: Cadence of 800 to 900 million remaining spend on G3?

A: John Florin said ~100 million in Q4 2021, ~410 million in 2022, ~355 million in 2023.

Q: How G3 has lowest CO2 emissions and monetization?

A: Mike Herz said uses purge stream from G1 and G2, ATR, much lower CO2 emission intensity than traditional plants, but no market for customers willing to pay more for G3 molecules currently.

Q: $145 million from MOL and enterprise value of waterfront?

A: John Florin said waterfront provides shipping service to Methanex and deploys ships for backhaul, revenue stream from Methanex and clean petroleum product shipping, number ballpark appropriate.

Q: What Mall really aims to get out of new investment in Waterfront?

A: John Florin said MOL is shipping company, attractive customer, want to maintain waterfront shipping as part of integrated logistics, no change in operations.

Q: Cadence on debottlenecking and existing units with G3 restart?

A: John Florin said will comment on de-bottlenecking at quarter end, too close to quarter end now.