Methanex Corporation Q1 FY2026 earnings call

Methanol industry outlook is positive. Strong financial position to restart Geismar 3 project. Geismar 3 has capital and operating cost advantages, underpinned by abundant low-cost natural gas supply in US, and will strengthen asset portfolio and cash generation capability. Capital allocation priorities focus on maintaining business, value accretive growth, and returning excess cash to shareholders, with emphasis on financial flexibility including holding more cash, lower leverage, and flexible distribution vehicles.

Not provided with detailed absolute terms and revenue contribution % for each product segment

At current realized prices, potential to generate ~$125M free cash flow before G3 CapEx per quarter. Intend to fund G3 with cash on hand and future cash flow, expecting to fund without incremental debt at prices above ~$275 per ton. Capital allocation priorities include holding minimum $300M cash, targeting lower leverage, and using flexible distribution vehicles.

Key risks for G3 project are construction labor and bulk material costs. Labor market competition and bulk material procurement remaining risks.

Q: Just on the revision in your capital costs lower from previous estimates. How does that square with what we're seeing as far as labor inflation and material cost inflation?

A: Mike Hurst says they've advanced activities to take risk out, 95% engineering complete, equipment on site, reducing risk profile.

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

A: Ian Cameron says proceeds of ~$145M will go to equity line.

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

A: John Florin says first use is to maintain dividend, then retain flexibility, hold more cash, and consider de-levering bonds.

Q: Is that off the table now about potential strategic partner?

A: John Florin says not off the table but project de-risked, still talking to firms.

Q: Can you just remind me how the gas will work for G3?

A: John Florin says part of North American portfolio gas strategy, plan to layer in hedges.

Q: Talk about that balance there between what China is doing environmentally and the MTO is looking to go upstream?

A: John Florin says forecast includes backward integration of methanol merchant plants to CTO in China.

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

A: John Florin says MOL has large fleet, new builds likely, green methanol cost higher.

Q: In terms of G3, the risk profile has reduced and there's obviously more clarity on that project, but could you just touch on some of the key items that could still impact the budget and the schedule?

A: Mike Herz says key risks are construction labor, bulk materials, but labor market good and bulk materials mostly fixed.

Q: Can you just talk about your decision to raise the dividend versus share buybacks?

A: John Florin says fixed dividend part of distribution strategy, sustainable with volatility.

Q: In terms of G3, the potential to increase shareholder distribution during G3 construction, it's messing all prices to stay above $325 a ton. Considering, I guess, the large likely capex spend in 2022, is this commentary more focused on 2023 and beyond?

A: John Florin says not just 2023, can have de-levering and buybacks at prices above 325.

Q: How concerned are you on the gas issues at Titan and New Zealand, and how did that play a part in your decision to restart G3?

A: John Florin says won't comment on specific assets, will comment more in second quarter call.

Q: In your IRR calculation, what is your embedded cost of freight to Asia? And I know WFS added a dual-fueled ship at the end of last year. Would you have to add any more ships to transport that methanol to Asia?

A: Vanessa James says embedded freight rate around $70, and renewing fleet with dual-fuel ships.

Q: On slide 10, the China capacity additions of the 6.6 million tons, is that gross or net and are you expecting closures in that number of higher cost molar plants? And then what's the upside to your 14 million tons of estimated committed industry capacity additions?

A: Vanessa James says it's gross number, expectation of zero to two million tons closures, and confident in good supply-demand balance for G3.

Q: Could you talk about the cadence of the 800 to 900 million remaining spend Looks like there's going to be about 50 million in Q4 21. And then what would be the split between 2022 and 2023?

A: John Florin says 2021 Q4 ~$50M, 2022 ~$410M, 2023 ~$355M.

Q: If I look at the $145 million that MOL is paying and divide that by 40%, is it fair to say waterfront shipping is capitalized at about $360 million? And what actually is in there?

A: John Florin says ballpark appropriate, waterfront provides shipping service to Methanex and backhaul.

Q: To the extent that you can, can you speak to what Mall really aims to get out of this new investment in Waterfront?

A: John Florin says MOL wants to enhance relationship, not creeping takeover, cooperation on fuel ships.

Q: Just on the cadence on the de-bottlenecking and existing guys. How does that interlace with the G3 restart?

A: John Florin says will comment on de-bottlenecking at quarter end