Methanex Corporation · TSX:MX
Methanex — Investor Presentation (December 2015)
50 slides from Methanex's investor presentation, December 2015
Slide 1: Methanex Investor Presentation
Methanex Investor Presentation December 2015 1
Slide 2: Forward-looking Statements & Non-GAAP Measures
Forward‐looking Statements & Non‐GAAP Measures Information contained in these materials or presented orally on the earnings conference call, either in prepared remarks or in response to questions, contains forward‐looking statements. Actual results could differ materially from those contemplated by
Slide 3: Methanex - Investment Opportunity
Methanex ‐ Investment Opportunity • Leading market share Global Methanol • Competitive assets Leader • Strong balance sheet Positive Industry • Healthy demand growth outlook Outlook • Limited new supply • Solid growth in cash generation capability Strong Cash Flow • 5% normal course issuer bid start
Slide 4: Industry Overview
Industry Overview • ~61 million tonnes annual global demand 1 • Top producers account for ~ half of global sales • Largest competitors are state‐owned • No major competitive shift anticipated • Methanex is the global leader • ~15% market share2 • Unique global position with sales in all major region
Slide 5: Methanol End Uses
Traditional Uses (60% of Demand) Plastics, Ethyl propylene Methyl Tert Butyl Ether a Ni . Bunker Replacement _a¢ : MDF, Plywood DME ‘ @Methanol: pe | > a LPG Replacement & / . What's it used for? A Sealants, Lubricants, : Blendii ith edn ane len se wit sepnaes gasoline i \ ; e Replacement for PMMA-L
Slide 6: Methanol Usage
Methanol Usage... …By Derivative …By Region Source: Methanex – last twelve months ended Sept 30, 2015 6 6
Slide 7: Industry Review - Strong Demand Growth
Industry Review – Strong Demand Growth • Projected 7.8% CAGR, led by energy applications 2005 – 2014 CAGR: Energy: 12.2% 2015 – 2018 CAGR: (000s tonnes) Energy: 12.1% Total: 6.3% 90,000 Total: 7.8% 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 0 2004 2005 2006 2007 2008 2009 2010 2011 2012
Slide 8: Demand / Supply Balance
Demand / Supply Balance • Demand expected to outpace new capacity over next several years • A number of projects under discussion, but limited committed capital • Expect supply gap will be filled through a combination of new China supply, higher operating rates for existing high‐cost China plants, o
Slide 9: Methanol-to-Energy
Methanol‐to‐Energy • Methanol is primarily made from natural gas, and is a liquid fuel and oil product substitute • High priced oil versus natural gas creates substitution incentive • Energy applications emerged in the 2008+ period when the ratio of oil $/bbl and natural gas $/mmbtu prices exceeded
Slide 10: Methanol Industry Cost Curve
Methanol Industry Cost Curve China, Russia Exports, Germany, India, E. Europe Eq. Guinea, Indonesia, Iran, Malaysia, Methanex Plants, Oman, Qatar, Saudi, Trinidad (MHTL), Venezuela, USA Source: Methanex • Steep cost curve at high end • High‐end set today primarily by China coal based production, som
Slide 11: Methanol-to-Olefins (MTO) / Methanol-to-Propylene (MTP)
Methanol‐to‐Olefins (MTO) / Methanol‐to‐Propylene (MTP) Natural Gas Coal Ethylene Petroleum Residues Oxides (EO) Synthesis High Purity MEG Gas Ethylene Production Acrylic Acid (AA) Methanol to Methanol Olefins Production ACN High Purity Propylene Propylene Oxide Ningbo Skyford’s 1.8 MMT merchant met
Slide 12: MTO/MTP Demand Leading Growth
MTO/MTP Demand Leading Growth Methanol Estimated Number Demand Start‐up of Plants Capacity* (million MT) Completed 11 10.2 Dec 2015 1 1.8 H1 2016 4 6.6 Total 16 18.6 Nanjing Wison’s 0.8 MMT merchant *Capacity at 100% operating rates methanol to 0.3 MMT olefins plant • 11 merchant plants today, poten
Slide 13: Sustaining Methanol Demand Growth into MTO
Sustaining Methanol Demand Growth into MTO • MTO leading methanol demand growth with upside potential based on installed capacity • Methanol demand from MTO is poised to rebound upon Olefin price recovery 1313
Slide 14: China Fuel Demand Growth Expected to Continue
China Fuel Demand Growth Expected to Continue Local Methanol Gasoline Implemented Province Standards Since Gansu M15 & M30 2009 Guizhou M15 2010 Hebei M15 & M30 2010 Heilongjiang M15 2005 Jiangsu M45 2009 Liaoning M15 2006 Shaanxi M15 & M25 2004 Shandong M15 2012 Shanghai M100 2013 Shanxi M5, M15, M
Slide 15: Methanol Fuel Blending Growing Outside China
Methanol Fuel Blending Growing Outside China Several countries outside China in the assessment or near‐commercial stage for fuel blending, however minimal demand is included in current forecasts from these regions Iceland U.K. Russia Denmark Azerbaijan Netherlands Alaska U.S. Switzerland China Tri
Slide 16: Methanol Value Proposition as a Fuel
Methanol Value Proposition as a Fuel • Methanol is an affordable gasoline substitute in China, and can reduce overall emissions versus gasoline • In dedicated methanol vehicles and at high blends (M85 and M100), methanol burns more efficiently than gasoline • Most fuel blending in China (Nanjing) Wh
Slide 17: Marine Fuel Industry Transitioning to Cleaner Fuels
Marine Fuel Industry Transitioning to Cleaner Fuels • 100,000+ commercial vessels moving around the world every day primarily operating on Heavy Fuel Oil (HFO)* • HFO has high sulphur – negative impact on air quality / health. Methanol is sulphur free. • Sulphur emissions from 5 large container ship
Slide 18: Methanol as a Marine Fuel
Methanol as a Marine Fuel Economical: • Competitive Fuel Cost • Modest incremental vessel cost • Small infrastructure cost (liquid fuel) • Stena Ferry Lines converting its 1,500 passenger ship ‘Stena Germanica’ to run on methanol fuel using Wartsilla’s 4‐stroke engine. The second engine conversion P
Slide 19: Methanex Production Capacity
Methanex Production Capacity Annual Chile USA (Geismar) Year Production Built Capacity (000 tonnes) Chile I, IV 1988 / 2005 1,720 Louisiana, USA Geismar 1 2015 1,000 Geismar 2 2015 est. 1,000 New Zealand Trinidad Egypt (50%) 2011 630 Medicine Hat, Alberta 1981 560 New Zealand 1 Motunui 1 1985 950 1
Slide 20: Operating Capacity Growth 2012-2015
Operating Capacity Growth 2012‐2015 • Methanex added three million tonnes of operating capacity over three years • New growth concentrated in OECD countries, reducing risk profile of asset portfolio • Future potential from Chile with additional gas and minimal capital investment 2020
Slide 21: Geismar Project Update
Geismar Project Update • Geismar 1 (G1) completed on schedule; producing more than 3,000 tonnes /day. • Geismar 2 (G2) on target for end of 2015. • Committed gas feedstock & transport: • 10‐year natural gas contract with Chesapeake to supply Geismar 1 Oct 1 ’15: G1 operating (left), G2 near completi
Slide 22: Chile - Potential Sources of Upside
Chile – Potential Sources of Upside • First prize: two‐plant operation in Chile, supported by • Chile gas: • Ongoing unconventional gas exploration and development in Chile • ENAP estimates G7 formation in the western area of the Magallanes to have close to 3.5 TCF of gas resources • In July ’15 the
Slide 23: Impressive Financial Results
Impressive Financial Results • Average Modified ROCE of 15% from 2005‐2014 $7.00 Adjusted EPS 50% $6.00 Modified ROCE Modified ROCE Adjusted EPS 40% $5.00 $4.00 30% $3.00 20% $2.00 10% $1.00 $0.00 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1) Adjusted EPS = Adjusted net income per common s
Slide 24: Valuation Considerations
Valuation Considerations • Methanex is trading at a discount to replacement cost Capacity millions of tonnes 1 incl. Growth Trinidad 2.0 Chile 0.4 USA (Geismar) 2.0 New Zealand 2.4 Canada (Medicine Hat) 0.6 Egypt 0.6 Total 8.0 . Enterprise Value ($billions) 2 4.6 Capital Adjustment Geismar 0.1 Adjus
Slide 25: Valuation Considerations
Valuation Considerations • Strong cash generation capability at a range of methanol prices 1 Methanex ownership interest (63.1% Atlas, 50% Egypt) With Egypt & Full Operating Full Potential 2 Assumes Trinidad operating rate of Trinidad Restrictions2 Capacity3 (Chile 100%) 85% and Egypt operating rate
Slide 26: EBITDA and Cash Flow Sensitivities
EBITDA and Cash Flow Sensitivities Assumptions: Results: • Price: $400/tonne ARP • EBITDA: $1.1 Billion • Volume: 8.0 million tonnes • Free Cash Flow: $800 million 2626
Slide 27: Foreign Exchange Sensitivity
Foreign Exchange Sensitivity • US dollar based business • Majority of revenues in US dollars (EU net exposure hedged) • Natural gas and freight costs in US dollars • Approximately $150 million in local currency costs (not actively hedged) • Approximately $100k in non‐US dollar working capital assets
Slide 28: Liquidity & Capex Outlook
Liquidity & Capex Outlook • Strong financial position to complete capital commitments Estimated Capital Expenditures 1 Debt & Liquidity at end of Q3‐15 (US$ millions) (US$ millions) Total Debt 2 1,358 Geismar ~ 110 Liquidity Maintenance ~ 105 Cash 2 379 Undrawn Operator (Dec '19) 400 779 Total Debt
Slide 29: Leverage - Rating Agency Perspective
Leverage – Rating Agency Perspective • Leverage target = Investment Grade Pro Forma Balance Sheet with Geismar 2 • Preserves financial flexibility (US$ billions unless indicated) • Lowers cost of debt Total Debt 1 Q3'15 • Access to longer‐term bond market, Total Debt 1.4 shipping market, etc. Leases
Slide 30: Returning Cash to Shareholders
Returning Cash to Shareholders • Meaningful, sustainable and growing dividend ‐ $0.275/share per quarter, yield ~2.75%1 • ~47% of shares bought back since 2000 • Current 4.6 million share normal course issuer bid (5% of public float) expires May 6, 2016 • Approximately $340 million returned to share
Slide 31: Earnings Growth with Low Oil / High Dollar
Earnings Growth with Low Oil / High Dollar • 60% capacity growth over three years • Full benefit of recent capacity additions not yet realized • Reduced risk exposure with growth in OECD countries • Responsive Cost Structure: • Gas contractual structure reduces costs at bottom of cycle • Shipping co
Slide 32: Summary
Summary • Positive industry dynamics • Global leader with competitive assets • Solid franchise value that is difficult to replicate • Global marketing, supply chain and shipping network • Strong cash generation & financial position • Attractively valued with considerable upside • Track record of del
Slide 33: Forward-looking Statements
Forward‐looking Statements FORWARD‐LOOKING INFORMATION WARNING This Presentation, our Second Quarter 2015 Management’s Discussion and Analysis (“MD&A”) and comments made during the Second Quarter 2015 investor conference call contain forward‐looking statements with respect to us and our industry. Th
Slide 34: Q&A
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Slide 35: Appendix
the power of agilit Appendix
Slide 36: Methanol is..
Methanol is.. • Primarily produced from natural gas Natural Gas syngas Reforming @ ~900oC CO CO2 H2 Steam [& Oxygen] Compression Cooling crude chemical grade Synthesis Distillation CH3OH CH3OH H2O APPENDIX 3636
Slide 37: Methanex Realized Pricing History
Methanex Realized Pricing History • Methanex posts reference prices monthly in Asia and North America and quarterly in Europe • Realized pricing is lower than reference prices due to discounts specified in contracts Source: Methanex APPENDIX 3737
Slide 38: Methanol Consumers
Methanol Consumers • Concentrated consumer base • 30% of global demand from top 20 consumers • Main consumers are large, global chemical companies: • Celanese, BP, Momentive, Skyford, Sabic, BASF, etc. • Methanex supplies primarily traditional chemical derivative customers who value: • Security of s
Slide 39: Methanol as a Fuel
Methanol as a Fuel • Methanol has attractive features as a transportation fuel: • Liquid fuel – can be blended with gasoline and ethanol in today’s vehicles at minimal incremental costs. • High octane fuel which reduces emissions when blended with (or substituted for) gasoline. • A safe fuel which b
Slide 40: Di-Methyl Ether (DME)
Di‐Methyl Ether (DME) • DME can be blended directly with LPG (propane) up to approximately 20% for cooking and heating applications. • Future promising application for DME is as a diesel replacement: • Oberon Fuels Produces DME in the U.S. DME as propane substitute • ASTM Standard issued, California
Slide 41: Methanol / DME as a Fuel Outside China
Methanol / DME as a Fuel Outside China • Europe is blending methanol into fuel today (up to 3% blending permitted) • Australia ‐ Coogee demonstration project targeting limited launch of methanol blends in near term • Israel ‐ M15 demo program (market potential ~400kta), target commercial introductio
Slide 42: Renewable Methanol
Renewable Methanol • Methanol and DME is produced from fossil fuels and renewables LNG = Liquefied Natural Gas; DME = Di‐Methyl Ether; OBATE = On Board Alcohol to Ether (i.e. methanol converted to DME on board ships) APPENDIX 4242
Slide 43: Carbon Recycling International - Renewable Methanol in Iceland
Carbon Recycling International ‐ Renewable Methanol in Iceland CRI’s GO Plant in Svartsengi, Iceland • World’s greenest methanol – technology captures CO2 from industrial emissions and converts it into Renewable Methanol • Sales into Europe gasoline blending market (M3) • George Olah semi‐commercial
Slide 44: Methanol has Modest Fuel & Conversion Costs
Methanol has Modest Fuel & Conversion Costs Source: Effship Project Summary Report, 2013 (* Costs do not include infrastructure development). Fuel cost based on market price 2012. Conversion based on 5 years pay‐back and 6% interest APPENDIX 4444
Slide 45: Methanol as a Marine Fuel
Methanol as a Marine Fuel • Methanol (MEOH) achieves low emissions & bridge to lower CO2 in the future (renewable/bio methanol) Source: Stena (4‐stroke engine testing) APPENDIX 4545
Slide 46: Methanex Global Supply Chain
Methanex Global Supply Chain APPENDIX 4646
Slide 47: Methanex Cost Structure
Methanex Cost Structure • Natural gas • Fixed Manufacturing and • Long‐term gas contracts have fixed base price and G&A costs variable component linked to the price of • Primarily people costs (approx. methanol. This reduces methanol price exposure 1100 employees) • Medicine Hat gas sourced from Alb
Slide 48: Operating Rates in China
Operating Rates in China • China has operated at ~50% based on nameplate capacity; however, market is tighter than it appears and effective operating rate is ~73% (source: MMSA) • Many plants are not operational due to various factors including: operational problems/maintenance, inability to access
Slide 49: Management Alignment
Management Alignment • Executive shareholding requirements: • CEO ‐ 5 times salary in Methanex shares or share units • Senior executives (5 members) – 3 times salary • Other senior management (~50 employees) – 1 times salary • Short‐term incentive linked to ROCE (return on capital employed) • Long‐t
Slide 50: Thank You
Thank You the power of agility ‘A RESPONSIBLE CARE* COMPANY eeoocees