Methanex Corporation · TSX:MX
Methanex — Investor Presentation (June 2015)
43 slides from Methanex's investor presentation, June 2015
Slide 1: Methanex Investor Presentation
Methanex Investor Presentation June 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 • Methanol Global Leader • Leading market share, competitive assets, strong balance sheet • Positive Industry Outlook • Healthy demand growth outlook, limited new supply • Strong Cash Flow Generation & Distributions • New 5% normal course issuer bid starting May 6,
Slide 4: Industry Overview
Industry Overview • ~60 million tonnes annual global demand1 • Top producers account for ~ half of global sales • Largest competitors are state-owned • No major competitive shift anticipated • Methanex is the global leader • ~15% global market share1 Source: Methanex • Unique global position with sa
Slide 5: Methanol End Uses
Methanol End Uses the power of ity re Traditional Uses i (60% of Demand) ’ | -@ Olefins ¥ Acetic Acid z . 5 MTBE _ Plastics, Ethyl : DE propylene ; Fleece, Adhesives, e Methyl Tert Paints Butyl Ether ° e Marine Fuel < . Bunker Replacement Formaldehyde al MDF, Plywood 5 Methanol: e Dimethyl eth : LPG
Slide 6: Methanol Usage
Methanol Usage.. …By Derivative …By Region Source: Methanex – year ended December 31, 2014 6 6
Slide 7: Industry Review – Strong Demand Growth
Industry Review – Strong Demand Growth • Projected 7.8% CAGR, led by energy applications* 2004 – 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 2
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 and higher operating rates for existing high-cost China plants
Slide 9: Methanol-to-Energy
Methanol-to-Energy • Methanol is primarily made from natural gas • High priced oil versus natural gas creates substitution incentive • Methanol is a liquid fuel and oil substitute Source: Historical annual data and forecast from IHS Chemical, May 2015 9 9
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 • High-end set today primarily by China coal based production • Methanex plant
Slide 11: Methanol to Olefins (MTO)
Methanol to Olefins (MTO) 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 PE Ningbo Skyford’s 1.8 MMT merchant methanol to 0.6 MMT olefins pl
Slide 12: MTO demand leading growth
MTO demand leading growth Methanol Estimated Number of Capacity Start-up Plants (million MT) Completed 9 9.4 H2 2015 5 5.9 H1 2016 2 3.8 Total 16 19.1 Najing Wison’s 0.8 MMT merchant methanol to 0.3 MMT olefins plant 9 merchant plants today, potential methanol demand over 9 M MT 7 more plants un
Slide 13: MTO Perspective
MTO Perspective • MTO is a strategic Chinese program to reduce reliance on imported hydrocarbons (oil & gas) for making chemicals. It also allows China to diversify its supply of raw materials for the chemical industry. • China currently imports 40% of the 60 million tonnes of olefins and derivative
Slide 14: Di-Methyl Ether (DME)
Di-Methyl Ether (DME) • DME can be blended directly with LPG (propane) up to approximately 20% • DME demand is approximately 4 million tonnes per year. • Future promising application for DME is as a diesel replacement: DME as propane substitute • Oberon Fuels Produces DME in the U.S. • ASTM Standard
Slide 15: 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 bio
Slide 16: Fuel demand expected to continue growth
Fuel demand expected to continue growth 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, M85 & M
Slide 17: 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 18: Methanol affordability as a fuel
Methanol affordability as a fuel • Methanol a highly affordable gasoline substitute in China • Most fuel blending in China is at low percentages and sold based on volume China (Nanjing) Wholesale Gasoline Price: $2.87/gallon* May 31, 2015 USGC Conventional Regular Gasoline Price: $1.89/gallon Apr 22
Slide 19: Methanol as a Marine Fuel – Regulations Driving Change
Methanol as a Marine Fuel – Regulations Driving Change ~40 MMTPA methanol equivalent market Stena Ferry Lines converting to methanol Global Emission Control Areas (ECA’s) • N. Europe and N. America introducing tighter ship emissions regulations starting Jan ‘15. In 2020, IMO scheduled to require all
Slide 20: Methanex Production Capacity
Methanex Production Capacity Annual Chile USA (Geismar) Year Production Built Capacity (000 tonnes) Chile I, IV 1988 / 2005 1,720 Chile II, III 1996 / 1999 Geismar, Louisiana 2014-16 2,000 New Zealand Trinidad Egypt (50%) 2011 630 Medicine Hat, Alberta 1981 560 New Zealand Motunui 1 1 1985 950 1 Mot
Slide 21: Geismar Project Update
Geismar Project Update Geismar 1: Geismar 2: • Completed • On target on schedule for late Q1, 2016 • Operating well, at more • Estimated than rated $265 million capacity of remaining 3,000 tonnes to spend per day. • Potential to optimize site with third plant using oxygen technology • Attractive pro
Slide 22: Chile – Potential Sources of Upside
Chile – Potential Sources of Upside • First prize: two-plant operation in Chile, supported by • Ongoing unconventional gas exploration and development in Chile • Argentina tolling arrangement • Argentina shale gas (EIA estimates over 500 tcf in the country) • Chile IV relocation • Delayed decision u
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 $0.00 0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 1) Adjusted EPS = Adjusted net income per common s
Slide 24: Valuation Considerations
Valuation Considerations • Methanex is trading at a discount to replacement cost Capacity millions of tonnes 1 incl. Growth Trinidad 2.0 Chile 0.4 USA (Geismar) 2.0 New Zealand 2.4 Canada (Medicine Hat) 0.6 Egypt 0.6 Total 8.0 . 2 Enterprise Value ($billions) 5.9 Capital Adjustment Geismar 0.3 Adjus
Slide 25: Valuation Considerations
Valuation Considerations • Modest valuation relative to strong cash generation capability 1 (millions of tonnes) With Egypt & Full Operating Full Potential 2 3 Trinidad Restrictions Capacity (Chile 100%) Annual Operating Capacity 7.4 8.0 9.3 4 Average Realized Price ($/MT) Adjusted EBITDA Capability
Slide 26: Liquidity & Capex Outlook
Liquidity & Capex Outlook • Strong financial position to execute growth opportunities 1 Estimated Capital Expenditures Debt & Liquidity at end of Q1-15 (US$ millions) (US$ millions) 2 Total Debt 1,368 Geismar ~ 265 Liquidity 2 Maintenance ~ 90 Cash 568 Undrawn Operator (Dec '16) 400 968 Total Debt /
Slide 27: 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) 1 • Lowers cost of debt Total Debt Q1'15 Total Debt 1.4 • Access to longer-term bond market, shipping market, etc. Leases
Slide 28: Returning Cash to Shareholders
Returning Cash to Shareholders • Meaningful, sustainable and growing dividend - $0.275/share per quarter, yield ~2.0%1 • ~46% of shares bought back since 2000 • New 4.6 million share normal course issuer bid (5% of public float) expiring May 6, 2016 • $340 million returned to shareholder in 2014 $1.
Slide 29: 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 30: Forward-looking Statements
Forward-looking Statements FORWARD-LOOKING INFORMATION WARNING This Presentation, the First Quarter 2015 Management’s Discussion and Analysis (“MD&A”) and comments made during the First Quarter 2015 investor conference call contain forward-looking statements with respect to us and our industry. Thes
Slide 31: Q&A
the power of agility Q&A
Slide 32: Appendix
Appendix 3232
Slide 33: 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 3333
Slide 34: 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 35: 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 methanol • Primarily people costs (approx. 1100 employees) • Reduces methanol price exposure • Medicine Hat gas sourced from Alberta
Slide 36: 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 carbon dioxide from industrial emissions and converts it into Renewable Methanol • Sales into Europe & Iceland gasoline blending market (M3) • George
Slide 37: 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 3737
Slide 38: Methanex Global Supply Chain
Methanex Global Supply Chain APPENDIX 3838
Slide 39: 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 40: 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 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 early 2015 • Israel - M15 demo program (market potential ~400kta), target commercial introducti
Slide 42: MTG & MTA emerging opportunity
MTG & MTA emerging opportunity MeOH MTG MeOH • Methanol-to-Gasoline (MTG) and No. Producers Location Demand Start-up Supply (KMT) Methanol-to-Aromatics (MTA) are Jincheng Jincheng, emerging methanol demand 1 Tianxi Shanxi 300 Q4 2009 Integrated segments Internal Qinghua Alxa, Inner 2 300 Q1 2012 Sup
Slide 43: Thank You
Thank You A RESPONSIBLE CARE* COMPANY