Bruce Aitken is remarkably optimistic for an executive whose challenges can’t be swept under a rug.
The president and CEO of Vancouver-based Methanex (TSX:MX) began 2011 with a mix of good and bad news.
The good news: the company, which is the world’s largest supplier of Methanol, has finally extracted itself from the recession and begun production at its newest plant in Egypt.
The bad news: Methanex is producing methanol from only one of its four Chilean plants, a problem that began in 2007 when Argentina cut its supply of natural gas to the company, which is the primary feedstock used to make methanol.
Then a revolution swept through Egypt, forcing the company to shut its plant there just days after it began producing methanol for Mediterranean and European markets.
But if everything goes as planned, Aitken is confident the company can double its production volumes in the next three to four years.
In 2010, we saw demand grow by 13%, so that was a significant recovery to levels where demand at the end of the year were similar to pre-recession levels, so we’ve recovered from the recession.
We have been disappointed with the progress we’ve made in Chile. It feels like there are lots of things that have not gone quite as well as we had hoped, and it goes back, again, to 2009. The financial crisis caused a lot of budgets to be constrained, so people didn’t spend the money they were planning to. That slowed the whole process of gas exploration down. [Then there was] a big earthquake down in Chile, that tended to distract the country. It feels like we’re running hard in southern Chile just to stand still. That said, we also feel like we’re getting to a position where momentum is building. There’s something like 175 wells that are due to be drilled in southern Chile in the next two years. I think there’s good cause to continue to be optimistic for the medium to long term, but the short term has been disappointing and probably will continue to be a bit disappointing.
We’ve supported two initiatives in Chile with our own money, so we’ve spent over $100 million in the last couple years, and we continue to commit $50 million or $60 million a year in that effort, and it’s been quite successful. You don’t see that success because we continue to run just one plant. What’s happened in the background is some of the more mature gas fields in Chile that we’ve been taking gas from have been in decline. So all of the efforts to find and develop new gas, all it’s really done is offset declines in mature fields, and what’s needed is more wells. If you drill more wells, you’ll find more gas; if you find more gas, we’ll increase production rates.
Maybe you could say that, but I think our business model in the past was to sign long-term gas contracts and then build our methanol plants. What’s gone wrong is those long-term contracts have not lasted for their duration, mostly for political reasons, well, in Chile, it’s completely for political reasons. So how else do you get a long-term commitment? One way is buying your way into existing gas fields and owning that gas yourself.
It was unfortunate because another couple of months running the plant and it would be in a more stable situation, and we could have just continued running the plant. I see a lot of other companies that did exactly that, their business has continued really without much disruption. We hope to be running the plant in the next week to 10 days.
They’ve got lots of natural gas, and it’s very well located relative to the markets in Europe. Most of that methanol will be sold around the Mediterranean and some of it into Western Europe, so [it has] a very short supply chain and quite an advantage to the other suppliers.
That’s looking really good. I was there at the beginning of last week and our crew there are doing a great job in quite trying conditions. This is not an easy time of year to be working outdoors in Canada. We’re still on target to be starting that plant up at the beginning of April.
We’re focused on, one, getting Egypt running and running well and operating well, and, two, the same with Medicine Hat. We have opportunities to expand our plants in New Zealand; we continue to work on natural gas acquisition down there. Then, of course, there’s steady improvement in Chile over the next few years. If we do all of those things well, we can double our levels of production in the next three to four years.
- World’s largest methanol supplier with an annual production of 3.5 million tonnes in 2010
- Nine production plants with 900 employees worldwide
- Methanol is used in everything from plastic bottles and pharmaceuticals to flooring, clothing and gasoline
- Net income in 2010 was $101.7 million compared with $700,000 in 2009
- Average price per tonne of methanol in 2010 was $306 compared with $225 in 2009
- Company stock price has risen 18% in the last year to $28.30 at press time
Vancouver
CEO: Bruce Aitken
Employees: 900
Market cap: $2.6b
P/E ratio: 26
EPS: $1.13
Sources: Stockwatch, TSX