Methanex board grapples over expansion
A battle could be brewing in the boardroom of Methanex over how and when to greenlight expansion projects.
U.K. based investment firm M&G — the largest single shareholder in Canadian-based, global methanol producer — says it will promote a slate of board candidates to potentially slow down a proposed plant expansion on the U.S. Gulf Coast.
That comes one month ahead of a shareholder vote for company directors.
“We have repeatedly made clear our serious concerns about the sizable financial commitments (of a) potential investment in a third methanol production plant in Geismar, Louisiana,” M&G fund manager Stuart Rhodes wrote in a letter filed with U.S. securities regulators.
“We are supportive of the plant in concept, however, we strongly believe that without the participation of a strategic partner such a project would represent an unacceptable financial risk.”
Two years ago the investment firm, which controls about onequarter of Methanex stock, first stated it would be a more active investor. It asked the company to focus on paying dividends and buying back stock, rather than funding new capital projects to expand production.
At the time, the company’s development queue involved potential plans to twin the Medicine Hat facility or build a third plant at Geismar, La.
Last year the company announced that further expansion on the Gulf Coast presented a unique opportunity and strategic partners were being sought out to improve the operational case and lower capital expenses.
More recently CEO John Floren stated a go-ahead decision on Geismar 3 could be made mid-year 2019, and without a partner that would shoulder capital expense or secure new methanol volumes, if the business case is right.
The company responded with a statement this week that it has a strong record of increasing dividends and retiring shares, and that expansion could be beneficial for shareholders.
“We have consistently taken a balanced approach to capital allocation by growing our business to enhance our leadership position in the methanol industry and delivering on our commitment to return excess cash to shareholders,” it states.
Later it states the business case for the plant is still being determined, and the company should have “flexibility.”
“Based on our progress to date, we believe that this project offers a tremendous opportunity to create significant value for our shareholders,” the release reads, adding that partner of the project is preferable, but “the Board believes it is not in the best interest of Methanex to foreclose the possibility of proceeding with the Geismar 3 project without a partner.”
The annual shareholders meeting will take place on April 25 in Vancouver.