UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
 
FORM 6-K
 
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
FOR THE MONTH OF OCTOBER 2019
 
METHANEX CORPORATION
(Registrant’s name)
 
SUITE 1800, 200 BURRARD STREET, VANCOUVER, BC V6C 3M1 CANADA
(Address of principal executive offices)
 

Indicate by check mark whether the registrant files or will file annual reports under cover Form 20-F or Form 40-F.

Form 20-F  ¨             Form 40-F  ý

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

Yes  ¨            No   ý

If “Yes” is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82 




NEWS RELEASE
MX_LOGOA03.JPG
Methanex Corporation
1800 - 200 Burrard St.
Vancouver, BC Canada V6C 3M1
Investor Relations: (604) 661-2600
www.methanex.com 
For immediate release

October 30, 2019

METHANEX REPORTS THIRD QUARTER 2019 RESULTS

VANCOUVER, BRITISH COLUMBIA - For the third quarter of 2019, Methanex (TSX:MX) (NASDAQ:MEOH) reported a net loss attributable to Methanex shareholders of $10 million ($0.21 net loss per common share on a diluted basis) compared to net income of $50 million ($0.51 net income per common share on a diluted basis) in the second quarter of 2019. Adjusted EBITDA for the third quarter of 2019 was $90 million and Adjusted net loss was $21 million ($0.27 Adjusted net loss per common share). This compares with Adjusted EBITDA of $146 million and Adjusted net income of $26 million ($0.34 Adjusted net income per common share) for the second quarter of 2019.

John Floren, President and CEO of Methanex, commented, "The lower Adjusted EBITDA we recorded in the third quarter of 2019 primarily reflects a decline in methanol prices during the quarter which was partially offset by higher sales volume of Methanex-produced methanol and improved costs compared to the second quarter, although there were significant costs incurred related to the Egypt outage. Our average realized price declined by $54 dollars per tonne to $272 dollars per tonne in the third quarter of 2019 from $326 dollars per tonne that we realized in the second quarter. "

"In Louisiana, we have begun construction of our Geismar 3 plant, which will be a 1.8 million tonne methanol plant located adjacent to our existing facilities. We expect this project will deliver outstanding returns based on its substantial capital and operating cost advantages. We believe we are well positioned to complete this project as we have a rigorous and well-defined execution plan, an experienced team in place and a robust and flexible financing plan. In addition, we continue to make progress on the debottlenecking opportunities at our existing Geismar 1 and Geismar 2 facilities to increase production by approximately 10% over the next couple of years."

"We were very pleased to announce earlier this month that we reached an agreement for natural gas supply for our Chile facilities that will underpin approximately 25% of a two-plant operation through to the end of 2025 and that we completed the first phase of the major refurbishment of our Chile I plant. These accomplishments reflect important steps in returning our assets in Chile back to full operating rates."

"We returned $27 million to shareholders through our regular dividend in the third quarter. We have $857 million of cash on the balance sheet at the end of the third quarter. This amount includes proceeds from the $700 million 10-year notes that we issued in September 2019 of which $350 million was used, subsequent to the quarter, to repay existing unsecured notes originally due on December 15, 2019 and the remaining proceeds are earmarked to fund Geismar 3 construction expenditures."

"We continue to prudently manage our business by maintaining a strong balance sheet and sufficient liquidity to navigate the cyclical nature of our industry. The strategic investments we have made in our business have strengthened our asset base, significantly increased our global production capacity, enhanced our ability to service customers and substantially improved our earnings capability and cash generation potential over a wide range of prices."

"Our balanced approach to capital allocation remains unchanged. We believe we are well positioned to meet our financial commitments, execute our growth projects in Louisiana and Chile, and deliver on our commitment to return excess cash to shareholders through dividends and share repurchases," Floren said.

METHANEX CORPORATION 2019 THIRD QUARTER NEWS RELEASE    PAGE 1



FURTHER INFORMATION
The information set forth in this news release summarizes Methanex's key financial and operational data for the third quarter of 2019. It is not a complete source of information for readers and is not in any way a substitute for reading the third quarter 2019 Management’s Discussion and Analysis ("MD&A") dated October 30, 2019 and the unaudited condensed consolidated interim financial statements for the period ended September 30, 2019, both of which are available from the Investor Relations section of our website at www.methanex.com. The MD&A and the unaudited condensed consolidated interim financial statements for the period ended September 30, 2019 are also available on the Canadian Securities Administrators' SEDAR website at www.sedar.com and on the United States Securities and Exchange Commission's EDGAR website at www.sec.gov.
FINANCIAL AND OPERATIONAL DATA
 
Three Months Ended
 
Nine Months Ended
($ millions except per share amounts and where noted)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Production (thousands of tonnes) (attributable to Methanex shareholders)
1,837

1,820

1,735

 
5,465

5,326

Sales volume (thousands of tonnes)
 
 
 
 
 
 
Methanex-produced methanol
1,965

1,669

1,790

 
5,555

5,403

Purchased methanol
680

716

802

 
1,869

2,124

Commission sales
179

216

279

 
724

929

Total sales volume 1
2,824

2,601

2,871

 
8,148

8,456

 
 
 
 
 
 
 
Methanex average non-discounted posted price ($ per tonne) 2
330

391

486

 
370

480

Average realized price ($ per tonne) 3
272

326

413

 
309

407

 
 
 
 
 
 
 
Revenue
650

734

1,044

 
2,126

2,955

Adjusted revenue
723

777

1,067

 
2,299

3,025

Adjusted EBITDA
90

146

293

 
430

874

Cash flows from operating activities
71

117

228

 
401

762

Adjusted net income (loss)
(21
)
26

152

 
62

466

Net income (loss) (attributable to Methanex shareholders)
(10
)
50

128

 
79

408

 
 
 
 
 
 
 
Adjusted net income (loss) per common share
(0.27
)
0.34

1.92

 
0.80

5.71

Basic net income (loss) per common share
(0.13
)
0.65

1.62

 
1.03

5.01

Diluted net income (loss) per common share
(0.21
)
0.51

1.61

 
0.88

5.00

 
 
 
 
 
 
 
Common share information (millions of shares)
 
 
 
 
 
 
Weighted average number of common shares
76

77

79

 
77

82

Diluted weighted average number of common shares
76

77

79

 
77

82

Number of common shares outstanding, end of period
76

76

78

 
76

78

1 
Methanex-produced methanol represents our equity share of volume produced at our facilities and excludes volume marketed on a commission basis related to the 36.9% of the Atlas facility and 50% of the Egypt facility that we do not own. Methanex-produced methanol includes any volume produced by Chile using natural gas supplied from Argentina under a tolling arrangement ("Tolling Volume"). No Tolling Volume has been produced in 2019. There were 20,000 MT of Tolling Volume in the third quarter of 2018 and 108,000 MT of Tolling Volume for the nine months ended September 30, 2018.
2 
Methanex average non-discounted posted price represents the average of our non-discounted posted prices in North America, Europe and Asia Pacific weighted by sales volume. Current and historical pricing information is available at www.methanex.com.
3 
Average realized price is calculated as revenue, excluding commissions earned and the Egypt non-controlling interest share of revenue, but including an amount representing our share of Atlas revenue, divided by the total sales volume of Methanex-produced and purchased methanol, but excluding Tolling Volume.


METHANEX CORPORATION 2019 THIRD QUARTER NEWS RELEASE    PAGE 2



A reconciliation from net income (loss) attributable to Methanex shareholders to Adjusted net income (loss) and the calculation of Adjusted net income (loss) per common share is as follows:
 
Three Months Ended
 
Nine Months Ended
($ millions except number of shares and per share amounts)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Net income (loss) (attributable to Methanex shareholders)
$
(10
)
$
50

$
128

 
$
79

$
408

Mark-to-market impact of share-based compensation, net of tax
(11
)
(24
)
24

 
(17
)
58

Adjusted net income (loss)
$
(21
)
$
26

$
152

 
$
62

$
466

Diluted weighted average shares outstanding (millions)
76

77

79

 
77

82

Adjusted net income (loss) per common share
$
(0.27
)
$
0.34

$
1.92

 
$
0.80

$
5.71


We recorded a net loss attributable to Methanex shareholders of $10 million during the third quarter of 2019 compared to net income of $50 million in the second quarter of 2019. The decrease in earnings is primarily due to a decrease in our average realized methanol price and the change in the mark-to-market impact of share-based compensation, partially offset by the impact of higher sales volume of Methanex-produced methanol and improved costs compared to the second quarter.
We recorded Adjusted EBITDA of $90 million for the third quarter of 2019 compared with $146 million for the second quarter of 2019. The decrease in Adjusted EBITDA for the third quarter of 2019 compared to the second quarter of 2019 is primarily due to the decrease in our average realized methanol price, partially offset by the impact of higher sales volume of Methanex-produced methanol and improved costs compared to the second quarter. Adjusted EBITDA for 2019 includes the adoption of IFRS 16 which increased Adjusted EBITDA for the third quarter of 2019 by $26 million, the second quarter of 2019 by $27 million and the nine month period ended September 30, 2019 by $81 million. The 2018 comparative periods have not been adjusted for IFRS 16.
Adjusted net loss was $21 million for the third quarter of 2019 compared to Adjusted net income of $26 million for the second quarter of 2019. The decrease in Adjusted net income is primarily due to a decrease in average realized price to $272 per tonne for the third quarter of 2019 from $326 per tonne for the second quarter of 2019. This was partially offset by the impact of higher sales of Methanex-produced methanol and improved costs compared to the second quarter.
We produced 1,837,000 tonnes in the third quarter of 2019 compared to 1,820,000 tonnes for the second quarter of 2019.
Total sales volume for the third quarter of 2019 was 2,824,000 tonnes compared with 2,601,000 tonnes for the second quarter of 2019. Sales of Methanex-produced methanol were 1,965,000 tonnes in the third quarter of 2019 compared with 1,669,000 tonnes in the second quarter of 2019. In the third quarter of 2019, sales of Methanex-produced methanol exceeded production, resulting in a 128,000 tonne draw of produced methanol inventory. This compares to the second quarter of 2019, where production exceeded sales of Methanex-produced methanol by 151,000 tonnes. An inventory build or draw is a result of the timing of produced and purchased methanol volume in and out of inventory.
On July 19, 2019, we reached a final investment decision to construct a 1.8 million tonne facility in Geismar, Louisiana adjacent to our Geismar 1 and Geismar 2 facilities. The cost of the Geismar 3 project is expected to be between $1.3 to $1.4 billion, excluding capitalized interest, with operations targeted for the second half of 2022. Capitalized costs of approximately $85 million have been incurred for the project, life to date.
We recently announced an agreement for natural gas supply to our Chile facilities that will underpin approximately 25% of a two-plant operation through to the end of 2025. We expect that our current gas agreements will allow for a two-plant operation in Chile during the southern hemisphere summer months and up to a maximum of 75% of a two-plant operation annually.
During the third quarter of 2019, we finalized committed financing for the Geismar 3 project with a new $800 million construction credit facility and a $300 million revolving credit facility, both with a syndicate of highly rated financial institutions and expiry in July 2024. Both facilities remain undrawn.
During the third quarter of 2019, we issued $700 million of unsecured notes with a 5.25% coupon due December 2029, of which $350 million was used, subsequent to the quarter, to repay the $350 million unsecured notes originally due December 2019. The remaining proceeds are earmarked to fund Geismar 3 construction expenditures.

METHANEX CORPORATION 2019 THIRD QUARTER NEWS RELEASE    PAGE 3



During the third quarter of 2019 we paid a $0.36 per common share quarterly dividend to shareholders for a total of $27 million.
On March 18, 2019 we commenced a normal course issuer bid to purchase up to 3,863,298 common shares. To date, we have repurchased 1,069,893 common shares under the bid for $52.8 million. No shares were repurchased in the third quarter of 2019.
PRODUCTION HIGHLIGHTS
 
Q3 2019
Q2 2019

Q3 2018

 
YTD Q3 2019

YTD Q3 2018

(thousands of tonnes)
Operating Capacity 1

Production

Production

Production

 
Production

Production

New Zealand 2
608

469

446

478

 
1,352

1,217

USA (Geismar)
500

514

530

520

 
1,449

1,551

Trinidad (Methanex interest) 3
500

474

384

353

 
1,287

1,254

Chile 4
430

146

290

112

 
677

406

Egypt (50% interest)
158

85

15

128

 
241

458

Canada (Medicine Hat)
150

149

155

144

 
459

440

 
2,346

1,837

1,820

1,735

 
5,465

5,326

1 
Operating capacity includes only those facilities which are currently capable of operating, but excludes any portion of an asset that is underutilized due to a lack of natural gas feedstock over a prolonged period of time. The operating capacity of our production facilities may be higher than original nameplate capacity as, over time, these figures have been adjusted to reflect ongoing operating efficiencies at these facilities. Actual production for a facility in any given year may be higher or lower than operating capacity due to a number of factors, including natural gas composition or the age of the facility's catalyst. 
2 
The operating capacity of New Zealand is made up of the two Motunui facilities and the Waitara Valley facility.  
3 
The operating capacity of Trinidad is made up of the Titan (100% interest) and Atlas (63.1% interest) facilities.
4 
The operating capacity of our Chile I and IV facilities is 1.7 million tonnes annually assuming access to natural gas feedstock. For 2018, our operating capacity in Chile was 0.9 million tonnes. In the fourth quarter of 2018 we restarted our 0.8 million tonne Chile IV plant that had been idle since 2007.
Key production and operational highlights during the third quarter include:
New Zealand produced 469,000 tonnes compared with 446,000 tonnes in the second quarter of 2019. We expect to receive higher gas deliveries in the fourth quarter compared to the third quarter of 2019. While there is significant field development work underway in the upstream sector, we do not expect to see the benefit of this next year. Based on our current contracted gas position, we are revising our guidance to approximately 80% operating rates in 2020, or approximately 1.9 million tonnes.
Geismar produced 514,000 tonnes during the third quarter of 2019 compared to 530,000 tonnes during the second quarter of 2019. Production in Geismar continues to be strong.
Trinidad produced 474,000 tonnes (Methanex interest) compared with 384,000 tonnes in the second quarter of 2019. Production in Trinidad is higher in the third quarter of 2019 compared to the second quarter of 2019 as production in the second quarter was impacted by the turnaround completed for the Titan plant in April, and an unplanned production outage in May at the Atlas plant. For Trinidad, we continue to guide to approximately 85% operating rates.
The Chile facilities produced 146,000 tonnes during the third quarter of 2019 compared to 290,000 tonnes during the second quarter of 2019. Production for the third quarter of 2019 is lower compared to the second quarter of 2019 as only the Chile IV plant operated during the quarter. Late in the second quarter of 2019, we commenced the first phase of our refurbishment of our Chile I plant, scheduled to match expected lower natural gas deliveries during the southern hemisphere winter months. The Chile I plant restarted in early October. We plan to complete the remaining refurbishment activities for Chile I over the coming years.
The Egypt facility produced 170,000 tonnes (Methanex interest - 85,000 tonnes) in the third quarter of 2019 compared with 30,000 tonnes (Methanex interest - 15,000 tonnes) in the second quarter of 2019. The Egypt facility restarted in August, following the outage that commenced in the second quarter of 2019. The losses related to the outage in the second and third quarters are expected to be partially covered by insurance. No insurance recoveries have been recorded to date.

METHANEX CORPORATION 2019 THIRD QUARTER NEWS RELEASE    PAGE 4



Medicine Hat produced 149,000 tonnes during the third quarter of 2019 compared to 155,000 tonnes during the second quarter of 2019.
CONFERENCE CALL
A conference call is scheduled for October 31, 2019 at 11:00 am ET (8:00 am PT) to review these third quarter results. To access the call, dial the conferencing operator ten minutes prior to the start of the call at (416) 340-2216, or toll free at (800) 273-9672. A simultaneous audio-only webcast of the conference call can be accessed from our website at www.methanex.com and will also be available following the call. A playback version of the conference call will be available until November 15, 2019 at (905) 694-9451, or toll free at (800) 408-3053. The passcode for the playback version is 2192370#.
ABOUT METHANEX
Methanex is a Vancouver-based, publicly traded company and is the world’s largest producer and supplier of methanol to major international markets. Methanex shares are listed for trading on the Toronto Stock Exchange in Canada under the trading symbol "MX" and on the NASDAQ Global Market in the United States under the trading symbol "MEOH".
FORWARD-LOOKING INFORMATION WARNING
This third quarter 2019 press release contains forward-looking statements with respect to us and the chemical industry. By its nature, forward-looking information is subject to numerous risks and uncertainties, some of which are beyond the Company's control. Readers are cautioned that undue reliance should not be placed on forward-looking information as actual results may vary materially from the forward-looking information. Methanex does not undertake to update, correct or revise any forward-looking information as a result of any new information, future events or otherwise, except as may be required by applicable law. Refer to Forward-Looking Information Warning in the third quarter 2019 Management's Discussion and Analysis for more information which is available from the Investor Relations section of our website at www.methanex.com, the Canadian Securities Administrators' SEDAR website at www.sedar.com and on the United States Securities and Exchange Commission's EDGAR website at www.sec.gov.
NON-GAAP MEASURES
The Company has used the terms Adjusted EBITDA, Adjusted net income (loss), Adjusted net income (loss) per common share, Adjusted revenue and operating income (loss) throughout this document. These items are non-GAAP measures that do not have any standardized meaning prescribed by GAAP. These measures represent the amounts that are attributable to Methanex Corporation shareholders and are calculated by excluding the mark-to-market impact of share-based compensation as a result of changes in our share price and the impact of certain items associated with specific identified events. Refer to Additional Information - Supplemental Non-GAAP Measures on page 15 of the Company's MD&A for the period ended September 30, 2019 for reconciliations to the most comparable GAAP measures. Unless otherwise indicated, the financial information presented in this release is prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB").

-end-

For further information, contact:



Kim Campbell
Manager, Investor Relations
Methanex Corporation
604-661-2600

METHANEX CORPORATION 2019 THIRD QUARTER NEWS RELEASE    PAGE 5



3
MX_LOGOA03.JPG
Share Information
Methanex Corporation’s common shares are listed for trading on the Toronto Stock Exchange under the symbol MX and on the Nasdaq Global Market under the symbol MEOH.


Transfer Agents & Registrars
AST Trust Company (Canada)
320 Bay Street
Toronto, Ontario Canada M5H 4A6
Toll free in North America: 1-800-387-0825
Investor Information
All financial reports, news releases and corporate information can be accessed on our website at www.methanex.com.


Contact Information
Methanex Investor Relations
1800 - 200 Burrard Street
Vancouver, BC Canada V6C 3M1
E-mail: invest@methanex.com
Methanex Toll-Free: 1-800-661-8851
Management's Discussion and Analysis for the
Three and Nine Months Ended
September 30, 2019
At October 29, 2019 the Company had 76,196,080 common shares issued and outstanding and stock options exercisable for 1,226,780 additional common shares.
THIRD QUARTER MANAGEMENT’S DISCUSSION AND ANALYSIS ("MD&A")
Except where otherwise noted, all currency amounts are stated in United States dollars.
FINANCIAL AND OPERATIONAL HIGHLIGHTS

A reconciliation from net income (loss) attributable to Methanex shareholders to Adjusted net income (loss) and the calculation of Adjusted net income (loss) per common share is as follows:
 
Three Months Ended
 
Nine Months Ended
($ millions except number of shares and per share amounts)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Net income (loss) (attributable to Methanex shareholders)
$
(10
)
$
50

$
128

 
$
79

$
408

Mark-to-market impact of share-based compensation, net of tax
(11
)
(24
)
24

 
(17
)
58

Adjusted net income (loss)
$
(21
)
$
26

$
152

 
$
62

$
466

Diluted weighted average shares outstanding (millions)
76

77

79

 
77

82

Adjusted net income (loss) per common share
$
(0.27
)
$
0.34

$
1.92

 
$
0.80

$
5.71

1
The Company has used the terms Adjusted EBITDA, Adjusted net income (loss), Adjusted net income (loss) per common share, Adjusted revenue and operating income (loss) throughout this document. These items are non-GAAP measures that do not have any standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other companies. Refer to Additional Information - Supplemental Non-GAAP Measures on page 15 of the MD&A for reconciliations to the most comparable GAAP measures.

We recorded a net loss attributable to Methanex shareholders of $10 million during the third quarter of 2019 compared to net income of $50 million in the second quarter of 2019. The decrease in earnings is primarily due to a decrease in our average realized methanol price and the change in the mark-to-market impact of share-based compensation, partially offset by the impact of higher sales volume of Methanex-produced methanol and improved costs compared to the second quarter.
We recorded Adjusted EBITDA of $90 million for the third quarter of 2019 compared with $146 million for the second quarter of 2019. The decrease in Adjusted EBITDA for the third quarter of 2019 compared to the second quarter of 2019 is primarily due to a decrease in our average realized methanol price, partially offset by the impact of higher sales volume of Methanex-produced methanol and improved costs compared to the second quarter. Adjusted EBITDA for 2019 includes the adoption of IFRS 16 which increased Adjusted EBITDA for the third quarter of 2019 by $26 million, the second quarter of 2019 by $27 million and the nine month period ended September 30, 2019 by $81 million. The 2018 comparative periods have not been adjusted for IFRS 16.
Adjusted net loss was $21 million for the third quarter of 2019 compared to Adjusted net income of $26 million for the second quarter of 2019. The decrease in Adjusted net income is primarily due to a decrease in average realized price to $272 per

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 1
MANAGEMENT’S DISCUSSION AND ANALYSIS



tonne for the third quarter of 2019 from $326 per tonne for the second quarter of 2019. This was partially offset by the impact of higher sales of Methanex-produced methanol and improved costs compared to the second quarter.
Production for the third quarter of 2019 increased to 1,837,000 tonnes compared with 1,820,000 tonnes for the second quarter of 2019. Refer to the Production Summary section on page 4 of the MD&A.
Total sales volume for the third quarter of 2019 was 2,824,000 tonnes compared with 2,601,000 tonnes for the second quarter of 2019. Sales of Methanex-produced methanol were 1,965,000 tonnes in the third quarter of 2019 compared with 1,669,000 tonnes in the second quarter of 2019. In the third quarter of 2019, sales of Methanex-produced methanol exceeded production, resulting in a 128,000 tonne draw of produced methanol inventory. This compares to the second quarter of 2019, where production exceeded sales of Methanex-produced methanol by 151,000 tonnes. An inventory build or draw is a result of the timing of produced and purchased methanol volume in and out of inventory.
On July 19, 2019, we reached a final investment decision to construct a 1.8 million tonne facility in Geismar, Louisiana adjacent to our Geismar 1 and Geismar 2 facilities. The cost of the Geismar 3 project is expected to be between $1.3 to $1.4 billion, excluding capitalized interest, with operations targeted for the second half of 2022. Capitalized costs of approximately $85 million have been incurred for the project, life to date.
We recently announced an agreement for natural gas supply to our Chile facilities that will underpin approximately 25% of a two-plant operation through to the end of 2025. We expect that our current gas agreements will allow for a two-plant operation in Chile during the southern hemisphere summer months and up to a maximum of 75% of a two-plant operation annually.
During the third quarter of 2019, we finalized committed financing for the Geismar 3 project with a new $800 million construction credit facility and a $300 million revolving credit facility, both with a syndicate of highly rated financial institutions and expiry in July 2024. Both facilities remain undrawn.
During the third quarter of 2019, we issued $700 million of unsecured notes with a 5.25% coupon due December 2029, of which $350 million was used, subsequent to the quarter, to repay the $350 million unsecured notes originally due December 2019. The remaining proceeds are earmarked to fund Geismar 3 construction expenditures.
During the third quarter of 2019 we paid a $0.36 per common share quarterly dividend to shareholders for a total of $27 million.
On March 18, 2019 we commenced a normal course issuer bid to purchase up to 3,863,298 common shares. To date, we have repurchased 1,069,893 common shares under the bid for $52.8 million. No shares were repurchased in the third quarter of 2019.
This Third Quarter 2019 Management’s Discussion and Analysis dated October 30, 2019 for Methanex Corporation ("the Company") should be read in conjunction with the Company’s unaudited condensed consolidated interim financial statements for the period ended September 30, 2019 as well as the 2018 Annual Consolidated Financial Statements and MD&A included in the Methanex 2018 Annual Report. Unless otherwise indicated, the financial information presented in this interim report is prepared in accordance with International Financial Reporting Standards ("IFRS") as issued by the International Accounting Standards Board ("IASB"). The Methanex 2018 Annual Report and additional information relating to Methanex is available on our website at www.methanex.com, the Canadian Securities Administrators' SEDAR website at www.sedar.com and on the United States Securities and Exchange Commission's EDGAR website at www.sec.gov.



METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 2
MANAGEMENT’S DISCUSSION AND ANALYSIS



FINANCIAL AND OPERATIONAL DATA
 
Three Months Ended
 
Nine Months Ended
($ millions except per share amounts and where noted)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Production (thousands of tonnes) (attributable to Methanex shareholders)
1,837

1,820

1,735

 
5,465

5,326

Sales volume (thousands of tonnes)
 
 
 
 
 
 
Methanex-produced methanol
1,965

1,669

1,790

 
5,555

5,403

Purchased methanol
680

716

802

 
1,869

2,124

Commission sales
179

216

279

 
724

929

Total sales volume 1
2,824

2,601

2,871

 
8,148

8,456

 
 
 
 
 
 
 
Methanex average non-discounted posted price ($ per tonne) 2
330

391

486

 
370

480

Average realized price ($ per tonne) 3
272

326

413

 
309

407

 
 
 
 
 
 
 
Revenue
650

734

1,044

 
2,126

2,955

Adjusted revenue
723

777

1,067

 
2,299

3,025

Adjusted EBITDA
90

146

293

 
430

874

Cash flows from operating activities
71

117

228

 
401

762

Adjusted net income (loss)
(21
)
26

152

 
62

466

Net income (loss) (attributable to Methanex shareholders)
(10
)
50

128

 
79

408

 
 
 
 
 
 
 
Adjusted net income (loss) per common share
(0.27
)
0.34

1.92

 
0.80

5.71

Basic net income (loss) per common share
(0.13
)
0.65

1.62

 
1.03

5.01

Diluted net income (loss) per common share
(0.21
)
0.51

1.61

 
0.88

5.00

 
 
 
 
 
 
 
Common share information (millions of shares)
 
 
 
 
 
 
Weighted average number of common shares
76

77

79

 
77

82

Diluted weighted average number of common shares
76

77

79

 
77

82

Number of common shares outstanding, end of period
76

76

78

 
76

78

1 
Methanex-produced methanol represents our equity share of volume produced at our facilities and excludes volume marketed on a commission basis related to the 36.9% of the Atlas facility and 50% of the Egypt facility that we do not own. Methanex-produced methanol includes any volume produced by Chile using natural gas supplied from Argentina under a tolling arrangement ("Tolling Volume"). No Tolling Volume has been produced in 2019. There were 20,000 MT of Tolling Volume in the third quarter of 2018 and 108,000 MT of Tolling Volume for the nine months ended September 30, 2018.
2 
Methanex average non-discounted posted price represents the average of our non-discounted posted prices in North America, Europe and Asia Pacific weighted by sales volume. Current and historical pricing information is available at www.methanex.com.
3 
Average realized price is calculated as revenue, excluding commissions earned and the Egypt non-controlling interest share of revenue, but including an amount representing our share of Atlas revenue, divided by the total sales volume of Methanex-produced and purchased methanol, but excluding Tolling Volume.



METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 3
MANAGEMENT’S DISCUSSION AND ANALYSIS



PRODUCTION SUMMARY
 
Q3 2019
Q2 2019

Q3 2018

 
YTD Q3 2019

YTD Q3 2018

(thousands of tonnes)
Operating Capacity 1

Production

Production

Production

 
Production

Production

New Zealand 2
608

469

446

478

 
1,352

1,217

USA (Geismar)
500

514

530

520

 
1,449

1,551

Trinidad (Methanex interest) 3
500

474

384

353

 
1,287

1,254

Chile 4
430

146

290

112

 
677

406

Egypt (50% interest)
158

85

15

128

 
241

458

Canada (Medicine Hat)
150

149

155

144

 
459

440

 
2,346

1,837

1,820

1,735

 
5,465

5,326

1 
Operating capacity includes only those facilities which are currently capable of operating, but excludes any portion of an asset that is underutilized due to a lack of natural gas feedstock over a prolonged period of time. The operating capacity of our production facilities may be higher than original nameplate capacity as, over time, these figures have been adjusted to reflect ongoing operating efficiencies at these facilities. Actual production for a facility in any given year may be higher or lower than operating capacity due to a number of factors, including natural gas composition or the age of the facility's catalyst.     
2 
The operating capacity of New Zealand is made up of the two Motunui facilities and the Waitara Valley facility (refer to the New Zealand section below).  
3 
The operating capacity of Trinidad is made up of the Titan (100% interest) and Atlas (63.1% interest) facilities (refer to the Trinidad section below).
4 
The operating capacity of our Chile I and IV facilities is 1.7 million tonnes annually assuming access to natural gas feedstock. For 2018, our operating capacity in Chile was 0.9 million tonnes. In the fourth quarter of 2018 we restarted our 0.8 million tonne Chile IV plant that had been idle since 2007.
New Zealand
The New Zealand facilities produced 469,000 tonnes of methanol in the third quarter of 2019 compared with 446,000 tonnes in the second quarter of 2019. We expect to receive higher gas deliveries in the fourth quarter compared to the third quarter of 2019. While there is significant field development work underway in the upstream sector, we do not expect to see the benefit of this next year. Based on our current contracted gas position, we are revising our guidance to approximately 80% operating rates in 2020, or approximately 1.9 million tonnes. The New Zealand facilities are capable of producing up to 2.4 million tonnes annually, depending on natural gas composition and availability.
United States
The Geismar facilities produced 514,000 tonnes during the third quarter of 2019 compared to 530,000 tonnes during the second quarter of 2019. Production in Geismar continues to be strong.
Trinidad
The Trinidad facilities produced 474,000 tonnes (Methanex interest) in the third quarter of 2019 compared with 384,000 tonnes (Methanex interest) in the second quarter of 2019. Production in Trinidad is higher in the third quarter of 2019 compared to the second quarter of 2019 as production in the second quarter was impacted by the turnaround completed for the Titan plant in April, and an unplanned production outage in May at the Atlas plant. For Trinidad, we continue to guide to approximately 85% operating rates.
Chile
Chile produced 146,000 tonnes during the third quarter of 2019 compared to 290,000 tonnes during the second quarter of 2019. Production for the third quarter of 2019 is lower compared to the second quarter of 2019 as only the Chile IV plant operated during the quarter. Late in the second quarter of 2019, we commenced the first phase of our refurbishment of our Chile I plant, scheduled to match expected lower natural gas deliveries during the southern hemisphere winter months. The Chile I plant restarted in early October. We plan to complete the remaining refurbishment activities for Chile I over the coming years.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 4
MANAGEMENT’S DISCUSSION AND ANALYSIS



We recently announced an agreement for natural gas supply to our Chile facilities that will underpin approximately 25% of a two-plant operation through to the end of 2025. We expect that our current gas agreements will allow for a two-plant operation in Chile during the southern hemisphere summer months and up to a maximum of 75% of a two-plant operation annually. The future of our Chile operations is primarily dependent on the level of natural gas exploration and development in southern Chile and our ability to secure a sustainable natural gas supply to our facilities on economic terms from Chile and Argentina. We are optimistic that we will be able to secure sufficient gas to underpin a full two-plant operation over the medium term.
Egypt
The Egypt facility produced 170,000 tonnes (Methanex interest - 85,000 tonnes) in the third quarter of 2019 compared with 30,000 tonnes (Methanex interest - 15,000 tonnes) in the second quarter of 2019. The Egypt facility restarted in August, following the outage that commenced in the second quarter of 2019. The losses related to the outage in the second and third quarters are expected to be partially covered by insurance. No insurance recoveries have been recorded to date.
Canada
The Medicine Hat facility produced 149,000 tonnes during the third quarter of 2019 compared to 155,000 tonnes during the second quarter of 2019.
FINANCIAL RESULTS

For the third quarter of 2019, we reported a net loss attributable to Methanex shareholders of $10 million ($0.21 net loss per common share on a diluted basis) compared with net income attributable to Methanex shareholders for the second quarter of 2019 of $50 million ($0.51 net income per common share on a diluted basis) and net income attributable to Methanex shareholders for the third quarter of 2018 of $128 million ($1.61 net income per common share on a diluted basis). For the nine months ended September 30, 2019 compared to the same period for 2018, we reported net income attributable to Methanex shareholders of $79 million ($0.88 net income per common share on a diluted basis) and $408 million ($5.00 net income per common share on a diluted basis).

For the third quarter of 2019, we recorded Adjusted EBITDA of $90 million and Adjusted net loss of $21 million ($0.27 Adjusted net loss per common share). This compares with Adjusted EBITDA of $146 million and Adjusted net income of $26 million ($0.34 Adjusted net income per common share) for the second quarter of 2019 and Adjusted EBITDA of $293 million and Adjusted net income of $152 million ($1.92 Adjusted net income per common share) for the third quarter of 2018. For the nine month period ended September 30, 2019, we recorded Adjusted EBITDA of $430 million and Adjusted net income of $62 million ($0.80 Adjusted net income per common share) compared to Adjusted EBITDA of $874 million and Adjusted net income of $466 million ($5.71 Adjusted net income per common share) for the same period in 2018. For 2019, Adjusted EBITDA includes the impact from adoption of IFRS 16 which increased Adjusted EBITDA for all 2019 periods presented. Refer to the Adoption of New Accounting Standards section on page 14 of the MD&A.

We calculate Adjusted EBITDA and Adjusted net income (loss) by including amounts related to our equity share of the Atlas facility (63.1% interest) and by excluding the non-controlling interests' share, the mark-to-market impact of share-based compensation as a result of changes in our share price and the impact of certain items associated with specific identified events. Refer to Additional Information - Supplemental Non-GAAP Measures on page 15 of the MD&A for a further discussion on how we calculate these measures. Our analysis of depreciation and amortization, finance costs, finance income and other expenses and income taxes is consistent with the presentation of our consolidated statements of income (loss) and excludes amounts related to Atlas.


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 5
MANAGEMENT’S DISCUSSION AND ANALYSIS



We review our financial results by analyzing changes in Adjusted EBITDA, mark-to-market impact of share-based compensation, depreciation and amortization, finance costs, finance income and other expenses and income taxes. A summary of our consolidated statements of income is as follows:
 
Three Months Ended
 
Nine Months Ended
($ millions)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Consolidated statements of income (loss):
 
 
 
 
 
 
Revenue
$
650

$
734

$
1,044

 
$
2,126

$
2,955

Cost of sales and operating expenses
(581
)
(576
)
(784
)
 
(1,748
)
(2,156
)
Mark-to-market impact of share-based compensation
(12
)
(29
)
29

 
(19
)
70

Adjusted EBITDA (attributable to associate)
32

25

35

 
95

112

Amounts excluded from Adjusted EBITDA attributable to non-controlling interests
1

(8
)
(31
)
 
(24
)
(107
)
Adjusted EBITDA (attributable to Methanex shareholders)
90

146

293

 
430

874

 
 
 
 
 
 
 
Mark-to-market impact of share-based compensation
12

29

(29
)
 
19

(70
)
Depreciation and amortization 1
(85
)
(86
)
(61
)
 
(256
)
(183
)
Finance costs 1
(31
)
(30
)
(23
)
 
(89
)
(71
)
Finance income and other expenses
3

1

1

 
4

3

Income tax (expense) recovery
17

(6
)
(43
)
 
1

(121
)
Earnings of associate adjustment 2
(18
)
(14
)
(21
)
 
(51
)
(58
)
Non-controlling interests adjustment 2
2

10

11

 
21

34

Net income (loss) (attributable to Methanex shareholders)
$
(10
)
$
50

$
128

 
$
79

$
408

Net income (loss)
$
(13
)
$
49

$
148

 
$
83

$
481

1 
Depreciation and amortization and finance costs for the periods ended September 30 and June 30, 2019 include the impact of the adoption of IFRS 16 "Leases". The comparative periods in 2018 have not been restated as the Company has adopted IFRS 16 using the modified retrospective approach.
2 
These adjustments represent depreciation and amortization, finance costs, finance income and other expenses and income taxes associated with our 63.1% interest in the Atlas methanol facility and the non-controlling interests.
Adjusted EBITDA (attributable to Methanex shareholders)

Our operations consist of a single operating segment - the production and sale of methanol. We review the results of operations by analyzing changes in the components of Adjusted EBITDA. For a discussion of the definitions used in our Adjusted EBITDA analysis, refer to How We Analyze Our Business on page 19 of the MD&A. Changes in these components - average realized price, sales volume and total cash costs - similarly impact net income (loss) attributable to Methanex shareholders.

The changes in Adjusted EBITDA resulted from changes in the following:
($ millions)
Q3 2019
compared with
Q2 2019

Q3 2019
compared with
Q3 2018

YTD Q3 2019
compared with
YTD Q3 2018

Average realized price
$
(141
)
$
(374
)
$
(734
)
Sales volume
21

7

(14
)
Total cash costs
65

138

223

IFRS 16 leasing adoption impact1
(1
)
26

81

Decrease in Adjusted EBITDA
$
(56
)
$
(203
)
$
(444
)
1 Refer to the Adoption of New Accounting Standards section on page 14 of the MD&A for more information relating to the adoption of IFRS 16.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 6
MANAGEMENT’S DISCUSSION AND ANALYSIS



Average realized price
 
Three Months Ended
 
Nine Months Ended
($ per tonne)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Methanex average non-discounted posted price
330

391

486

 
370

480

Methanex average realized price
272

326

413

 
309

407


Methanex’s average realized price for the third quarter of 2019 was $272 per tonne compared to $326 per tonne in the second quarter of 2019 and $413 per tonne in the third quarter of 2018, decreasing Adjusted EBITDA by $141 million and by $374 million, respectively. For the nine months ended September 30, 2019, our average realized price was $309 per tonne compared to $407 per tonne for the same period in 2018, decreasing Adjusted EBITDA by $734 million. Our average realized price for the three and nine month periods ended September 30, 2019 decreased compared to all comparative periods driven by lower average non-discounted posted prices (refer to Supply/Demand Fundamentals section on page 12 of the MD&A for more information).
Sales volume
Methanol sales volume excluding commission sales volume in the third quarter of 2019 was 260,000 tonnes higher than the second quarter of 2019 and 53,000 tonnes higher than the third quarter of 2018. The increase in the third quarter of 2019 compared to the second quarter of 2019 increased Adjusted EBITDA by $21 million. The increase in the third quarter of 2019 compared with the same period in 2018 increased Adjusted EBITDA by $7 million. For the nine months ended September 30, 2019 compared with the same period in 2018, methanol sales volume excluding commission sales volume was 103,000 tonnes lower and this resulted in lower Adjusted EBITDA by $14 million.
Total cash costs
The primary drivers of changes in our total cash costs are changes in the cost of Methanex-produced methanol and changes in the cost of methanol we purchase from others ("purchased methanol"). We supplement our production with methanol produced by others through methanol offtake contracts and purchases on the spot market to meet customer needs and to support our marketing efforts within the major global markets.

We apply the first-in, first-out method of accounting for inventories and it generally takes between 30 and 60 days to sell the methanol we produce or purchase. Accordingly, the changes in Adjusted EBITDA as a result of changes in Methanex-produced and purchased methanol costs primarily depend on changes in methanol pricing and the timing of inventory flows.

In a rising price environment, our margins at a given price are higher than in a stable price environment as a result of timing of methanol purchases and production versus sales. Generally, the opposite applies when methanol prices are decreasing.

The changes in Adjusted EBITDA due to changes in total cash costs were due to the following:
($ millions)
Q3 2019
compared with
Q2 2019

Q3 2019
compared with
Q3 2018

YTD Q3 2019
compared with
YTD Q3 2018

Methanex-produced methanol costs
$
14

$
44

$
61

Proportion of Methanex-produced methanol sales
13

27

49

Purchased methanol costs
29

87

178

Logistics costs
3

(6
)
(25
)
Other, net
6

(14
)
(40
)
Increase in Adjusted EBITDA due to changes in total cash costs
$
65

$
138

$
223


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 7
MANAGEMENT’S DISCUSSION AND ANALYSIS



Methanex-produced methanol costs
Natural gas is the primary feedstock at our methanol facilities and is the most significant component of Methanex-produced methanol costs. We purchase natural gas for more than half of our production under agreements where the unique terms of each contract include a base price and a variable price component linked to the price of methanol to reduce our commodity price risk exposure. The variable price component of each gas contract is adjusted by a formula related to methanol prices above a certain level. For the third quarter of 2019 compared with the second quarter of 2019 and the third quarter of 2018, Methanex-produced methanol costs were lower by $14 million and $44 million, respectively. For the nine month period ended September 30, 2019 compared with the same period for 2018, Methanex-produced methanol costs were lower by $61 million. Changes in Methanex-produced methanol costs for all periods presented are primarily due to the impact of changes in realized methanol prices on the variable portion of our natural gas cost and changes in the mix of production sold from inventory.
Proportion of Methanex-produced methanol sales
The cost of purchased methanol is directly linked to the selling price for methanol at the time of purchase and the cost of purchased methanol is generally higher than the cost of Methanex-produced methanol. Accordingly, an increase in the proportion of Methanex-produced methanol sales results in a decrease in our overall cost structure for a given period. For the third quarter of 2019 compared with the second quarter of 2019 and the third quarter of 2018, a higher proportion of Methanex-produced methanol sales increased Adjusted EBITDA by $13 million and by $27 million, respectively. For the nine month period ended September 30, 2019 compared with the same period for 2018, a higher proportion of Methanex-produced methanol sales increased Adjusted EBITDA by $49 million.
Purchased methanol costs
Changes in purchased methanol costs for all periods presented are primarily a result of changes in methanol pricing and the timing of purchases sold from inventory.
Logistics costs
Logistics costs vary from period to period depending on the levels of production from each of our production facilities and the resulting impact on our supply chain. Logistics costs in the third quarter of 2019 were $3 million lower than in the second quarter of 2019, increasing Adjusted EBITDA. Logistics costs for the third quarter of 2019 were improved compared to the second quarter of 2019 as a result of a number of specific logistics issues faced in the prior quarter being resolved during the current quarter. Logistics costs for the three and nine month periods ended September 30, 2019 compared with the same periods in 2018 were $6 million and $25 million higher, respectively. The increase in logistics costs decreased Adjusted EBITDA. Logistics costs for the periods presented were higher due to changes in the mix of Methanex-produced methanol sales volume resulting in longer supply chains and higher costs per delivered tonne. Specifically, the Egypt plant outage experienced in 2019 has led to longer supply chains and higher costs for delivery to our customers in the Mediterranean while a terminal fire in Houston and high water levels on the Mississippi river have led to higher in-region logistics costs in North America primarily in the second quarter of 2019.
Other, net
Other, net relates to unabsorbed fixed costs, selling, general and administrative expenses and other operational items. For the third quarter of 2019 compared with the second quarter of 2019, other costs were lower by $6 million, primarily due to lower selling, general and administrative expenses partially offset by higher repair costs at Egypt during the plant outage.

For the third quarter of 2019 compared with the third quarter of 2018, other costs were higher by $14 million, primarily due to repair costs incurred at Egypt during the plant outage, higher unabsorbed fixed costs at our manufacturing sites during scheduled turnarounds and plant outages incurred during the quarter, and higher selling, general and administrative expenses including cloud-based computing system implementation costs required to be expensed under IFRS. For the nine month period ended September 30, 2019 compared with the same period in 2018, other costs were higher by $40 million primarily due to higher unabsorbed fixed costs at our manufacturing sites during scheduled turnarounds and plant outages, higher repair costs incurred during the Egypt plant outage in 2019, and higher selling, general and administrative expenses including cloud-based computing system implementation costs required to be expensed under IFRS.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 8
MANAGEMENT’S DISCUSSION AND ANALYSIS



IFRS 16 leasing adjustment
The adoption of IFRS 16 in 2019 has increased Adjusted EBITDA for the three and nine month periods ended September 30, 2019 compared to the same periods in 2018 by $26 million and $81 million, respectively. The three and nine month periods ended September 30, 2018 do not reflect IFRS 16. The lower lease costs included in the calculation of Adjusted EBITDA due to the adoption of IFRS 16 in 2019 are approximately offset by higher depreciation and amortization by $23 million and finance costs by $5 million recognized in the three month period ended September 30, 2019, and higher depreciation and amortization by $71 million and finance costs by $15 million recognized in the nine month period ended September 30, 2019 . Refer to the Adoption of New Accounting Standards section on page 14 of the MD&A.
Mark-to-Market Impact of Share-based Compensation

We grant share-based awards as an element of compensation. Share-based awards granted include stock options, share appreciation rights, tandem share appreciation rights, deferred share units, restricted share units and performance share units. For all share-based awards, share-based compensation is recognized over the related vesting period for the proportion of the service that has been rendered at each reporting date. Share-based compensation includes an amount related to the grant-date value and a mark-to-market impact as a result of subsequent changes in the fair value of the share-based awards primarily driven by the Company’s share price. The grant-date value amount is included in Adjusted EBITDA and Adjusted net income (loss). The mark-to-market impact of share-based compensation as a result of changes in our share price is excluded from Adjusted EBITDA and Adjusted net income (loss) and analyzed separately.
 
Three Months Ended
 
Nine Months Ended
($ millions except share price)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Methanex Corporation share price 1
$
35.47

$
45.46

$
79.10

 
$
35.47

$
79.10

Grant-date fair value expense included in Adjusted EBITDA and Adjusted net income (loss)
2

5

2

 
12

10

Mark-to-market impact due to change in share price 2
(12
)
(29
)
29

 
(19
)
70

Total share-based compensation expense (recovery), before tax
$
(10
)
$
(24
)
$
31

 
$
(7
)
$
80

1 US dollar share price of Methanex Corporation as quoted on the NASDAQ Global Market on the last trading day of the respective period.
2 
For all periods presented, the mark-to-market impact on share-based compensation is primarily due to changes in the Methanex Corporation share price.
Depreciation and Amortization
    
Depreciation and amortization was $85 million for the third quarter of 2019 compared with $86 million for the second quarter of 2019 and $61 million for the third quarter of 2018. Depreciation and amortization was comparable for the third quarter and second quarter of 2019 as higher depreciation associated with higher produced sales volume in the third quarter was offset by lower unabsorbed depreciation. Depreciation and amortization was $24 million higher for the third quarter of 2019 compared to the third quarter of 2018 primarily due to the adoption of IFRS 16 in 2019 which resulted in an additional $23 million of depreciation of right-of-use (leased) assets. Depreciation and amortization for the nine month period ended September 30, 2019 was $256 million compared with $183 million for the same period in 2018, the increase of $73 million was primarily due to the adoption of IFRS 16 in 2019 which resulted in an additional $71 million of depreciation of right-of-use (leased) assets.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 9
MANAGEMENT’S DISCUSSION AND ANALYSIS



Finance Costs
 
Three Months Ended
 
Nine Months Ended
($ millions)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Finance costs before capitalized interest
$
32

$
31

$
23

 
$
91

$
72

Less capitalized interest
(1
)
(1
)

 
(2
)
(1
)
Finance costs
$
31

$
30

$
23

 
$
89

$
71

Finance costs are primarily comprised of interest on borrowings and lease obligations. Finance costs are comparable for the third quarter of 2019 and the second quarter of 2019. Finance costs are higher for the three and nine month periods ended September 30, 2019 compared to the same periods for 2018 primarily due to the adoption of IFRS 16 in 2019 which resulted in an additional $5 million of finance costs for the three months ended September 30, 2019 and $15 million of finance costs for the nine months ended September 30, 2019 relating to lease obligations previously treated as operating lease expenses. Finance costs are also higher for the periods ended September 30, 2019 due to the issuance of $700 million of unsecured notes in September. Capitalized interest relates to interest costs capitalized for the Geismar 3 project. Refer to the Liquidity and Capital Resources section on page 13 of the MD&A.

Finance Income and Other Expenses
 
Three Months Ended
 
Nine Months Ended
($ millions)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Finance income and other expenses
$
3

$
1

$
1

 
$
4

$
3

The change in finance income and other expenses for all periods presented is primarily due to the impact of changes in foreign exchange rates and changes in interest income earned on cash balances.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 10
MANAGEMENT’S DISCUSSION AND ANALYSIS



Income Taxes

A summary of our income taxes for the third quarter of 2019 compared to the second quarter of 2019 and the nine month period ended September 30, 2019 compared to the same period in 2018 is as follows:
 
Three months ended
September 30, 2019
 
Three months ended
June 30, 2019
($ millions except where noted)
Net Loss

Adjusted
Net Loss

 
Net Income

Adjusted
Net Income

Amount before income tax
$
(30
)
$
(26
)
 
$
55

$
36

Income tax (expense) recovery
17

5

 
(6
)
(10
)
 
$
(13
)
$
(21
)
 
$
49

$
26

Effective tax rate
56
%
18
%
 
11
%
27
%

 
Nine months ended
September 30, 2019
 
Nine months ended
September 30, 2018
($ millions, except where noted)
Net Income

Adjusted
Net Income

 
Net Income

Adjusted
Net Income

Amount before income tax
$
82

$
89

 
$
602

$
620

Income tax (expense) recovery
1

(27
)
 
(121
)
(154
)
 
$
83

$
62

 
$
481

$
466

Effective tax rate
(2
)%
31
%
 
20
%
25
%

 
We earn the majority of our income in New Zealand, Trinidad, the United States, Egypt, Canada and Chile. In Trinidad and Chile, the statutory tax rate is 35%. The statutory tax rate in New Zealand is 28%. In Canada, the statutory tax rate applicable to Methanex is currently 26.8% and will decrease to 25.6% over the next three years based on recently enacted legislation in Alberta. The United States statutory tax rate applicable to Methanex is 23% and the Egypt statutory tax rate is 22.5%. As the Atlas entity is accounted for using the equity method, any income taxes related to Atlas are included in earnings of associate and therefore excluded from total income taxes but included in the calculation of Adjusted net income (loss).

The effective tax rate based on Adjusted net loss was 18% for the third quarter of 2019 compared to 27% on Adjusted net income for the second quarter of 2019. The effective tax rate based on Adjusted net income was 31% for the nine month period ended September 30, 2019 compared to 25% for the same period in 2018. Adjusted net income (loss) represents the amount that is attributable to Methanex shareholders and excludes the mark-to-market impact of share-based compensation and the impact of certain items associated with specific identified events. The effective tax rate differs from period to period depending on the source of earnings and the impact of foreign exchange fluctuations against the United States dollar on our tax balances. In addition, the effective tax rate is impacted by changes in tax legislation in the jurisdictions in which we operate.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 11
MANAGEMENT’S DISCUSSION AND ANALYSIS



SUPPLY/DEMAND FUNDAMENTALS
Demand
Global methanol demand in the third quarter of 2019 increased slightly overall compared to the second quarter of 2019. Demand into traditional chemical applications, which represents approximately 55% of global methanol demand, declined slightly in the third quarter of 2019 as a result of planned and unplanned downstream maintenance activities, nationwide safety and environmental inspections in China and a slowdown in manufacturing activity, particularly in the automotive and construction demand segments. We believe that growth in methanol demand from traditional chemical applications is generally correlated to GDP and industrial production growth rates. 

Demand for energy-related applications, which represents approximately 45% of global demand, increased by 6% in the third quarter of 2019 compared to the second quarter of 2019. Demand into methanol-to-olefins (MTO) was robust as two new MTO plants, with the combined capacity to consume 3.6 million tonnes of methanol annually at full operating rates, started up at the end of the second quarter, which was partially offset by planned maintenance activities at some existing MTO plants during the third quarter. We continue to monitor the progress of two other MTO units that are currently under construction, with the combined capacity to consume an additional 3.6 million tonnes of methanol annually at full operating rates, that are targeted to come online in the medium term. The future operating rates and methanol consumption from MTO producers will depend on a number of factors including pricing for their various final products, the degree of downstream integration of these units with other products, the impact of olefin industry feedstock costs, including naphtha, on relative competitiveness and plant maintenance schedules. 
Supply
Global methanol industry supply operated well in the third quarter of 2019. Over the next few years, the majority of large-scale capacity additions outside of China are expected to be in the Americas and the Middle East. Caribbean Gas Chemical Limited is constructing a 1.0 million tonne plant in Trinidad with announced production targeted for late 2019. Yuhuang Chemical Industries is progressing a 1.7 million tonne project in St. James Parish, Louisiana with an announced target completion date in 2020.  In July 2019, we announced a final investment decision to construct a 1.8 million tonne plant, which will be our third plant in Geismar, Louisiana, with production targeted for the second half of 2022. There are other large-scale projects under discussion in North America; however, none have yet reached a final investment decision. There are a number of projects under construction in Iran, including the Bushehr plant, that we continue to monitor. We anticipate that new non-integrated capacity additions in China will be modest due to a continuing degree of restrictions placed by the Chinese government on new standalone coal-based capacity additions. We expect that new capacity in China will be consumed in that country.  
Methanol Price
Our average realized price in the third quarter of 2019 declined to $272 per tonne from $326 per tonne in the second quarter of 2019. Modest methanol demand growth, combined with strong industry operating rates, impacted methanol prices in the quarter.

Our October posted prices were steady in North America at $342 per tonne and increased in Asia Pacific by $10 per tonne to $295 per tonne. Our European contract price is set quarterly and we lowered our fourth quarter contract price by €35 per tonne to €280 per tonne. We recently announced our November contract prices which remain unchanged at $342 per tonne in North America and $295 per tonne in Asia Pacific. Future methanol prices will ultimately depend on the strength of the global economy, industry operating rates, global energy prices, new supply additions and the strength of global demand.
Methanex Non-Discounted Regional Posted Prices 1
(US$ per tonne)
Nov 2019

Oct 2019

Sep 2019

Aug 2019

Jul 2019

North America
342

342

342

342

386

Europe 2
305

305

355

355

355

Asia Pacific
295

295

285

295

335

1    Discounts from our posted prices are offered to customers based on
various factors.
2 
€280 for Q4 2019 (Q3 2019 – €315) converted to United States dollars.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 12
MANAGEMENT’S DISCUSSION AND ANALYSIS



LIQUIDITY AND CAPITAL RESOURCES

Cash flows from operating activities in the third quarter of 2019 were $71 million compared with $117 million for the second quarter of 2019 and $228 million for the third quarter of 2018. Cash flows from operating activities for the nine month period ended September 30, 2019 were $401 million compared to $762 million for the same period in 2018. Cash flows from operating activities for all periods presented were lower due to lower earnings. The adoption of IFRS 16 for 2019 results in higher cash flows from operating activities in the three and nine month periods ended September 30, 2019 of $26 million and $81 million compared to the same periods in 2018. The increase in operating cash inflows from IFRS 16 is offset by an increase in financing cash outflows compared to 2018. The increase in financing cash outflows reflects the repayments on lease obligations including financing costs. The adoption of IFRS 16 has no net cash impact. The impact of IFRS 16 adoption on operating and financing cash flows is comparable between the 2019 periods presented.

The changes in cash flows from operating activities resulted from changes in the following:
($ millions)
Q3 2019
compared with
Q2 2019

Q3 2019
compared with
Q3 2018

YTD Q3 2019
compared with
YTD Q3 2018

Change in Adjusted EBITDA (attributable to Methanex shareholders) 1
$
(56
)
$
(203
)
$
(444
)
Add (Deduct) change in Adjusted EBITDA of associate
(7
)
3

17

Dividends received from associate
5

(15
)
(7
)
Cash flows attributable to non-controlling interests
(9
)
(32
)
(83
)
Non-cash working capital
13

75

110

Income taxes paid
10

11

29

Share-based payments
4

8

17

Other
(6
)
(4
)

Decrease in cash flows from operating activities
$
(46
)
$
(157
)
$
(361
)
1 Included in Changes in Adjusted EBITDA (attributable to Methanex shareholders) is the increase in cash flows from operating activities associated with the adoption of IFRS 16 for 2019.

During the third quarter of 2019 we paid a quarterly dividend of $0.36 per common share for a total of $27 million.

On March 18, 2019 we commenced a normal course issuer bid to purchase up to 3,863,298 common shares. To date, we have repurchased 1,069,893 common shares under the bid for $52.8 million. No shares were repurchased in the third quarter of 2019.

We operate in a highly competitive commodity industry and believe it is appropriate to maintain a strong balance sheet and financial flexibility. At September 30, 2019, our cash balance was $857 million, including $29 million of cash related to our Egypt entity consolidated on a 100% basis and $7 million of cash related to our joint venture interests in ocean going vessels consolidated on a 100% basis. We invest our cash only in highly rated instruments that have maturities of three months or less to ensure preservation of capital and appropriate liquidity.

In the third quarter of 2019, we issued $700 million of unsecured notes that are due December 15, 2029 and attract a coupon of 5.25%. Proceeds from the notes issued were used subsequent to the quarter to repay the $350 million unsecured notes originally due in December 2019. Additionally, remaining proceeds from the debt issuance are earmarked to fund Geismar 3 construction expenditures.

During the quarter, we finalized committed financing for the Geismar 3 project with a new $800 million construction credit facility and a $300 million revolving credit facility, both with a syndicate of highly rated financial institutions and expiry in July 2024. Both facilities remain undrawn. Refer to note 7 of the Company's unaudited condensed consolidated interim financial statements for further discussion of the terms of the credit facilities and long-term debt.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 13
MANAGEMENT’S DISCUSSION AND ANALYSIS



Capital Projects and Growth Opportunities

On July 19, 2019, we reached a final investment decision to construct a 1.8 million tonne facility in Geismar, Louisiana adjacent to our Geismar 1 and Geismar 2 facilities. The cost of the Geismar 3 project is expected to be between $1.3 to $1.4 billion, excluding capitalized interest, with operations targeted for the second half of 2022. Capitalized costs of approximately $85 million have been incurred for the project, life to date. Refer to liquidity section for further discussions on financing plan related to the Geismar 3 project.

In addition, we continue to make progress on the debottlenecking opportunities at our existing Geismar 1 and Geismar 2 facilities to increase production by approximately 10% over the next couple of years.

Our planned capital expenditures directed towards maintenance, turnarounds and catalyst changes for operations, including our 63.1% share of Atlas and 50% of Egypt, is currently estimated to be approximately $30 million for the remainder of 2019 primarily associated with plant turnarounds to be executed in 2020. During the third quarter, we completed the first phase of the Chile I refurbishment. We plan to complete the remaining refurbishment activities over the coming years.

We believe we are well positioned to meet our financial commitments, execute our growth projects in Louisiana and Chile, and deliver on our commitment to return excess cash to shareholders through dividends and share repurchases.
CONTROLS AND PROCEDURES

During the third quarter of 2019, no changes were made in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ADOPTION OF NEW ACCOUNTING STANDARDS
IFRS 16, Leases

We adopted IFRS 16, Leases ("IFRS 16" or "the standard") as issued by the IASB in 2016, which eliminates the operating/finance lease dual accounting model for lessees and replaces it with a single, on-balance sheet accounting model, similar to the previous finance lease accounting. The standard replaces IAS 17, Leases ("IAS 17") and related interpretations and is effective for annual periods beginning on or after January 1, 2019.

We transitioned to IFRS 16 in accordance with the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings at January 1, 2019. The modified retrospective approach does not require restatement of comparative periods. As part of the initial application of IFRS 16, we elected to use hindsight in determining the lease term where the contract contains options to extend or terminate the lease.

On transition to IFRS 16, we recognized $411 million of lease assets and $453 million of lease liabilities, with the difference of $42 million ($38 million net of tax), recorded as an adjustment in equity. When measuring lease liabilities, we discounted lease payments using the incremental borrowing rate at January 1, 2019. The weighted-average rate applied is 4.4%.


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 14
MANAGEMENT’S DISCUSSION AND ANALYSIS



The following tables denote the impact to Adjusted EBITDA and adjusted net income (before tax), depreciation and amortization and finance costs attributable to Methanex and reported for the three month periods ended June 30, 2019 and September 30, 2019 and for the nine month period ended September 30, 2019:


Three Months Ended

June 30, 2019
($ millions except per share amounts)
Excluding IFRS 16
IFRS 16 impact
Including IFRS 16
Adjusted EBITDA
$
119

$
27

$
146

Less:



Depreciation and amortization
58

24

82

Finance costs
23

5

28

Other



Adjusted net income - before tax
$
38

$
(2
)
$
36



Three Months Ended

September 30, 2019
($ millions except per share amounts)
Excluding IFRS 16
IFRS 16 impact
Including IFRS 16
Adjusted EBITDA
$
64

$
26

$
90

Less:



Depreciation and amortization
64

23

87

Finance costs
24

5

29

Other
(1
)

(1
)
Adjusted net loss - before tax
$
(23
)
$
(2
)
$
(25
)


Nine Months Ended

September 30, 2019
($ millions except per share amounts)
Excluding IFRS 16
IFRS 16 impact
Including IFRS 16
Adjusted EBITDA
$
349

$
81

$
430

Less:



Depreciation and amortization
183

71

254

Finance costs
70

15

85

Other
2


2

Adjusted net income - before tax
$
94

$
(5
)
$
89


ADDITIONAL INFORMATION – SUPPLEMENTAL NON-GAAP MEASURES

In addition to providing measures prepared in accordance with International Financial Reporting Standards ("IFRS"), we present certain supplemental non-GAAP measures throughout this document. These are Adjusted EBITDA, Adjusted net income (loss), Adjusted net income (loss) per common share, Adjusted revenue, operating income (loss) and the amounts excluding the impact of IFRS 16. These measures do not have any standardized meaning prescribed by generally accepted accounting principles ("GAAP") and therefore are unlikely to be comparable to similar measures presented by other companies. These supplemental non-GAAP measures are provided to assist readers in determining our ability to generate cash from operations and improve the comparability of our results from one period to another. We believe these measures are useful in assessing operating performance and liquidity of the Company’s ongoing business on an overall basis. We also believe Adjusted EBITDA is frequently used by securities analysts and investors when comparing our results with those of other companies.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 15
MANAGEMENT’S DISCUSSION AND ANALYSIS



Adjusted EBITDA (attributable to Methanex shareholders)

Adjusted EBITDA differs from the most comparable GAAP measure, net income (loss) attributable to Methanex shareholders, because it excludes the mark-to-market impact of share-based compensation, depreciation and amortization, finance costs, finance income and other expenses and income taxes. Adjusted EBITDA includes an amount representing our 63.1% share of the Atlas facility and excludes the non-controlling shareholders' interests in entities which we control but do not fully own.

Adjusted EBITDA and Adjusted net income (loss) exclude the mark-to-market impact of share-based compensation related to the impact of changes in our share price on SARs, TSARs, deferred share units, restricted share units and performance share units. The mark-to-market impact related to share-based compensation that is excluded from Adjusted EBITDA and Adjusted net income (loss) is calculated as the difference between the grant-date value and the fair value recorded at each period-end. As share-based awards will be settled in future periods, the ultimate value of the units is unknown at the date of grant and therefore the grant-date value recognized in Adjusted EBITDA and Adjusted net income (loss) may differ from the total settlement cost.

The following table shows a reconciliation from net income (loss) attributable to Methanex shareholders to Adjusted EBITDA:
 
Three Months Ended
 
Nine Months Ended
($ millions)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Net income (loss) (attributable to Methanex shareholders)
$
(10
)
$
50

$
128

 
$
79

$
408

Mark-to-market impact of share-based compensation
(12
)
(29
)
29

 
(19
)
70

Depreciation and amortization 1
85

86

61

 
256

183

Finance costs 1
31

30

23

 
89

71

Finance income and other expenses
(3
)
(1
)
(1
)
 
(4
)
(3
)
Income tax expense (recovery)
(17
)
6

43

 
(1
)
121

Earnings of associate adjustment 2
18

14

21

 
51

58

Non-controlling interests adjustment 2
(2
)
(10
)
(11
)
 
(21
)
(34
)
Adjusted EBITDA (attributable to Methanex shareholders)
$
90

$
146

$
293

 
$
430

$
874


1 
Depreciation and amortization and finance costs for the periods ended June 30, 2019 and September 30, 2019 includes the impact of the adoption of IFRS 16 "Leases". The comparative periods have not been restated as the Company has adopted IFRS 16 using the modified retrospective approach.
2 
These adjustments represent depreciation and amortization, finance costs, finance income and other expenses and income taxes associated with our 63.1% interest in the Atlas methanol facility and the non-controlling interests.


Adjusted Net Income (Loss) and Adjusted Net Income (Loss) per Common Share

Adjusted net income (loss) and Adjusted net income (loss) per common share are non-GAAP measures because they exclude the mark-to-market impact of share-based compensation and the impact of certain items associated with specific identified events. The following table shows a reconciliation of net income (loss) attributable to Methanex shareholders to Adjusted net income (loss) and the calculation of Adjusted net income (loss) per common share:
 
Three Months Ended
 
Nine Months Ended
($ millions except number of shares and per share amounts)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Net income (loss) (attributable to Methanex shareholders)
$
(10
)
$
50

$
128

 
$
79

$
408

Mark-to-market impact of share-based compensation, net of tax
(11
)
(24
)
24

 
(17
)
58

Adjusted net income (loss)
$
(21
)
$
26

$
152

 
$
62

$
466

Diluted weighted average shares outstanding (millions)
76

77

79

 
77

82

Adjusted net income (loss) per common share
$
(0.27
)
$
0.34

$
1.92

 
$
0.80

$
5.71




METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 16
MANAGEMENT’S DISCUSSION AND ANALYSIS



Adjusted Revenue (attributable to Methanex shareholders)
Adjusted revenue differs from the most comparable GAAP measure, revenue, because it excludes revenue relating to 50% of the Egypt methanol facility that we do not own and includes an amount representing our 63.1% share of Atlas revenue. It also includes commission earned on volume marketed on a commission basis related to both the 36.9% of the Atlas methanol facility and the 50% of the Egypt methanol facility that we do not own. A reconciliation from revenue to Adjusted revenue is as follows:

Three Months Ended
 
Nine Months Ended
($ millions)
Sep 30
2019

Jun 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Revenue
$
650

$
734

$
1,044

 
$
2,126

$
2,955

Methanex share of Atlas revenue 1
75

72

86

 
253

274

Non-controlling interests' share of revenue 1

(28
)
(62
)
 
(75
)
(201
)
Other adjustments
(2
)
(1
)
(1
)
 
(5
)
(3
)
Adjusted revenue (attributable to Methanex shareholders)
$
723

$
777

$
1,067

 
$
2,299

$
3,025


1 
Excludes intercompany transactions with the Company.
Operating Income (Loss)

Operating income (loss) is reconciled directly to a GAAP measure in our consolidated statements of income (loss).
Amounts excluding the impact of IFRS 16

Amounts for the periods ended June 30, 2019 and September 30, 2019 excluding the impact of IFRS 16 presented for the periods ended June 30, 2019 and September 30, 2019 MD&A have been reconciled to a GAAP measure, being depreciation and amortization and finance costs including IFRS 16 in the Adoption of New Accounting Standards section on page 14. Additionally, Adjusted EBITDA excluding the impact of IFRS 16 has been reconciled to Adjusted EBITDA including IFRS 16 in the Adoption of New Accounting Standards section on page 14 with the reconciliation of Adjusted EBITDA to a GAAP measure on page 16.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 17
MANAGEMENT’S DISCUSSION AND ANALYSIS



QUARTERLY FINANCIAL DATA (UNAUDITED)

Our operations consist of a single operating segment - the production and sale of methanol. Quarterly results vary due to the average realized price of methanol, sales volume and total cash costs. 2019 periods presented reflect the adoption of IFRS 16. Financial information in all comparative periods does not reflect the impact of IFRS 16. Refer to the Adoption of New Accounting Standards section on page 14. A summary of selected financial information is as follows:

 
Three Months Ended
($ millions except per share amounts)
Sep 30
2019

Jun 30
2019

Mar 31
2019

Dec 31
2018

Revenue
$
650

$
734

$
742

$
977

Adjusted EBITDA
90

146

194

197

Net income (loss) (attributable to Methanex shareholders)
(10
)
50

38

161

Adjusted net income (loss)
(21
)
26

56

90

Basic net income (loss) per common share
(0.13
)
0.65

0.50

2.07

Diluted net income (loss) per common share
(0.21
)
0.51

0.50

1.68

Adjusted net income (loss) per common share  
(0.27
)
0.34

0.73

1.15


 
Three Months Ended
($ millions except per share amounts)
Sep 30
2018

Jun 30
2018

Mar 31
2018

Dec 31
2017

Revenue
$
1,044

$
950

$
962

$
861

Adjusted EBITDA
293

275

306

254

Net income (attributable to Methanex shareholders)
128

111

169

68

Adjusted net income
152

143

171

143

Basic net income per common share
1.62

1.36

2.02

0.81

Diluted net income per common share
1.61

1.36

2.00

0.81

Adjusted net income per common share
1.92

1.75

2.03

1.70


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 18
MANAGEMENT’S DISCUSSION AND ANALYSIS



HOW WE ANALYZE OUR BUSINESS

Our operations consist of a single operating segment - the production and sale of methanol. We review our financial results by analyzing changes in the components of Adjusted EBITDA, mark-to-market impact of share-based compensation, depreciation and amortization, finance costs, finance income and other expenses and income taxes.

The Company has used the terms Adjusted EBITDA, Adjusted net income (loss), Adjusted net income (loss) per common share, Adjusted revenue and operating income (loss) throughout this document. These items are non-GAAP measures that do not have any standardized meaning prescribed by GAAP and therefore are unlikely to be comparable to similar measures presented by other companies. Refer to Additional Information - Supplemental Non-GAAP Measures section on page 15 of the MD&A for a description of each non-GAAP measure and reconciliations to the most comparable GAAP measures.

In addition to the methanol that we produce at our facilities, we also purchase and re-sell methanol produced by others and we sell methanol on a commission basis. We analyze the results of all methanol sales together, excluding commission sales volume. The key drivers of changes in Adjusted EBITDA are average realized price, cash costs and sales volume, which are defined and calculated as follows:
PRICE
The change in Adjusted EBITDA as a result of changes in average realized price is calculated as the difference from period to period in the selling price of methanol multiplied by the current period total methanol sales volume, excluding commission sales volume and Tolling Volume, plus the difference from period to period in commission revenue.
 
CASH 
COSTS
The change in Adjusted EBITDA as a result of changes in cash costs is calculated as the difference from period to period in cash costs per tonne multiplied by the current period total methanol sales volume, excluding commission sales volume and Tolling Volume in the current period. The cash costs per tonne is the weighted average of the cash cost per tonne of Methanex-produced methanol and the cash cost per tonne of purchased methanol. The cash cost per tonne of Methanex-produced methanol includes absorbed fixed cash costs per tonne and variable cash costs per tonne. The cash cost per tonne of purchased methanol consists principally of the cost of methanol itself. In addition, the change in Adjusted EBITDA as a result of changes in cash costs includes the changes from period to period in unabsorbed fixed production costs, consolidated selling, general and administrative expenses and fixed storage and handling costs.
 
SALES VOLUME
The change in Adjusted EBITDA as a result of changes in sales volume is calculated as the difference from period to period in total methanol sales volume, excluding commission sales volume, multiplied by the margin per tonne for the prior period. The margin per tonne for the prior period is the weighted average margin per tonne of Methanex-produced methanol and margin per tonne of purchased methanol. The margin per tonne for Methanex-produced methanol is calculated as the selling price per tonne of methanol less absorbed fixed cash costs per tonne and variable cash costs per tonne. The margin per tonne for purchased methanol is calculated as the selling price per tonne of methanol less the cost of purchased methanol per tonne.
 

We own 63.1% of the Atlas methanol facility and market the remaining 36.9% of its production through a commission offtake agreement. A contractual agreement between us and our partners establishes joint control over Atlas. As a result, we account for this investment using the equity method of accounting, which results in 63.1% of the net assets and net earnings of Atlas being presented separately in the consolidated statements of financial position and consolidated statements of income (loss), respectively. For purposes of analyzing our business, Adjusted EBITDA, Adjusted net income (loss), Adjusted net income (loss) per common share and Adjusted revenue include an amount representing our 63.1% equity share in Atlas. Our analysis of depreciation and amortization, finance costs, finance income and other expenses and income taxes is consistent with the presentation of our consolidated statements of income (loss) and excludes amounts related to Atlas.

We own 50% of the 1.26 million tonne per year Egypt methanol facility and market the remaining 50% of its production through a commission offtake agreement. We account for this investment using consolidation accounting, which results in 100% of the revenues and expenses being included in our financial statements. We also consolidate less than wholly-owned entities for which we have a controlling interest. Non-controlling interests are included in the Company’s consolidated financial statements and represent the non-controlling shareholders’ interests in the Egypt methanol facility and any entity where we have control. For purposes of analyzing our business, Adjusted EBITDA, Adjusted net income (loss), Adjusted net income (loss) per common share and Adjusted revenue exclude the amounts associated with non-controlling interests.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 19
MANAGEMENT’S DISCUSSION AND ANALYSIS



FORWARD-LOOKING INFORMATION WARNING

This Third Quarter 2019 Management’s Discussion and Analysis ("MD&A") as well as comments made during the Third Quarter 2019 investor conference call contain forward-looking statements with respect to us and our industry. These statements relate to future events or our future performance. All statements other than statements of historical fact are forward-looking statements. Statements that include the words "believes," "expects," "may," "will," "should," "potential," "estimates," "anticipates," "aim," "goal", "targets", "plan," "predict" or other comparable terminology and similar statements of a future or forward-looking nature identify forward-looking statements.

More particularly and without limitation, any statements regarding the following are forward-looking statements:

expected demand for methanol and its derivatives,
expected new methanol supply or restart of idled capacity and timing for start-up of the same,
expected shutdowns (either temporary or permanent) or restarts of existing methanol supply (including our own facilities), including, without limitation, the timing and length of planned maintenance outages,
expected methanol and energy prices,
expected levels of methanol purchases from traders or other third parties,
expected levels, timing and availability of economically priced natural gas supply to each of our plants,
capital committed by third parties towards future natural gas exploration and development in the vicinity of our plants,
our expected capital expenditures,
anticipated operating rates of our plants,
expected operating costs, including natural gas feedstock costs and logistics costs,
expected tax rates or resolutions to tax disputes,
expected cash flows, earnings capability and share price,
        
 

availability of committed credit facilities and other financing,
our ability to meet covenants or obtain or continue to obtain waivers associated with our long-term debt obligations, including, without limitation, the Egypt limited recourse debt facilities that have conditions associated with the payment of cash or other distributions and the finalization of certain land title registrations and related mortgages which require actions by Egyptian governmental entities,
our shareholder distribution strategy and anticipated distributions to shareholders,
commercial viability and timing of, or our ability to execute future projects, plant restarts, capacity expansions, plant relocations or other business initiatives or opportunities, including our Geismar 3 Project,
our financial strength and ability to meet future financial commitments,
expected global or regional economic activity (including industrial production levels),
expected outcomes of litigation or other disputes, claims and assessments, and
expected actions of governments, governmental agencies, gas suppliers, courts, tribunals or other third parties.

We believe that we have a reasonable basis for making such forward-looking statements. The forward-looking statements in this document are based on our experience, our perception of trends, current conditions and expected future developments as well as other factors. Certain material factors or assumptions were applied in drawing the conclusions or making the forecasts or projections that are included in these forward-looking statements, including, without limitation, future expectations and assumptions concerning the following:

the supply of, demand for and price of methanol, methanol derivatives, natural gas, coal, oil and oil derivatives,
 
our ability to procure natural gas feedstock on commercially acceptable terms,
operating rates of our facilities,

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 20
MANAGEMENT’S DISCUSSION AND ANALYSIS



receipt or issuance of third-party consents or approvals, including, without limitation, governmental registrations of land title and related mortgages in Egypt and governmental approvals related to rights to purchase natural gas,
the establishment of new fuel standards,
operating costs, including natural gas feedstock and logistics costs, capital costs, tax rates, cash flows, foreign exchange rates and interest rates,
the availability of committed credit facilities and other financing,
timing of completion and cost of our Geismar 3 Project,
 
global and regional economic activity (including industrial production levels),
absence of a material negative impact from major natural disasters,
absence of a material negative impact from changes in laws or regulations,
absence of a material negative impact from political instability in the countries in which we operate, and
enforcement of contractual arrangements and ability to perform contractual obligations by customers, natural gas and other suppliers and other third parties.

However, forward-looking statements, by their nature, involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. The risks and uncertainties primarily include those attendant with producing and marketing methanol and successfully carrying out major capital expenditure projects in various jurisdictions, including, without limitation:

conditions in the methanol and other industries including fluctuations in the supply, demand and price for methanol and its derivatives, including demand for methanol for energy uses,
the price of natural gas, coal, oil and oil derivatives,
our ability to obtain natural gas feedstock on commercially acceptable terms to underpin current operations and future production growth opportunities,
the ability to carry out corporate initiatives and strategies,
actions of competitors, suppliers and financial institutions,
conditions within the natural gas delivery systems that may prevent delivery of our natural gas supply requirements,
our ability to meet timeline and budget targets for our Geismar 3 Project, including cost pressures arising from labour costs,

 
competing demand for natural gas, especially with respect to any domestic needs for gas and electricity,
actions of governments and governmental authorities, including, without limitation, implementation of policies or other measures that could impact the supply of or demand for methanol or its derivatives,
changes in laws or regulations,
import or export restrictions, anti-dumping measures, increases in duties, taxes and government royalties and other actions by governments that may adversely affect our operations or existing contractual arrangements,
world-wide economic conditions, and
other risks described in our 2018 Annual Management’s Discussion and Analysis and this Third Quarter 2019 Management’s Discussion and Analysis.

Having in mind these and other factors, investors and other readers are cautioned not to place undue reliance on forward-looking statements. They are not a substitute for the exercise of one’s own due diligence and judgment. The outcomes implied by forward-looking statements may not occur and we do not undertake to update forward-looking statements except as required by applicable securities laws.


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 21
MANAGEMENT’S DISCUSSION AND ANALYSIS




Methanex Corporation
Consolidated Statements of Income (Loss) (unaudited)
(thousands of U.S. dollars, except number of common shares and per share amounts)

 
Three Months Ended
 
Nine Months Ended
 
Sep 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Revenue
$
649,692

$
1,043,525

 
$
2,125,816

$
2,955,296

Cost of sales and operating expenses
(580,993
)
(783,743
)
 
(1,747,615
)
(2,155,976
)
Depreciation and amortization
(85,237
)
(61,353
)
 
(256,193
)
(183,273
)
Operating income (loss)
(16,538
)
198,429

 
122,008

616,047

Earnings of associate (note 5)
14,772

14,844

 
43,935

54,142

Finance costs (note 6)
(30,510
)
(23,087
)
 
(88,509
)
(71,038
)
Finance income and other expenses
2,670

1,144

 
3,987

2,554

Income (loss) before income taxes
(29,606
)
191,330

 
81,421

601,705

Income tax (expense) recovery:
 
 
 
 
 
Current
7,865

(27,508
)
 
(22,536
)
(78,153
)
Deferred
8,707

(15,956
)
 
23,820

(42,884
)
 
16,572

(43,464
)
 
1,284

(121,037
)
Net income (loss)
$
(13,034
)
$
147,866

 
$
82,705

$
480,668

Attributable to:
 
 
 
 
 
Methanex Corporation shareholders
$
(9,911
)
$
128,057

 
$
78,788

$
408,106

Non-controlling interests
(3,123
)
19,809

 
3,917

72,562

 
$
(13,034
)
$
147,866

 
$
82,705

$
480,668

 
 
 
 
 
 
Income (loss) per common share for the period attributable to Methanex Corporation shareholders
 
 
 
 
 
Basic net income (loss) per common share
$
(0.13
)
$
1.62

 
$
1.03

$
5.01

Diluted net income (loss) per common share (note 8)
$
(0.21
)
$
1.61

 
$
0.88

$
5.00

 
 
 
 
 
 
Weighted average number of common shares outstanding (note 8)
76,196,080

79,263,939

 
76,726,467

81,517,418

Diluted weighted average number of common shares outstanding (note 8)
76,219,226

79,341,597

 
76,845,176

81,592,080


See accompanying notes to condensed consolidated interim financial statements.


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 1
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)



Methanex Corporation
Consolidated Statements of Comprehensive Income (Loss) (unaudited)
(thousands of U.S. dollars)

 
Three Months Ended
 
Nine Months Ended
 
Sep 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Net income (loss)
$
(13,034
)
$
147,866

 
$
82,705

$
480,668

Other comprehensive income (loss):
 
 
 
 
 
Items that may be reclassified to income (loss):
 
 
 
 
 
Change in fair value of cash flow hedges (note 11)
4,787

10,926

 
(77,343
)
(2,502
)
Forward element excluded from hedging relationships (note 11)
(30,382
)
(15,255
)
 
37,188

(13,289
)
Items that will not be reclassified to income (loss):
 
 
 
 
 
Actuarial gain on defined benefit pension plans


 

845

Taxes on above items
5,630

1,023

 
8,938

3,433

 
(19,965
)
(3,306
)
 
(31,217
)
(11,513
)
Comprehensive income (loss)
$
(32,999
)
$
144,560

 
$
51,488

$
469,155

Attributable to:
 
 
 
 
 
Methanex Corporation shareholders
$
(29,876
)
$
124,751

 
$
47,571

$
396,593

Non-controlling interests
(3,123
)
19,809

 
3,917

72,562

 
$
(32,999
)
$
144,560

 
$
51,488

$
469,155


See accompanying notes to condensed consolidated interim financial statements.

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 2
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)



Methanex Corporation
Consolidated Statements of Financial Position (unaudited)
(thousands of U.S. dollars)

AS AT
Sep 30
2019

Dec 31
2018

ASSETS
 
 
Current assets:
 
 
Cash and cash equivalents
$
857,425

$
256,077

Trade and other receivables
423,676

514,568

Inventories (note 2)
300,333

387,959

Prepaid expenses
40,138

32,541

Other assets (note 3)
16,401

60,931

 
1,637,973

1,252,076

Non-current assets:
 
 
Property, plant and equipment (note 4)
3,503,550

3,025,095

Investment in associate (note 5)
185,190

197,821

Deferred income tax assets
90,197

59,532

Other assets (note 3)
70,460

74,475

 
3,849,397

3,356,923

 
$
5,487,370

$
4,608,999

LIABILITIES AND EQUITY
 
 
Current liabilities:
 
 
Trade, other payables and accrued liabilities
$
491,502

$
617,414

Current maturities on long-term debt (note 7)
389,042

383,793

Current maturities on lease liabilities
96,362

12,347

Current maturities on other long-term liabilities
21,105

33,799

 
998,011

1,047,353

Non-current liabilities:
 
 
Long-term debt (note 7)
1,732,396

1,074,493

Lease liabilities
577,234

187,413

Other long-term liabilities
232,638

210,685

Deferred income tax liabilities
275,005

281,214

 
2,817,273

1,753,805

Equity:
 
 
Capital stock
440,472

446,544

Contributed surplus
1,735

1,597

Retained earnings
1,061,144

1,145,476

Accumulated other comprehensive loss
(112,080
)
(82,404
)
Shareholders' equity
1,391,271

1,511,213

Non-controlling interests
280,815

296,628

Total equity
1,672,086

1,807,841

 
$
5,487,370

$
4,608,999

 
 
 
Subsequent events (note 7)
 
 

See accompanying notes to condensed consolidated interim financial statements.


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 3
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)



Methanex Corporation
Consolidated Statements of Changes in Equity (unaudited)
(thousands of U.S. dollars, except number of common shares)

 
Number of
Common
Shares

Capital
Stock

Contributed
Surplus

Retained
Earnings

Accumulated
Other
Comprehensive
Loss

Shareholders
Equity

Non-
Controlling
Interests

Total
Equity

Balance, December 31, 2017
83,770,254

$480,331
$2,124
$1,088,150
$(69,841)
1,500,764

$244,347
$1,745,111
Net income



408,106


408,106

72,562

480,668

Other comprehensive income (loss)



548

(12,061)
(11,513
)

(11,513
)
Compensation expense recorded for stock options


281



281


281

Issue of shares on exercise of stock options
75,014

2,953




2,953


2,953

Reclassification of grant date fair value on exercise of stock options

811

(811
)





Payments for repurchase of shares
(5,400,000
)
(31,012
)

(334,688
)

(365,700
)

(365,700
)
Dividend payments to Methanex Corporation shareholders



(80,179
)

(80,179
)

(80,179
)
Distributions made and accrued to non-controlling interests






(23,041
)
(23,041
)
Balance, September 30, 2018
78,445,268

$453,083
$1,594
$1,081,937
$(81,902)
$1,454,712
$293,868
$1,748,580
Net income



160,876


160,876

16,440

177,316

Other comprehensive income (loss)



1

(502)
(501
)

(501
)
Compensation expense recorded for stock options


81



81


81

Issue of shares on exercise of stock options
8,100

257




257


257

Reclassification of grant date fair value on exercise of stock options

78

(78
)





Payments for repurchase of shares
(1,190,095
)
(6,874
)

(71,841
)

(78,715
)

(78,715
)
Dividend payments to Methanex Corporation shareholders



(25,497
)

(25,497
)

(25,497
)
Distributions made and accrued to non-controlling interests






(13,680
)
(13,680
)
Balance, December 31, 2018
77,263,273

$446,544
$1,597
$1,145,476
$(82,404)
$1,511,213
$296,628
$1,807,841
Net income



78,788


78,788

3,917

82,705

Other comprehensive income (loss)



(1,541
)
(29,676)
(31,217
)

(31,217
)
Compensation expense recorded for stock options


164



164


164

Issue of shares on exercise of stock options
2,700

86




86


86

Reclassification of grant date fair value on exercise of stock options

26

(26
)





Payment for shares repurchased
(1,069,893
)
(6,184
)

(46,621
)

(52,805
)

(52,805
)
Dividend payments to Methanex Corporation shareholders



(80,445
)

(80,445
)

(80,445
)
Distributions made and accrued to non-controlling interests






(16,375
)
(16,375
)
Impact of adoption of IFRS 16



(34,513
)

(34,513
)
(3,355
)
(37,868
)
Balance, September 30, 2019
76,196,080

$440,472
$1,735
$1,061,144
$(112,080)
$1,391,271

$280,815
$1,672,086

See accompanying notes to condensed consolidated interim financial statements.


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 4
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)



Methanex Corporation
Consolidated Statements of Cash Flows (unaudited)
(thousands of U.S. dollars)
 
Three Months Ended
 
Nine Months Ended
 
Sep 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

CASH FLOWS FROM / (USED IN) OPERATING ACTIVITIES
 
 
 
 
 
Net income (loss)
$
(13,034
)
$
147,866

 
$
82,705

$
480,668

Deduct earnings of associate
(14,772
)
(14,844
)
 
(43,935
)
(54,142
)
Dividends received from associate
12,620

28,395

 
56,159

63,102

Add (deduct) non-cash items:
 
 
 
 
 
Depreciation and amortization
85,237

61,353

 
256,193

183,273

Income tax expense (recovery)
(16,572
)
43,464

 
(1,284
)
121,037

Share-based compensation expense (recovery)
(10,408
)
31,210

 
(6,548
)
79,793

Finance costs
30,510

23,087

 
88,509

71,038

Other
(1,738
)
(1,393
)
 
54

(847
)
Income taxes paid
(4,336
)
(15,444
)
 
(43,974
)
(73,282
)
Other cash payments, including share-based compensation
(5,115
)
(9,940
)
 
(36,248
)
(48,653
)
Cash flows from operating activities before undernoted
62,392

293,754

 
351,631

821,987

Changes in non-cash working capital (note 10)
8,913

(65,717
)
 
49,658

(59,583
)
 
71,305

228,037

 
401,289

762,404

 
 
 
 
 
 
CASH FLOWS FROM / (USED IN) FINANCING ACTIVITIES
 
 
 
 
 
Payments for repurchase of shares

(113,056
)
 
(52,805
)
(365,700
)
Dividend payments to Methanex Corporation shareholders
(27,430
)
(25,984
)
 
(80,445
)
(80,179
)
Interest paid
(23,479
)
(16,720
)
 
(77,520
)
(60,649
)
Net proceeds on issue of long-term debt (note 7)
695,533


 
695,533


Repayment of long-term debt and financing fees
(16,609
)
(121,451
)
 
(33,277
)
(212,090
)
Repayment of lease obligation
(27,379
)
(2,052
)
 
(73,705
)
(6,232
)
Restricted cash for debt service accounts
(8,548
)
(5,638
)
 
(8,648
)
(6,028
)
Distributions to non-controlling interests
(1,993
)
(40,000
)
 
(23,613
)
(73,908
)
Proceeds on issue of shares on exercise of stock options

1,639

 
86

2,953

Proceeds from other limited recourse debt

80,000

 

166,000

Restricted cash for distribution to non-controlling interests

(7,000
)
 

(7,000
)
Changes in non-cash working capital related to financing activities (note 10)
(1,780
)
(3,027
)
 

4,000

 
588,315

(253,289
)
 
345,606

(638,833
)
 
 
 
 
 
 
CASH FLOWS FROM / (USED IN) INVESTING ACTIVITIES
 
 
 
 
 
Property, plant and equipment
(44,166
)
(30,884
)
 
(179,536
)
(123,018
)
Geismar plant under construction
(25,739
)
(7,268
)
 
(45,424
)
(49,829
)
Restricted cash for capital projects
25,523

1,234


62,050

(63,066
)
Changes in non-cash working capital related to investing activities (note 10)
14,218

2,603

 
17,363

(2,450
)
 
(30,164
)
(34,315
)
 
(145,547
)
(238,363
)
Increase (decrease) in cash and cash equivalents
629,456

(59,567
)
 
601,348

(114,792
)
Cash and cash equivalents, beginning of period
227,969

320,254

 
256,077

375,479

Cash and cash equivalents, end of period
$
857,425

$
260,687

 
$
857,425

$
260,687


See accompanying notes to condensed consolidated interim financial statements.


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 5
CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)



Methanex Corporation
Notes to Condensed Consolidated Interim Financial Statements (unaudited)
Except where otherwise noted, tabular dollar amounts are stated in thousands of U.S. dollars.
1.
Basis of presentation:

Methanex Corporation ("the Company") is an incorporated entity with corporate offices in Vancouver, Canada. The Company’s operations consist of the production and sale of methanol, a commodity chemical. The Company is the world’s largest producer and supplier of methanol to the major international markets of Asia Pacific, North America, Europe and South America.

These condensed consolidated interim financial statements are prepared in accordance with International Accounting Standards ("IAS") 34, Interim Financial Reporting, as issued by the International Accounting Standards Board ("IASB") on a basis consistent with those followed in the most recent annual consolidated financial statements except for the adoption of IFRS 16 as described in our condensed consolidated interim financial statements for the three months ended March 31, 2019.

These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and were approved and authorized for issue by the Audit, Finance & Risk Committee of the Board of Directors on October 30, 2019.

These condensed consolidated interim financial statements should be read in conjunction with the Company’s consolidated financial statements for the year ended December 31, 2018.

Adoption of IFRS 16 "Leases"

The Company adopted IFRS 16, Leases ("IFRS 16" or "the standard") as issued by the IASB in 2016, which eliminates the current operating/finance lease dual accounting model for lessees and replaces it with a single, on-balance sheet accounting model, similar to the previous finance lease accounting. The standard replaces IAS 17, Leases ("IAS 17") and related interpretations and is effective for annual periods beginning on or after January 1, 2019.

The Company transitioned to IFRS 16 in accordance with the modified retrospective approach, under which the cumulative effect of initial application is recognized in retained earnings at January 1, 2019. The modified retrospective approach does not require restatement of comparative periods. As part of the initial application of IFRS 16, the Company has elected to use hindsight in determining the lease term where the contract contains options to extend or terminate the lease.




METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 1
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


On transition to IFRS 16, the Company recognized $411 million of lease assets and $453 million of lease liabilities, with the difference of $42 million ($38 million net of tax), recorded as an adjustment in equity. When measuring operating lease commitments, the Company discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average rate applied is 4.4%. The following reconciliation to the opening balance for lease liabilities as at January 1, 2019 is based upon the operating lease commitments as at December 31, 2018:

Jan 1
2019

Operating lease commitments at December 31, 2018
$
427,289

Discounted using the incremental borrowing rate at January 1, 2019
4.4
%
Finance lease liabilities recognized as at December 31, 2018
$
358,440

Recognition exemption for:


Short-term leases
(777
)
Leases of low-value assets
(8
)
Extension and termination options reasonably certain to be exercised
75,753

Scope changes due to IFRS 16
18,880

Other
594

Lease liabilities at January 1, 2019
$
452,882


The Company has updated its accounting policy for leasing to reflect the adoption of IFRS 16 as detailed below.

At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is, or contains, a lease if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. To assess whether a contract conveys the right to control the use of an identified asset, the Company assesses whether:
the contract involves the use of an identified asset - this may be specified explicitly or implicitly and should be physically distinct or represent substantially all of the capacity of a physically distinct asset. If the supplier has a substantive substitution right, then the asset is not identified;
the Company has the right to obtain substantially all of the economic benefits from use of the asset throughout the period of use; and
the Company has the right to direct the use of the asset. The Company has the right when it has the decision-making rights that are most relevant to changing how and for what purpose the asset is used.

For contracts that contain a lease, the Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and an estimate of costs to dismantle and remove the underlying asset or to restore the underlying asset or the site on which it is located, less any lease incentives received.

The right-of-use asset is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of property, plant and equipment. In addition, the right-of-use asset is assessed for impairment losses, should a trigger be identified and adjusted for impairment if required.

The lease liability is measured at amortized cost using the effective interest method. It is remeasured when there is a change in future lease payments arising from a change in an index or rate, if there is a change in the Company’s estimate of the amount expected to be payable under a residual value guarantee or if the Company changes its assessment of whether it will exercise a purchase, extension or termination option. When the lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset, or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero.



METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 2
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


Short-term leases and lease of low-value assets

The Company has elected not to recognize right-of-use assets and lease liabilities for short-term leases that have a lease term of 12 months or less and leases of low-value assets, except for terminal and vessel leases. The Company recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term.

Critical accounting estimates and judgments

In determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an extension option, or not exercise a termination option. The assessment is reviewed upon a trigger by a significant event or a significant change in circumstances.

Certain leases contain non-lease components, excluded from the right-of-use asset and lease liability, related to operating charges for ocean vessels and terminal facilities. Judgment is applied in determination of the stand-alone price of the lease and non-lease components.
2.
Inventories:

Inventories are valued at the lower of cost, determined on a first-in first-out basis, and estimated net realizable value. The amount of inventories recognized as an expense in cost of sales and operating expenses and depreciation and amortization for the three and nine month periods ended September 30, 2019 is $556 million (2018 - $732 million) and $1,682 million (2018 - $2,021 million), respectively.
3.
Other assets:

As at September 30, 2019, the Company holds $16.4 million (December 31, 2018 - $66.5 million) in cash and short-term, highly liquid investments held under restricted terms. The entire balance of restricted cash and cash equivalents (December 31, 2018 - $60.9 million) has been recorded as current as it is expected to be spent within one year. Use of the funds is primarily restricted for funding of a debt service account, certain capital projects and the operations of certain vessels.
4.
Property, plant and equipment:

 
Owned Assets
(a)
Right-of-use assets
(b)
Total

Net book value at September 30, 2019
$
2,910,899

$
592,651

$
3,503,550

Net book value at December 31, 2018
$
2,857,266

$
167,829

$
3,025,095



a)
Owned assets
 
Buildings, Plant
Installations &
Machinery

Plants Under Construction

Ocean Going Vessels

Other

Total

Cost at September 30, 2019
$
4,785,402

$
84,846

$
217,983

$
152,624

$
5,240,855

Accumulated depreciation at September 30, 2019
2,178,781


33,430

117,745

2,329,956

Net book value at September 30, 2019
$
2,606,621

$
84,846

$
184,553

$
34,879

$
2,910,899

Cost at December 31, 2018
$
4,698,142

$

$
183,419

$
189,058

$
5,070,619

Accumulated depreciation at December 31, 2018
2,047,735


48,426

117,192

2,213,353

Net book value at December 31, 2018
$
2,650,407

$

$
134,993

$
71,866

$
2,857,266




METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 3
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


In the third quarter, the Company reached a final investment decision to construct a 1.8 million tonne facility in Geismar, Louisiana adjacent to its Geismar 1 and Geismar 2 facilities. The cost of the project is expected to be between $1.3 to $1.4 billion including costs of approximately $85 million incurred to date included in Plants Under Construction.


b)
Right-of-use (leased) assets

Ocean Going Vessels

Terminals and Tanks

Plant Installations and Machinery

Other

Total

Cost at September 30, 2019
$
451,641

$
215,111

$
19,943

$
38,207

$
724,902

Accumulated depreciation at September 30, 2019
68,753

51,825

7,228

4,445

132,251

Net book value at September 30, 2019
$
382,888

$
163,286

$
12,715

$
33,762

$
592,651

Cost at December 31, 2018
$
87,800

$
113,978

$
16,032

$

$
217,810

Accumulated depreciation at December 31, 2018
15,204

29,333

5,444


49,981

Net book value at December 31, 2018
$
72,596

$
84,645

$
10,588

$

$
167,829

Cost at January 1, 2019
$
370,654

$
207,721

$
19,705

$
30,399

$
628,479

Accumulated depreciation at January 1, 2019
15,204

29,333

5,344


49,881

Net book value at January 1, 2019
$
355,450

$
178,388

$
14,361

$
30,399

$
578,598

5.
Interest in Atlas joint venture:

a)
The Company has a 63.1% equity interest in Atlas Methanol Company Unlimited ("Atlas"). Atlas owns a 1.8 million tonne per year methanol production facility in Trinidad. The Company accounts for its interest in Atlas using the equity method. Summarized financial information of Atlas (100% basis) is as follows:
Statements of financial position
Sep 30
2019

Dec 31
2018

Cash and cash equivalents
$
19,608

$
9,367

Other current assets
84,736

104,742

Non-current assets
239,594

255,822

Current liabilities
(32,391
)
(32,022
)
Other long-term liabilities, including current maturities
(139,015
)
(145,359
)
Net assets at 100%
$
172,532

$
192,550

Net assets at 63.1%
$
108,868

$
121,499

Long-term receivable from Atlas
76,322

76,322

Investment in associate
$
185,190

$
197,821



 
Three Months Ended
 
Nine Months Ended
Statements of income
Sep 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Revenue
$
96,459

$
91,558

 
$
292,788

$
353,659

Cost of sales and depreciation and amortization
(56,002
)
(51,791
)
 
(174,333
)
(211,151
)
Operating income
40,457

39,767

 
118,455

142,508

Finance costs, finance income and other expenses
(2,805
)
(2,661
)
 
(8,583
)
(8,300
)
Income tax expense
(14,242
)
(13,582
)
 
(40,245
)
(48,405
)
Net earnings at 100%
$
23,410

$
23,524

 
$
69,627

$
85,803

Earnings of associate at 63.1%
$
14,772

$
14,844

 
$
43,935

$
54,142

 
 
 
 
 
 
Dividends received from associate
$
12,620

$
28,395

 
$
56,159

$
63,102



METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 4
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


b)
Contingent liability:
The Board of Inland Revenue of Trinidad and Tobago has audited and issued assessments against Atlas in respect of the 2005 to 2012 financial years. All subsequent tax years remain open to assessment. The assessments relate to the pricing arrangements of certain long-term fixed-price sales contracts with affiliates that commenced in 2005 and continue through 2019. The long-term fixed-price sales contracts with affiliates were established as part of the formation of Atlas and management believes were reflective of market considerations at that time. Atlas had partial relief from corporation income tax until late July 2014.
During the periods under assessment and continuing through 2014, approximately 50% of Atlas produced methanol was sold under these fixed-price contracts. From late 2014 through 2019 fixed-price sales represent approximately 10% of Atlas produced methanol.
The Company believes it is impractical to disclose a reasonable estimate of the potential contingent liability due to the wide range of assumptions and interpretations implicit in the assessments.
The Company has lodged objections to the assessments. No deposits have been required to lodge objections. Based on the merits of the cases and advice from legal counsel, the Company believes its position should be sustained, that Atlas has filed its tax returns and paid applicable taxes in compliance with Trinidadian tax law, and as such has not accrued for any amounts relating to these assessments. Contingencies inherently involve the exercise of significant judgment, and as such the outcomes of these assessments and the financial impact to the Company could be material.
The Company anticipates the resolution of this matter in the court system to be lengthy and, at this time, cannot predict a date as to when this matter is expected to be resolved.
6.
Finance costs:
 
Three Months Ended
 
Nine Months Ended
 
Sep 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Finance costs
$
31,306

$
23,321

 
$
90,310

$
71,872

Less capitalized interest related to Geismar plant under construction
(796
)
(234
)
 
(1,801
)
(834
)
 
$
30,510

$
23,087

 
$
88,509

$
71,038


Finance costs are primarily comprised of interest on the unsecured notes, limited recourse debt facilities, finance lease obligations, amortization of deferred financing fees, and accretion expense associated with site restoration costs. Interest during construction projects is capitalized until the plant is substantially completed and ready for productive use.



METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 5
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


7.
Long-term debt:
As at
Sep 30
2019

Dec 31
2018

Unsecured notes
 
 
$350 million at 3.25% due December 15, 2019
$
349,773

$
349,026

$250 million at 5.25% due March 1, 2022
248,802

248,480

$300 million at 4.25% due December 1, 2024
297,512

297,232

$300 million at 5.65% due December 1, 2044
295,300

295,238

$700 million at 5.25% due December 15, 2029
693,933


 
1,885,320

1,189,976

Egypt limited recourse debt facilities
74,804

101,226

Other limited recourse debt facilities
161,314

167,084

Total long-term debt 1
2,121,438

1,458,286

Less current maturities 1
(389,042
)
(383,793
)
 
$
1,732,396

$
1,074,493

1 
Long-term debt and current maturities are presented net of deferred financing fees.

During the quarter ended September 30, 2019, the Company made repayments of $2.6 million on its other limited recourse debt facilities. Other limited recourse debt facilities relate to financing for certain of our ocean going vessels which we own through less than wholly-owned entities under the Company's control.

During the quarter, the Company issued $700 million of senior unsecured notes bearing a coupon of 5.25% and due December 15, 2029. Subsequent to the quarter, the Company repaid $350 million of unsecured notes originally due December 15, 2019. The Company also secured an $800 million non-revolving construction facility for the Geismar 3 project and renewed and extended its $300 million committed revolving credit facility, both with a syndicate of highly rated financial institutions and expiry in July 2024.

Significant covenants and default provisions of the two facilities include:
a) the obligation to maintain an EBITDA to interest coverage ratio of greater than or equal to 2:1 calculated on a four-quarter trailing basis, where for only one quarter during the term of the credit facility the ratio can be as low as, but not less than 1.25:1, and a debt to capitalization ratio of less than or equal to 57.5%, both calculated in accordance with definitions in the credit agreement that include adjustment to limited recourse subsidiaries.
b) a default if payment is accelerated by a creditor on any indebtedness of $50 million or more of the Company and its subsidiaries, except for the limited recourse subsidiaries, and
c) a default if a default occurs that permits a creditor to demand repayment on any other indebtedness of $50 million or more of the Company and its subsidiaries, except for the limited recourse subsidiaries.
    
The credit facilities also include other customary covenants including restrictions on the incurrence of additional indebtedness, restrictions against the sale or abandonment of the Geismar 3 project, as well as requirements associated with completion of plant construction and commissioning by no later than July 2023.
The limited recourse debt facilities are described as limited recourse as they are secured only by the assets of the entity that carries the debt. Accordingly, the lenders to the limited recourse debt facilities have no recourse to the Company or its other subsidiaries.

The Egypt limited recourse debt facilities have covenants and default provisions that apply only to the Egypt entity, including restrictions on the incurrence of additional indebtedness and a requirement to fulfill certain conditions before the payment of cash or other shareholder distributions. Since 2015, certain conditions had not been met, resulting in a restriction on shareholder distributions from the Egypt entity. Under amended terms reached in 2017, shareholder distributions are permitted if the average gas deliveries over the prior 12 months are greater than 70% of gas nominations.



METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 6
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


The Egypt limited recourse debt facilities contain covenants to complete certain mortgage registrations. The Company has sought and received waivers from lenders relating to these covenants until March 31, 2020. The Company does not believe that the finalization of these mortgage registrations are material. Whilst these covenants have been waived multiple times by the lenders, and circumstances have not materially changed, the Company cannot provide assurance that we will be able to obtain future waivers from the lenders.

Failure to comply with any of the covenants or default provisions of the long-term debt facilities described above could result in a default under the applicable credit agreement that would allow the lenders to not fund future loan requests, accelerate the due date of the principal and accrued interest on any outstanding loans or restrict the payment of cash or other distributions.

As at September 30, 2019, management believes the Company was in compliance with all significant terms and default provisions related to long-term debt obligations.
8.
Net income (loss) per common share:

Diluted net income (loss) per common share is calculated by considering the potential dilution that would occur if outstanding stock options and, under certain circumstances, tandem share appreciation rights ("TSARs") were exercised or converted to common shares.

Outstanding TSARs may be settled in cash or common shares at the holder’s option and for purposes of calculating diluted net income (loss) per common share, the more dilutive of the cash-settled and equity-settled method is used, regardless of how the plan is accounted for. Accordingly, TSARs that are accounted for using the cash-settled method will require adjustments to the numerator and denominator if the equity-settled method is determined to have a dilutive effect on diluted net income (loss) per common share as compared to the cash-settled method. The equity-settled method was more dilutive for the three and nine month periods ended September 30, 2019, and an adjustment was required for both the numerator and the denominator. For the three and nine month periods ended September 30, 2018 the cash-settled method was more dilutive and no adjustment was required for both the numerator and the denominator.

Stock options and, if calculated using the equity-settled method, TSARs are considered dilutive when the average market price of the Company’s common shares during the period disclosed exceeds the exercise price of the stock option or TSAR. For the three and nine month periods ended September 30, 2019 and September 30, 2018, stock options were considered dilutive, resulting in an adjustment to the denominator in both periods.

A reconciliation of the numerator used for the purposes of calculating diluted net income (loss) per common share is as follows:
 
Three Months Ended
 
Nine Months Ended
 
Sep 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Numerator for basic net income (loss) per common share
$
(9,911
)
128,057

 
$
78,788

408,106

Adjustment for the effect of TSARs:
 
 
 
 
 
Cash-settled recovery included in net income
(5,547
)

 
(6,630
)

Equity-settled expense
(474
)

 
(4,313
)

Numerator for basic and diluted net income (loss) per common share
$
(15,932
)
128,057

 
$
67,845

408,106



METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 7
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


A reconciliation of the denominator used for the purposes of calculating diluted net income (loss) per common share is as follows:
 
Three Months Ended
 
Nine Months Ended
 
Sep 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Denominator for basic net income (loss) per common share
76,196,080

79,263,939

 
76,726,467

81,517,418

Effect of dilutive stock options
3,425

77,658

 
21,068

74,662

Effect of dilutive TSARs
19,721


 
97,641


Denominator for diluted net income (loss) per common share
76,219,226

79,341,597

 
76,845,176

81,592,080

9.
Share-based compensation:

a)
Share appreciation rights ("SARs"), TSARs and stock options:

(i)
Outstanding units:

Information regarding units outstanding at September 30, 2019 is as follows:
 
SARs
 
TSARs
(per share amounts in USD)
Number of Units

Weighted Average Exercise Price

 
Number of Units

Weighted Average Exercise Price

Outstanding at December 31, 2018
896,883

$
51.27

 
1,447,301

$
51.24

Granted
29,320

57.60

 
272,860

57.60

Exercised
(34,095
)
38.14

 
(44,969
)
37.13

Cancelled
(22,534
)
55.47

 
(23,601
)
49.74

Outstanding at June 30, 2019
869,574

$
51.89

 
1,651,591

$
52.70

Granted


 
21,820

45.40

Exercised
(900
)
34.59

 


Cancelled
(6,600
)
52.14

 
(11,284
)
61.01

Outstanding at September 30, 2019
862,074

$
51.91

 
1,662,127

$
52.54


 
Stock Options
(per share amounts in USD)
Number of Units

Weighted Average Exercise Price

Outstanding at December 31, 2018
198,221

$
48.55

Granted
7,410

57.60

Exercised
(2,700
)
31.73

Outstanding at June 30, 2019
202,931

$
49.11

Granted


Exercised


Cancelled


Outstanding at September 30, 2019
202,931

$
49.11




METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 8
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


 
Units Outstanding at September 30, 2019
 
Units Exercisable at September 30, 2019
Range of Exercise Prices
(per share amounts in USD)
Weighted Average
Remaining
Contractual Life
(Years)

Number
of Units
Outstanding

Weighted
Average
Exercise Price

 
Number of Units
Exercisable

Weighted
Average
Exercise Price

SARs:
 
 
 
 
 
 
$25.97 to $35.51
3.38

191,647

$
34.51

 
191,647

$
34.51

$38.24 to $50.17
3.16

191,684

46.39


141,597

45.07

$54.65 to $78.59
3.16

478,743

61.08

 
362,759

62.73

 
3.21

862,074

$
51.91

 
696,003

$
51.37

TSARs:
 
 
 
 
 
 
$25.97 to $35.51
3.42

309,637

$
34.59

 
309,637

$
34.59

$38.24 to $50.17
3.77

386,471

47.62


263,269

46.82

$54.65 to $78.59
4.31

966,019

60.27

 
482,156

63.91

 
4.02

1,662,127

$
52.54

 
1,055,062

$
51.04

Stock options:
 
 
 
 
 
 
$25.97 to $35.51
3.42

53,767

$
34.59

 
53,767

$
34.59

$38.24 to $50.17
2.26

57,754

43.70


48,551

42.47

$54.65 to $78.59
3.16

91,410

61.06

 
69,400

62.78

 
2.97

202,931

$
49.11

 
171,718

$
48.21


(ii)
Compensation expense related to SARs and TSARs:

Compensation expense for SARs and TSARs is measured based on their fair value and is recognized over the vesting period. Changes in fair value each period are recognized in net income (loss) for the proportion of the service that has been rendered at each reporting date. The fair value at September 30, 2019 was $6.1 million compared with the recorded liability of $5.6 million. The difference between the fair value and the recorded liability of $0.5 million will be recognized over the weighted average remaining vesting period of approximately 1.7 years. The weighted average fair value was estimated at September 30, 2019 using the Black-Scholes option pricing model.

For the three and nine month periods ended September 30, 2019, compensation expense related to SARs and TSARs included a recovery in cost of sales and operating expenses of $8.4 million (2018 - an expense of $17.9 million) and a recovery of $10.5 million (2018 - an expense of $47.3 million), respectively. This included a recovery of $8.8 million (2018 - an expense of $17.0 million) and a recovery of $14.8 million (2018 - an expense of $41.5 million), respectively, related to the effect of the change in the Company’s share price for the three and nine month periods ended September 30, 2019.

(iii)
Compensation expense related to stock options:

For the three and nine month periods ended September 30, 2019, compensation expense related to stock options included in cost of sales and operating expenses was $0.1 million (2018 - $0.1 million) and $0.2 million (2018 - $0.3 million), respectively. The fair value of each stock option grant was estimated on the grant date using the Black-Scholes option pricing model.



METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 9
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


b)
Deferred, restricted and performance share units (old plan and new plan):

Deferred, restricted and performance share units (old plan and new plan) outstanding at September 30, 2019 are as follows:
 
Number of Deferred
Share Units

Number of Restricted
Share Units

Number of Performance
Share Units (old plan)

Number of
Performance
Share Units (new plan)

Outstanding at December 31, 2018
209,092

17,361

579,778


Granted
10,781

78,520


134,930

Performance factor impact on redemption 1


132,215


Granted in-lieu of dividends
1,950

1,209

4,151

1,845

Redeemed
(96,761
)
(9,966
)
(396,635
)

Cancelled

(264
)
(19,101
)
(263
)
Outstanding at June 30, 2019
125,062

86,860

300,408

136,512

Granted
1,716

720



Granted in-lieu of dividends
1,286

860

2,947

1,341

Cancelled

(213
)
(939
)
(213
)
Outstanding at September 30, 2019
128,064

88,227

302,416

137,640

1 
Performance share units granted prior to 2019 have a feature where the ultimate number of units that vest are adjusted by a performance factor of the original grant as determined by the Company’s total shareholder return in relation to a predetermined target over the period to vesting. These units relate to performance share units redeemed in the quarter ended March 31, 2019.

Performance share units granted in 2019 reflect a new long-term incentive plan. The performance share units granted under the new plan are redeemable for cash based on the market value of the Company's common shares and are non- dilutive to shareholders. They vest over three years and include two performance factors: (i) relative total shareholder return of Methanex shares versus a specific market index (the market performance factor) and (ii) three year average Return on Capital Employed (the non-market performance factor). The market performance factor is measured by the Company at the grant date and reporting date using a Monte-Carlo simulation model to determine fair value. The non-market performance factor reflects management's best estimate to determine the expected number of units to vest. Based on these performance factors the performance share unit payout will range between 0% to 200%, with the first payout of the new performance share units in 2022.

Compensation expense for deferred, restricted and performance share units (old plan and new plan) is measured at fair value based on the market value of the Company’s common shares and is recognized over the vesting period. Changes in fair value are recognized in net income (loss) for the proportion of the service that has been rendered at each reporting date. The fair value of deferred, restricted and performance share units at September 30, 2019 was $16.4 million compared with the recorded liability of $12.7 million. The difference between the fair value and the recorded liability of $3.7 million will be recognized over the weighted average remaining vesting period of approximately 2.1 years.

For the three and nine month periods ended September 30, 2019, compensation expense related to deferred, restricted and performance share units (old plan and new plan) included in cost of sales and operating expenses was a recovery of $2.1 million (2018 - an expense of $13.1 million) and an expense of $3.7 million (2018 - $31.9 million), respectively. This included a recovery of $3.3 million (2018 - an expense of $12.4 million) and $4.6 million (2018 - an expense of $28.7 million), respectively, related to the effect of the change in the Company’s share price for the three and nine month periods ended September 30, 2019.


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 10
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


10.
Changes in non-cash working capital:

Changes in non-cash working capital for the three and nine month periods ended September 30, 2019 and 2018 were as follows:
 
Three Months Ended
 
Nine Months Ended
 
Sep 30
2019

Sep 30
2018

 
Sep 30
2019

Sep 30
2018

Changes in non-cash working capital:
 
 
 
 
 
Trade and other receivables
$
45,142

$
(62,623
)
 
$
90,892

$
(62,445
)
Inventories
61,517

27,381

 
87,626

(17,997
)
Prepaid expenses
(7,539
)
(12,705
)
 
(7,597
)
(10,651
)
Trade, other payables and accrued liabilities
(83,939
)
(33,497
)
 
(125,912
)
(4,802
)
 
15,181

(81,444
)
 
45,009

(95,895
)
Adjustments for items not having a cash effect and working capital changes relating to taxes and interest paid
6,170

15,303

 
22,012

37,862

Changes in non-cash working capital having a cash effect
$
21,351

$
(66,141
)
 
$
67,021

$
(58,033
)
 
 
 
 
 
 
These changes relate to the following activities:
 
 
 
 
 
Operating
$
8,913

$
(65,717
)
 
$
49,658

$
(59,583
)
Financing
(1,780
)
(3,027
)
 

4,000

Investing
14,218

2,603

 
17,363

(2,450
)
Changes in non-cash working capital
$
21,351

$
(66,141
)
 
$
67,021

$
(58,033
)

11.Financial instruments:

Financial instruments are either measured at amortized cost or fair value.
In the normal course of business, the Company's assets, liabilities and forecasted transactions, as reported in U.S. dollars, are impacted by various market risks including, but not limited to, natural gas prices and currency exchange rates. The time frame and manner in which the Company manages those risks varies for each item based on the Company's assessment of the risk and the available alternatives for mitigating risks.
The Company uses derivatives as part of its risk management program to mitigate variability associated with changing market values. Changes in fair value of derivative financial instruments are recorded in earnings unless the instruments are designated as cash flow hedges. The Company designates as cash flow hedges derivative financial instruments to hedge its risk exposure to fluctuations in natural gas prices and derivative financial instruments to hedge its risk exposure to fluctuations in the euro compared to the U.S. dollar.
The fair value of derivative instruments is determined based on industry-accepted valuation models using market observable inputs and are classified within Level 2 of the fair value hierarchy. The fair value of all of the Company's derivative contracts as presented in the consolidated statements of financial position are determined based on present values and the discount rates used are adjusted for credit risk. The effective portion of the changes in fair value of derivative financial instruments designated as cash flow hedges is recorded in other comprehensive income. The spot element of forward contracts in the hedging relationships is recorded in other comprehensive income as the change in fair value of cash flow hedges. The change in the fair value of the forward element of forward contracts is recorded separately in other comprehensive income as the forward element excluded from the hedging relationships.
Until settled, the fair value of the derivative financial instruments will fluctuate based on changes in commodity prices or foreign currency exchange rates.


METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 11
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


Natural gas forward contracts
The Company manages its exposure to changes in natural gas prices for a portion of its North American natural gas requirements by executing a number of fixed price forward contracts.
In the current quarter, the Company entered into a physical forward contract for the equivalent of approximately one-third of Geismar 3's natural gas requirements for delivery in 2023 to 2025 designated as a cash flow hedge to manage its exposure to changes in natural gas prices for the Geismar facilities. This is in addition to its existing forward contracts for the Geismar facilities designated as cash flow hedges. Natural gas is fungible across the Geismar site. The Company has also entered into physical forward contracts to manage its exposure to changes in natural gas prices for the Medicine Hat facility. The Company has designated contracts for the 2021 and 2022 periods as cash flow hedges. Other costs incurred to transport natural gas from the contracted delivery point, either Henry Hub or AECO, to the relevant production facility represent an insignificant portion of the overall underlying risk and are recognized as incurred outside of the hedging relationship.
As at September 30, 2019, the Company had outstanding forward contracts in North America designated as cash flow hedges with a notional amount of $983 million (December 31, 2018 - $426 million) and a net negative fair value of $146.9 million (December 31, 2018 - negative fair value $105.7 million), of which $147.4 million is included in other long-term liabilities offset by $0.5 million included in other assets.
Euro forward exchange contracts
The Company manages its foreign currency exposure to euro denominated sales by executing a number of forward contracts which it has designated as cash flow hedges for its highly probable forecast euro collections.
As at September 30, 2019, the Company had outstanding forward exchange contracts designated as cash flow hedges to sell a notional amount of 25 million euros (December 31, 2018 - 45 million euros). The euro contracts had a positive fair value of $1.2 million included in current assets (December 31, 2018 - positive fair value $0.3 million included in current assets).
Fair value
The fair value of the Company’s derivative financial instruments as disclosed above are determined based on Bloomberg quoted market prices and confirmations received from counterparties, which are adjusted for credit risk.
The table below shows the nominal net cash flows for derivative hedging instruments, excluding credit risk adjustments, based upon contracted settlement dates. The amounts reflect the maturity profile of the hedging instruments and are subject to change based on the prevailing market rate at each of the future settlement dates. Financial asset derivative positions are held with investment-grade counterparties and therefore the settlement day risk exposure is considered to be negligible.
 
Cash inflows (outflows) by term to maturity
 
1 year or less

1-3 years

3-5 years

More than
5 years

Total

Natural gas forward contracts
(15,002
)
(43,663
)
(47,200
)
(73,410
)
$
(179,275
)
Euro forward exchange contracts
1,213




$
1,213



METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 12
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


The carrying values of the Company’s financial instruments approximate their fair values, except as follows:
 
September 30, 2019
As at
Carrying Value

Fair Value

Long-term debt excluding deferred financing fees
$
2,139,205

$
2,150,021


Long-term debt consists of limited recourse debt facilities and unsecured notes. There is no publicly traded market for the limited recourse debt facilities. The fair value of the limited recourse debt facilities as disclosed on a recurring basis and categorized as Level 2 within the fair value hierarchy is estimated by reference to current market rates as at the reporting date. The fair value of the unsecured notes disclosed on a recurring basis and also categorized as Level 2 within the fair value hierarchy is estimated using quoted prices and yields as at the reporting date. The fair value of the Company’s long term debt will fluctuate until maturity.




METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 13
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (UNAUDITED)


Methanex Corporation
Quarterly History (unaudited)

 
2019

Q3

Q2

Q1

2018

Q4

Q3

Q2

Q1

 
 
 
 
 
 
 
 
 
 
METHANOL SALES VOLUME
 
 
 
 
 
 
 
 
 
(thousands of tonnes)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Methanex-produced 1
5,555

1,965

1,669

1,921

7,002

1,599

1,790

1,729

1,884

Purchased methanol
1,869

680

716

473

3,032

908

802

709

613

Commission sales 1
724

179

216

329

1,174

245

279

329

321

 
8,148

2,824

2,601

2,723

11,208

2,752

2,871

2,767

2,818

METHANOL PRODUCTION
 
 
 
 
 
 
 
 
 
(thousands of tonnes)
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
New Zealand
1,352

469

446

437

1,606

389

478

252

487

USA (Geismar)
1,449

514

530

405

2,078

527

520

518

513

Trinidad (Methanex interest)
1,287

474

384

429

1,702

448

353

442

459

Egypt (50% interest)
241

85

15

141

613

155

128

165

165

Canada (Medicine Hat)
459

149

155

155

600

160

144

143

153

Chile
677

146

290

241

612

206

112

128

166

 
5,465

1,837

1,820

1,808

7,211

1,885

1,735

1,648

1,943

AVERAGE REALIZED METHANOL PRICE 2
 
 
 
 
 
 
 
 
 
($/tonne)
309

272

326

331

405

401

413

405

402

($/gallon)
0.93

0.82

0.98

1.00

1.22

1.21

1.24

1.22

1.21

 
 
 
 
 
 
 
 
 
 
ADJUSTED EBITDA 3
430

90

146

194

1,071

197

293

275

306

 
 
 
 
 
 
 
 
 
 
PER SHARE INFORMATION 3
($ per common share attributable to Methanex shareholders) 
 
 
 
 
 
 
 
 
 
Adjusted net income (loss)
0.80

(0.27
)
0.34

0.73

6.86

1.15

1.92

1.75

2.03

Basic net income (loss)
1.03

(0.13
)
0.65

0.50

7.07

2.07

1.62

1.36

2.02

Diluted net income (loss)
0.88

(0.21
)
0.51

0.50

6.92

1.68

1.61

1.36

2.00


1 
Methanex-produced methanol represents our equity share of volume produced at our facilities and excludes volume marketed on a commission basis related to the 36.9% of the Atlas facility and 50% of the Egypt facility that we do not own. Methanex-produced methanol includes any volume produced by Chile using natural gas supplied from Argentina under a tolling arrangement ("Tolling Volume"). No Tolling Volume has been produced in 2019. There were 20,000 MT of Tolling Volume in the third quarter of 2018 and 108,000 MT of Tolling Volume for the nine months ended September 30, 2018.
2 
Average realized price is calculated as revenue, excluding commissions earned and the Egypt non-controlling interest share of revenue, but including an amount representing our share of Atlas revenue, divided by the total sales volume of Methanex-produced and purchased methanol, but excluding Tolling Volume.
3 
All quarters presented for 2019 reflect the adoption of IFRS 16. Financial information in all comparative periods do not reflect the impact of IFRS 16. Refer to the Adoption of New Accounting Standards section on page 14.


 

METHANEX CORPORATION 2019 THIRD QUARTER    PAGE 14
QUARTERLY HISTORY (UNAUDITED)



SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned, thereunto duly authorized.

 
METHANEX CORPORATION
Date: October 30, 2019
By:
/s/ KEVIN PRICE
 
 
Name:
 
Kevin Price
 
 
Title:
 
General Counsel
and Corporate Secretary


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