By Collin Gallant on April 1, 2017.
The largest shareholder in Methanex says it wants proposed major expansions shelved in favour of returning more cash to investors.
Hatters have waited with baited breath since 2013 to hear when a major plant twinning in Alberta might go ahead.
The company has kept firm that it is examining the economic case for a $1-billion expansion here, as well as possible further expansion on the U.S. Gulf Coast.
This week though, U.K.-based M&G Investment Management, which holds one-fifth the global methanol supplier’s shares, filed paper work declaring it will become a more active investor.
It states an opinion that its shares are undervalued, and after moving South American plants to Louisiana over the last two years, Methanex should consolidate stock with new income rather than fund further expansion.
If not, M&G states, it may seek to replace board members during shareholder elections.
M&G officials “have been repeatedly frustrated with the market valuation of the company,” reads the form filed with the U.S. Securities and Exchange Commission.
“Post the completion of the relocation of the Chilean assets to the U.S., we believe the Issuer (Methanex) is finally now in a strong position to take advantage of this situation by using its strong cash generation to repurchase shares.”
A press release response from Methanex states only minimal new capital spending is planned over the next two years and a plan is in place to maintain dividends and buy back shares.
“We believe that M&G’s views are quite aligned with our strategy with respect to capital allocation,” stated CEO John Floren.
“We have a long track record of a disciplined approach to capital allocation and of returning cash to shareholders, while maintaining a prudent balance sheet and liquidity given the cyclical nature of our business.”
He added that the company has spent $2 billion to add 3 million tonnes of annual production, which is now benefiting from higher world prices.
“This major capital expansion is now behind us. We have modest maintenance capital and financing requirements in the next two years.”
Markets reacted favourably Wednesday, with Methanex share prices rising about 5 per cent to $63.99 in heavy trading. The stock traded as low as $35.35 in August 2016. It hit an 18-month high in early March at $69.31.
Floren told investors in January that potential plant expansions in Louisiana and Alberta are being evaluated, but only maintenance work was planned for the next 18 months.
The company would also spend about $50 million at a Chilean facility that was recently restarted with a new gas supply arrangement.
M&G also backed spending in Chile, which could total $100 million over two years, stating that it is a cost-effective way to increase production.
Stock buybacks are a strategy used typically when managers and investors believe a company’s value is not reflected in its share price. The company uses internal funds to buy shares on the market, then absorbs them, thereby reducing the number of shares and increasing the value of those that remain.