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Methanex Reports Stronger EBITDA In the Fourth Quarter

January 30, 2013

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Jan. 30, 2013) - For the fourth quarter of 2012, Methanex (TSX:MX)(NASDAQ:MEOH)(SANTIAGO:Methanex) reported Adjusted EBITDA1 of $119 million and Adjusted net income1 of $61 million ($0.64 per share on a diluted basis1). This compares with Adjusted EBITDA1 of $104 million and Adjusted net income1 of $36 million ($0.38 per share on a diluted basis1) for the third quarter of 2012. For the year ended December 31, 2012, Methanex reported Adjusted EBITDA1 of $429 million and Adjusted net income1 of $180 million ($1.90 per share on a diluted basis1). This compares with Adjusted EBITDA1 of $427 million and Adjusted net income1 of $182 million ($1.93 per share on a diluted basis1) for the year ended December 31, 2011.

As a result of continuing challenges related to securing a sustainable natural gas supply in Chile, Methanex recorded a non-cash before-tax $297 million asset impairment charge ($193 million after-tax) to write down the carrying value of its Chile assets. Including the asset impairment charge related to the carrying value of its Chile assets, Methanex reported a net loss attributable to Methanex shareholders for the fourth quarter of 2012 of $140 million ($1.49 loss per share on a diluted basis). For the year ended December 31, 2012, Methanex reported a net loss attributable to Methanex shareholders of $68 million ($0.73 loss per share on a diluted basis).

John Floren, President and CEO of Methanex commented, "Methanol prices increased during the fourth quarter and this led to higher Adjusted EBITDA compared to last quarter. Entering the first quarter, methanol demand has continued to be healthy and the pricing environment has been relatively stable. The longer term outlook for the industry looks very attractive with demand growth expected to significantly outpace new capacity additions over the next few years."

Mr. Floren added, "A key area of focus for me as the new CEO will be the successful execution of our value-creating growth projects in Louisiana and New Zealand. While we are disappointed with our progress on securing natural gas in Chile, these new initiatives in Louisiana and New Zealand have the potential to add up to three million tonnes of capacity over the next few years which will enhance supply to our customers and significantly improve cash generation for shareholders."

Mr. Floren concluded, "With over US$700 million of cash on hand, an undrawn credit facility, a robust balance sheet, and strong cash flow generation, we are well positioned to invest in the Louisiana project, New Zealand expansion plans and other strategic growth opportunities and continue to deliver on our commitment to return excess cash to shareholders."

A conference call is scheduled for January 31, 2013 at 12:00 noon ET (9:00 am PT) to review these fourth quarter results. To access the call, dial the Conferencing operator ten minutes prior to the start of the call at (416) 340-8527, or toll free at (877) 240-9772. A playback version of the conference call will be available for three weeks at (905) 694-9451, or toll free at (800) 408-3053. The passcode for the playback version is 6328000. Presentation slides summarizing Q4-12 results and a simultaneous audio-only webcast of the conference call can be accessed from our website at www.methanex.com. The webcast will be available on the website for three weeks following the call.

Methanex is a Vancouver-based, publicly traded company and is the world's largest 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", on the NASDAQ Global Market in the United States under the trading symbol "MEOH", and on the foreign securities market of the Santiago Stock Exchange in Chile under the trading symbol "Methanex". Methanex can be visited online at www.methanex.com.

FORWARD-LOOKING INFORMATION WARNING

This Fourth Quarter 2012 press release contains forward-looking statements with respect to us and the chemical industry. Refer to Forward-Looking Information Warning in the attached Fourth Quarter 2012 Management's Discussion and Analysis for more information.

  1. Adjusted EBITDA, Adjusted net income and Adjusted diluted net income per common share are non-GAAP measures which 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 amounts associated with the 40% non-controlling interest in the methanol facility in Egypt, the mark-to-market impact of items which impact the comparability of our earnings from one period to another, which currently include only the mark-to-market impact of share-based compensation as a result of changes in our share price, Louisiana project relocation expenses and charges and asset impairment charges. Refer to the Additional Information - Supplemental Non-GAAP Measures section of the attached Interim Report for the three months ended December 31, 2012 for reconciliations to the most comparable GAAP measures.
Interim Report for the Three Months Ended December 31, 2012
At January 30, 2013 the Company had 94,363,605 common shares issued and outstanding and stock options exercisable for 2,776,612 additional common shares.
Share Information
Methanex Corporation's common shares are listed for trading on the Toronto Stock Exchange under the symbol MX, on the Nasdaq Global Market under the symbol MEOH and on the foreign securities market of the Santiago Stock Exchange in Chile under the trading symbol Methanex.
Investor Information
All financial reports, news releases and corporate information can be accessed on our website at http://www.methanex.com/
Transfer Agents & Registrars
CIBC Mellon Trust Company
320 Bay Street
Toronto, Ontario, Canada M5H 4A6
Toll free in North America: 1-800-387-0825
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

FOURTH QUARTER MANAGEMENT'S DISCUSSION AND ANALYSIS

Except where otherwise noted, all currency amounts are stated in United States dollars.

FINANCIAL AND OPERATIONAL HIGHLIGHTS

  • A summary of net income (loss) attributable to Methanex shareholders, Adjusted net income1 and Adjusted diluted net income per common share1 is as follows:
Three Months Ended Years Ended
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions except number of shares and per share amounts) 2012 2012 2011 2012 2011
Net income (loss) attributable to Methanex shareholders $ (140) $ (3) $ 64 $ (68) $ 201
Mark-to-market impact of share-based compensation, net of tax
8

-


1


14


(19)
Louisiana project relocation expenses and charges, net of tax
Cash expense - 21 - 23 -
Non-cash charge - 18 - 18 -
Asset impairment charge, net of tax 193 - - 193 -
Adjusted net income 1 $ 61 $ 36 $ 65 $ 180 $ 182
Diluted weighted average shares outstanding (millions) 94 94 94 94 94
Adjusted diluted net income per common share 1 $ 0.64 $ 0.38 $ 0.69 $ 1.90 $ 1.93
  • We recorded Adjusted EBITDA1 of $119 million for the fourth quarter of 2012 compared with $104 million for the third quarter of 2012. The increase in Adjusted EBITDA1 was primarily due to an increase in average realized price to $389 per tonne for the fourth quarter of 2012 from $373 per tonne for the third quarter of 2012.
  • Production for the fourth quarter of 2012 was 1,067,000 tonnes compared with 1,025,000 tonnes for the third quarter of 2012. Refer to the Production Summary section.
  • Sales of Methanex-produced methanol were 1,059,000 tonnes in the fourth quarter of 2012 compared with 1,053,000 in the third quarter of 2012.
  • During the fourth quarter of 2012, we issued $350 million of unsecured notes due in 2019, increased our revolving credit facility to $400 million and extended the term to 2016, and paid a $0.185 per share dividend to shareholders for a total of $17 million.
  • As a result of continuing challenges related to securing a sustainable natural gas supply in Chile, we recorded a non-cash before-tax $297 million asset impairment charge ($193 million after-tax) to write down the carrying value of our Chile assets.
  • We continue to make good progress with our project to relocate an idle Chile facility to Geismar, Louisiana and the project remains on schedule and on budget. We recently announced that we have signed an agreement with Chesapeake Energy to supply the facility's natural gas requirements for a ten-year period.
1 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 the Additional Information - Supplemental Non-GAAP Measures section for a description of each non-GAAP measure and reconciliations to the most comparable GAAP measures.

This Fourth Quarter 2012 Management's Discussion and Analysis ("MD&A") dated January 30, 2013 for Methanex Corporation ("the Company") should be read in conjunction with the Company's condensed consolidated interim financial statements for the period ended December 31, 2012 as well as the 2011 Annual Consolidated Financial Statements and MD&A included in the Methanex 2011 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 2011 Annual Report and additional information relating to Methanex is available on SEDAR at www.sedar.com and on EDGAR at www.sec.gov.

FINANCIAL AND OPERATIONAL DATA
Three Months Ended Years Ended
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions, except per share amounts and where noted) 2012 2012 2011 2012 2011
Production (thousands of tonnes) (attributable to Methanex shareholders) 1,067 1,025 961 4,071 3,847
Sales volumes (thousands of tonnes):
Methanex-produced methanol (attributable to Methanex shareholders) 1,059 1,053 1,052 4,039 3,853
Purchased methanol 664 641 644 2,565 2,815
Commission sales 1 176 205 208 855 846
Total sales volumes 1,899 1,899 1,904 7,459 7,514
Methanex average non-discounted posted price ($ per tonne) 2 450 433 456 443 440
Average realized price ($ per tonne) 3 389 373 388 382 374
Adjusted EBITDA (attributable to Methanex shareholders) 4 119 104 133 429 427
Adjusted cash flows from operating activities (attributable to Methanex shareholders) 4
101

103

122

403

392
Cash flows from operating activities 98 131 158 458 480
Adjusted net income (attributable to Methanex shareholders) 4 61 36 65 180 182
Net income (loss) attributable to Methanex shareholders (140) (3) 64 (68) 201
Adjusted diluted net income per common share (attributable to Methanex shareholders) 4 5
0.64

0.38

0.69

1.90

1.93
Basic net income (loss) per common share (attributable to Methanex shareholders) (1.49) (0.03) 0.69 (0.73) 2.16
Diluted net income (loss) per common share (attributable to Methanex shareholders) (1.49) (0.03) 0.68 (0.73) 2.06
Common share information (millions of shares):
Weighted average number of common shares 94 94 93 94 93
Diluted weighted average number of common shares 94 94 94 94 94
Number of common shares outstanding, end of period 94 94 93 94 93
1 Commission sales represent volumes marketed on a commission basis related to the 36.9% of the Atlas methanol facility and 40% of the Egypt methanol facility that we do not own.
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 http://www.methanex.com/.
3 Average realized price is calculated as revenue, excluding commissions earned and the Egypt non-controlling interest share of revenue, divided by the total sales volumes of Methanex-produced (attributable to Methanex shareholders) and purchased methanol.
4 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 the Additional Information - Supplemental Non-GAAP Measures section for a description of each non-GAAP measure and reconciliations to the most comparable GAAP measures.
5 For the three month period and year ended December 31, 2012, stock options have been excluded from the calculation of diluted net loss per common share (attributable to Methanex shareholders) as their effect would be anti-dilutive. However, for the calculation of adjusted diluted net income per common share (attributable to Methanex shareholders) stock options have been included in the denominator and the diluted weighted average number of common shares is 95 million for the three month period and year ended December 31, 2012.
PRODUCTION SUMMARY
Annual
Capacity 1
2012
Production
2011
Production
Q4 2012
Production
Q3 2012
Production
Q4 2011
Production
(thousands of tonnes)
Chile I, III and IV 2 2,800 313 554 59 59 113
New Zealand 3 2,230 1,108 830 378 346 211
Atlas (Trinidad) (63.1% interest) 1,150 826 891 180 255 195
Titan (Trinidad) 900 786 711 189 186 180
Egypt (60% interest) 760 557 532 129 62 132
Medicine Hat 470 481 329 132 117 130
8,310 4,071 3,847 1,067 1,025 961
1 The production capacity of our facilities may be higher than original nameplate capacity as, over time, these figures have been adjusted to reflect ongoing operating efficiencies.
2 In July 2012, we reached a final investment decision to proceed with the project to relocate the Chile II facility to Geismar, Louisiana. The Chile capacity in the above table excludes the 1.0 million tonnes of annual production capacity which is being relocated to Louisiana.
3 The production capacity of New Zealand represents the two 0.85 million tonne facilities at Motunui and the 0.53 million tonne facility at Waitara Valley. In July, we restarted the second Motunui facility, but due to current distillation capacity constraints at the Motunui site, the combined production capacity of both plants is approximately 1.5 million tonnes, compared with the combined nameplate capacity of 1.7 - 1.9 million tonnes, depending on natural gas composition (refer to the New Zealand section below).

Chile

We continue to operate our Chile facilities significantly below site capacity and during the fourth quarter of 2012 we produced 59,000 tonnes in Chile operating one plant at approximately 20% of capacity.

While investments have been made over the last few years for natural gas exploration and development in southern Chile, the timeline for a potential significant increase in gas production is much longer than we had originally anticipated. As a result, the short-term outlook for gas supply in Chile continues to be challenging and we recently announced that we expect to idle our Chile operations in March 2013 because we do not expect to have sufficient natural gas feedstock to keep our plant operating through the southern hemisphere winter. We are continuing to work with Empresa Nacional del Petroleo (ENAP) and others to secure sufficient natural gas to sustain our operations and while the restart of a Chile plant is possible later in 2013, the restart is dependent on securing a sustainable natural gas position to operate over the medium term.

As a result of the continuing challenges related to securing a sustainable natural gas feedstock in Chile, we recorded a non-cash before-tax $297 million asset impairment charge ($193 million after-tax) to write down the carrying value of our Chile assets to $245 million. The $245 million carrying value excludes the first Chile facility that is being relocated to Geismar, Louisiana, but includes the second facility that management also intends to relocate to Geismar.

The future of our Chile operations is primarily dependent on the level of exploration and development in southern Chile and our ability to secure a sustainable natural gas supply to our facilities on economic terms.

New Zealand

Our New Zealand methanol facilities produced 378,000 tonnes of methanol in the fourth quarter of 2012 operating at the current annual site capacity of 1.5 million tonnes. We are currently assessing the feasibility of debottlenecking the Motunui site and the potential to restart our nearby 530,000 tonne Waitara Valley plant which could add up to a further 900,000 tonnes of annual production in New Zealand.

Trinidad

In Trinidad, we own 100% of the Titan facility with an annual production capacity of 900,000 tonnes and have a 63.1% interest in the Atlas facility with an annual production capacity of 1,150,000 tonnes (63.1% interest). The Titan facility produced 189,000 tonnes in the fourth quarter of 2012 compared with 186,000 tonnes in the third quarter of 2012. Production in the fourth quarter of 2012 was impacted by periodic natural gas curtailments.

The Atlas facility produced 180,000 tonnes in the fourth quarter of 2012 compared with 255,000 tonnes in the third quarter of 2012. The Atlas facility was shut down at the end of September 2012 for repairs and returned to production at the end of October 2012.

We continue to experience some natural gas curtailments to our Trinidad facilities due to a mismatch between upstream commitments to supply the Natural Gas Company in Trinidad (NGC) and downstream demand from NGC's customers which becomes apparent when an upstream supply issue arises. We are engaged with key stakeholders to find a solution to this issue, but in the meantime we expect to continue to experience some gas curtailments to our Trinidad site.

Egypt

The Egypt methanol facility produced 129,000 tonnes (60% interest) in the fourth quarter of 2012 compared with 62,000 tonnes in the third quarter of 2012. We have a 60% equity interest in the facility and marketing rights for 100% of the production. Production during the fourth quarter of 2012 was lower than capacity due to an unplanned maintenance outage and natural gas supply restrictions.

During the third and fourth quarters of 2012, the Egypt facility experienced periodic natural gas supply restrictions as a result of increased electricity demand and ongoing operating issues with the upstream gas infrastructure. This situation may persist in the future and become more acute during the summer months when electricity demand is at its peak.

Medicine Hat

Our 470,000 tonne per year facility in Medicine Hat, Alberta produced 132,000 tonnes in the fourth quarter of 2012 compared with 117,000 tonnes during the third quarter of 2012. We are currently debottlenecking the Medicine Hat facility which will add a further 90,000 tonnes of annual production capacity to our Medicine Hat operations by the end of the third quarter of 2013.

FINANCIAL RESULTS

For the fourth quarter of 2012 we recorded Adjusted EBITDA of $119 million and Adjusted net income of $61 million ($0.64 per share on a diluted basis). This compares with Adjusted EBITDA of $104 million and Adjusted net income of $36 million ($0.38 per share on a diluted basis) for the third quarter of 2012. For the year ended December 31, 2012, we reported Adjusted EBITDA of $429 million and Adjusted net income of $180 million ($1.90 per share on a diluted basis) compared with Adjusted EBITDA of $427 million and Adjusted net income of $182 million ($1.93 per share on a diluted basis) for the year ended December 31, 2011.

After the non-cash before-tax $297 million asset impairment charge ($193 million after-tax) related to the carrying value of our Chile assets, we reported a net loss attributable to Methanex shareholders for the fourth quarter of 2012 of $140 million ($1.49 loss per share on a diluted basis). For the year ended December 31, 2012, we reported a net loss attributable to Methanex shareholders of $68 million ($0.73 loss per share on a diluted basis). For further details, refer to note 4 of the attached condensed consolidated interim financial statements for the period ended December 31, 2012.

We calculate Adjusted EBITDA and Adjusted net income by excluding amounts associated with the 40% non-controlling interest in Egypt that we do not own, the mark-to-market impact of share-based compensation as a result of changes in our share price and items which are considered by management to be non-operational, including asset impairment charges and Louisiana project relocation expenses and charges. Refer to the Additional Information - Supplemental Non-GAAP Measures section for a further discussion on how we calculate these measures.

A reconciliation from net income (loss) attributable to Methanex shareholders to Adjusted net income and the calculation of Adjusted diluted net income per common share is as follows:

Three Months Ended Years Ended
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions except number of shares and per share amounts) 2012 2012 2011 2012 2011
Net income (loss) attributable to Methanex shareholders $ (140) $ (3) $ 64 $ (68) $ 201
Mark-to-market impact of share-based compensation, net of tax

8


-


1


14


(19)
Louisiana project relocation expenses and charges, net of tax
Cash expense - 21 - 23 -
Non-cash charge - 18 - 18 -
Asset impairment charge, net of tax 193 - - 193 -
Adjusted net income 1 $ 61 $ 36 $ 65 $ 180 $ 182
Diluted weighted average shares outstanding (millions) 94 94 94 94 94
Adjusted diluted net income per common share 1 2 $ 0.64 $ 0.38 $ 0.69 $ 1.90 $ 1.93

We review our financial results by analyzing changes in Adjusted EBITDA, mark-to-market impact of share-based compensation, Louisiana project relocation expenses and charges, 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 Years Ended
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2012 2012 2011 2012 2011
Consolidated statements of income:
Revenue $ 696 $ 655 $ 696 $ 2,673 $ 2,608
Cost of sales and operating expenses, excluding mark-to-market impact of share-based compensation

(565)


(539)


(546)


(2,171)


(2,128)
131 116 150 502 480
Comprised of:
Adjusted EBITDA (attributable to Methanex shareholders) 1 119 104 133 429 427
Attributable to non-controlling interests 12 12 17 73 53
131 116 150 502 480
Depreciation and amortization (42) (47) (43) (172) (157)
Mark-to-market impact of share-based compensation (8) - (1) (16) 21
Louisiana project relocation expenses and charges - (61) - (65) -
Asset impairment charge (297) - - (297) -
Operating income 1 (216) 8 106 (48) 344
Finance costs (15) (18) (18) (71) (62)
Finance income and other expenses 3 (3) (3) 1 2
Income tax recovery (expense) 93 15 (12) 84 (56)
Net income (loss) $ (135) $ 2 $ 73 $ (34) $ 228
Net income (loss) attributable to Methanex shareholders $ (140) $ (3) $ 64 $ (68) $ 201
1 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 the Additional Information - Supplemental Non-GAAP Measures section for a description of each non-GAAP measure and reconciliations to the most comparable GAAP measures.
2 For the three month period and year ended December 31, 2012, stock options have been excluded from the calculation of diluted net loss per common share (attributable to Methanex shareholders) as their effect would be anti-dilutive. However, for the calculation of adjusted diluted net income per common share (attributable to Methanex shareholders) stock options have been included in the denominator and the diluted weighted average number of common shares is 95 million for the three month period and year ended December 31, 2012.

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 the How We Analyze Our Business section.

The changes in Adjusted EBITDA resulted from changes in the following:

Q4 2012 Q4 2012 2012
compared
with
compared
with
compared
with
($ millions) Q3 2012 Q4 2011 2011
Average realized price $ 29 $ 4 $ 57
Sales volume 4 4 (5)
Total cash costs (18) (22) (50)
Increase (decrease) in Adjusted EBITDA $ 15 $ (14) $ 2
Average realized price
Three Months Ended Years Ended
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ per tonne, except where noted) 2012 2012 2011 2012 2011
Methanex average non-discounted posted price 1 450 433 456 443 440
Methanex average realized price 389 373 388 382 374
Average discount 14% 14% 15% 14% 15%
1 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 http://www.methanex.com/.

Overall methanol market conditions have remained balanced and pricing has been relatively stable during the periods presented (refer to the Supply/Demand Fundamentals section for more information). Our average non-discounted posted price for the fourth quarter of 2012 was $450 per tonne compared with $433 per tonne for the third quarter of 2012 and $456 per tonne for the fourth quarter of 2011. Our average realized price for the fourth quarter of 2012 was $389 per tonne compared with $373 per tonne for the third quarter of 2012 and $388 per tonne for the fourth quarter of 2011. The change in average realized price for the fourth quarter of 2012 increased Adjusted EBITDA by $29 million compared with the third quarter of 2012 and increased Adjusted EBITDA by $4 million compared with the fourth quarter of 2011. Our average realized price for the year ended December 31, 2012 was $382 per tonne compared with $374 per tonne for the same period in 2011 and this increased Adjusted EBITDA by $57 million.

Sales volume

Methanol sales volumes excluding commission sales volumes were higher in the fourth quarter of 2012 compared with the third quarter of 2012 by 29,000 tonnes and the fourth quarter of 2011 by 27,000 tonnes and this resulted in higher Adjusted EBITDA by $4 million for each comparable period. Methanol sales volumes excluding commission sales volumes were lower for the year ended December 31, 2012 compared with the comparable period in 2011 by 64,000 tonnes and this resulted in lower Adjusted EBITDA by $5 million.

Total cash costs

The primary drivers of changes in our total cash costs are changes in the cost of methanol we produce at our facilities (Methanex-produced methanol) and changes in the cost of methanol we purchase from others (purchased methanol). All of our production facilities except Medicine Hat are underpinned by natural gas purchase agreements with pricing terms that include base and variable price components. We supplement our production with methanol produced by others through methanol offtake contracts and purchases on the spot market to meet customer needs and support our marketing efforts within the major global markets.

We have adopted 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.

The impact on Adjusted EBITDA from changes in our cash costs are explained below:

Q4 2012 Q4 2012 2012
compared
with
compared
with
compared
with
($ millions) Q3 2012 Q4 2011 2011
Methanex-produced methanol costs $ (8) $ (3) $ (34)
Insurance recovery 9 (8) (6)
Proportion of Methanex-produced methanol sales (4) (3) 36
Purchased methanol costs (4) 2 (22)
Logistics costs (5) (2) (10)
Other, net (6) (8) (14)
$ (18) $ (22) $ (50)

Methanex-produced methanol costs

We purchase natural gas for the Chile, Trinidad, Egypt and New Zealand methanol facilities under natural gas purchase agreements where the terms include a base price and a variable price component linked to the price of methanol. The unique contractual terms of each natural gas purchase agreement result in a different cost structure for each of our facilities. For all periods presented, Methanex-produced methanol costs were higher due to the impact of higher methanol pricing on natural gas costs and a change in the mix of production sold from inventory.

Insurance recovery

We experienced an equipment failure at our Atlas facility in July 2011. Our operations are covered by business interruption insurance and we finalized our claim and recorded a recovery of $9 million in the fourth quarter of 2012.

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 fourth quarter of 2012 compared with the third quarter of 2012 and the fourth quarter of 2011, lower proportion of Methanex-produced methanol sales decreased Adjusted EBITDA by $4 million and $3 million, respectively.

For the year ended December 31, 2012 compared with the same period in 2011, a higher proportion of Methanex-produced methanol sales increased Adjusted EBITDA by $36 million. The impact of higher sales volumes from the New Zealand, Egypt and Medicine Hat facilities was partially offset by lower sales volumes from the Chile facilities.

Purchased methanol costs

Changes in purchased methanol costs for all periods presented are primarily as a result of changes in methanol pricing.

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. For the year ended December 31, 2012 compared with the same period in 2011, the logistics cost variance was impacted by a one-time $7 million charge to earnings to terminate a time charter vessel lease contract.

Other, net

In October 2012, we completed a restructuring of our Chile operations which reduced the size of our workforce and resulted in a $5 million charge in the fourth quarter of 2012. The remaining change in other, net is primarily due to a portion of fixed manufacturing costs being charged directly to earnings rather than to inventory due to lower production at our facilities in Chile and Egypt.

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 the 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 Company's share price. The grant-date value amount is included in Adjusted EBITDA and Adjusted net income. 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 and analyzed separately below.

Three Months Ended Years Ended
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
2012 2012 2011 2012 2011
Methanex Corporation share price 1 $ 31.87 $ 28.54 $ 22.82 $ 31.87 $ 22.82
Grant-date fair value expense included in Adjusted EBITDA and Adjusted net income
$

3

$

3

$

3

$

20

$

16
Mark-to-market impact due to change in share price 8 - 1 16 (21)
Total share-based compensation expense (recovery) $ 11 $ 3 $ 4 $ 36 $ (5)
1 US dollar share price of Methanex Corporation as quoted on NASDAQ Global Market on the last trading day of the respective period.

Share appreciation rights (SARs) and tandem share appreciation rights (TSARs) are units that grant the holder the right to receive a cash payment upon exercise for the difference between the market price of the Company's common shares and the exercise price, which is determined at the date of grant. The fair value of SARs and TSARs are re-measured each quarter using the Black-Scholes option pricing model, which considers the market value of the Company's common shares on the last trading day of the quarter.

Deferred, restricted and performance share units are grants of notional common shares that are redeemable for cash based on the market value of the Company's common shares and are non-dilutive to shareholders. For deferred, restricted and performance share units, the value is initially measured at the grant date and subsequently re-measured based on the market value of the Company's common shares on the last trading day of each quarter.

Louisiana Project Relocation Expenses and Charges

In July 2012, we reached a final investment decision to proceed with the project to relocate an idle Chile facility to Geismar, Louisiana with an estimated project cost of approximately $550 million. The project will add one million tonnes of annual production capacity and is expected to be operational by the end of 2014. Under IFRS, certain costs associated with relocating an asset are not eligible for capitalization and are required to be charged directly to earnings. During the second and third quarters of 2012, we recorded cash expenses to earnings of $4 million ($2 million after tax) and $35 million ($21 million after-tax), respectively, of Louisiana project relocation expenses. In addition, in association with this decision, a non-cash $26 million ($18 million after-tax) charge was recorded to earnings in the third quarter of 2012 related to the carrying value of the Chile II facility that is being relocated to Louisiana.

Depreciation and Amortization

Depreciation and amortization was $42 million for the fourth quarter of 2012 compared with $47 million for the third quarter of 2012 and $43 million for the fourth quarter of 2011. Depreciation and amortization was lower in the fourth quarter of 2012 compared with the third quarter of 2012 primarily as a result of a higher proportion of depreciation being charged directly to earnings rather than to inventory in the third quarter due to lower production from the Egypt facility. Depreciation and amortization was $172 million for the year ended December 31, 2012 compared with $157 million for the same period in 2011. The increase in depreciation and amortization in 2012 compared with 2011 is primarily a result of depreciation associated with the Egypt (100% basis) and Medicine Hat methanol facilities which commenced operations in the first and second quarters of 2011, respectively.

Finance Costs

Three Months Ended Years Ended
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2012 2012 2011 2012 2011
Finance costs before capitalized interest $ 16 $ 19 $ 18 $ 73 $ 69
Less capitalized interest (1) (1) - (2) (7)
Finance costs $ 15 $ 18 $ 18 $ 71 $ 62

Finance costs before capitalized interest primarily relate to interest expense on the unsecured notes and limited recourse debt facilities.

Capitalized interest in 2011 relates to interest costs capitalized during the construction of the 1.26 million tonne per year methanol facility in Egypt (100% basis) which commenced operations in March 2011. Capitalized interest in the third and fourth quarters of 2012 relates to interest costs capitalized for the Louisiana project.

Finance Income and Other Expenses
Three Months Ended Years Ended
Dec 31 Sep 30 Dec 31 Dec 31 Dec 31
($ millions) 2012 2012 2011 2012 2011
Finance income and other expenses $ 3 $ (3) $ (3) $ 1 $ 2

The change in finance income and other expenses for all periods presented was primarily due to the impact of changes in foreign exchange rates.

Income Taxes

A summary of our income taxes for 2012 compared with 2011 is as follows:

Year Ended
Dec 31 2012
Amounts excluding
Louisiana Project
Relocation Expenses and
Charges and an
Asset Impairment Charge
Louisiana Project Relocation
Expenses and Charges and
an Asset
Impairment Charge
($ millions) Total
Profit (loss) before income tax expense $ 243.7 $ (362.0) $ (118.3)
Income tax recovery (expense) (44.3) 128.0