A Responsible Care* Company
METHANEX CORPORATION
ANNUAL INFORMATION FORM
www.methanex.com
March 13, 2013
TABLE OF CONTENTS
REFERENCE INFORMATION eoocnoncnsonsosorsssorsos
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
THE COMPANY
BUSINESS OF THE COMPANY
Overview of the Business
DEVELOPMENT OF THE BUSINESS AND CORPORATE STRATEGY
Our Strategy
Global Leadership.
Low Cost
Operational Excellence
METHANOL INDUSTRY INFORMATION
IN
o
Demand Factors.
Supply Factors…
UCI
PRODUCTION
Production Process .. .13
Operating Data and Other Information.. .13
MARKETING
DISTRIBUTION AND LOGISTICS …
NATURAL GAS SUPPLY
General ….
New Zealan
Trinidad
Egypt ….
Canada..
FOREIGN OPERATIONS AND GOVERNMENT REGULATION
General .
Chile.
Trinidad
New Zealand
Egypt ……….
RESPONSIBLE CARE.
ENVIRONMENTAL MATTERS
Management of Emissions.
INSURANCE
COMPETITION
EMPLOYEES
RISK FACTOR:
DIVIDENDS…
CAPITAL STRUCTURE occocecacocannos
RATINGS
MARKET FOR SECURITIES
DIRECTORS AND EXECUTIVE OFFICERS .
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS.
EXPERTS
LEGAL PROCEEDINGS enconconononsnsnsonoss
AUDIT COMMITTEE INFORMATIO
The Audit Committee Charter
Composition of the Audit Committee.
Relevant Education and Experience …
Pre-Approval Policies and Procedures ..
Audit and Non-Audit Fees Billed by the Independent Auditors
TRANSFER AGENT AND REGISTRAR,
CONTROLS AND PROCEDURES
CODE OF ETHICS ….
ADDITIONAL INFORMATION
APPENDIX “A”
REFERENCE INFORMATION
In this Annual Information Form (“AIF”), a reference to the “Company” refers to Methanex Corporation and a reference to
“Methanex,” “we,” “us,” “our” and similar words refers to the Company and its subsidiaries or any one of them as the context requires,
as well as their respective interests in joint ventures and partnerships.
We use the United States dollar as our reporting currency. Accordingly, unless otherwise indicated, all dollar amounts in this AIF
are stated in United States dollars.
In this AIF, unless the context otherwise indicates, all references to “methanol” are to chemical-grade methanol. Methanol”s
chemical formula is CH¿OH and it is also known as methyl alcohol.
In this AIF, we incorporate by reference our 2012 Management’s Discussion and Analysis (“2012 MDxx£A”), which
contains information required to be included in this AIF. The 2012 MDKxxA is publicly accessible and is filed 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.g0v.
The approximate conversion of measurement used in this AIF is as follows:
1 tonne of methanol = 332.6 US gallons of methanol
Some of the historical price data and supply and demand statistics for methanol and certain other industry data contained in this
AIF are derived by the Company from industry consultants or from recognized industry reports regularly published by independent
consulting and data compilation organizations in the methanol industry, including IHS Inc., Jim Jordan $ Associates, Tecnon
OrbiChem Ltd., Argus DeWitt and Consensus Economics Inc. Industry consultants and industry publications generally state that the
information provided has been obtained from sources believed to be reliable. We have not independently verified any of the data from
third-party sources nor have we ascertained the underlying economic assumptions relied upon in these reports.
Responsible Care” is a registered trademark of the Chemistry Industry Association of Canada and is used under license by us.
CAUTION REGARDING FORWARD-LOOKING STATEMENTS
This document contains 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” or other
comparable terminology and similar statements of a future or forward-looking nature identify forward-looking statements.
” xx” <,
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, including, without
limitation, those to support natural gas exploration and
development for our plants and the restart of our idled
methano!l facilities,
anticipated production 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,
ability to meet covenants or obtain waivers associated
with our long-term debt obligations, including, without
limitation, the Egypt limited recourse debt facilities that
have conditions associated with finalization of certain
land title registration and related mortgages that require
actions by Egyptian governmental entities,
availability of committed credit facilities and other
financing,
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 the planned
relocation of one of our idle Chile methanol plants to
Geismar, Louisiana (“Geismar”) and certain initiatives
in New Zealand and Canada,
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,
expected actions of governments, government agencies,
gas suppliers, courts, tribunals or other third parties,
and
expected impact on our operations in Egypt or our
financial condition as a consequence of civil unrest or
actions taken or inaction by the Government of Egypt
and its agencies.
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:
* supply of, demand for, and price of, methanol, methanol e receipt or issuance of third-party consents or approvals,
derivatives, natural gas, coal, oil and oil derivatives, including, without limitation, governmental
registrations of land title and related mortgages in
Egypt, governmental approvals related to natural gas
exploration rights or rights to purchase natural gas,
e the success of our natural gas exploration and
development in Chile and New Zealand and our ability
to procure economically priced natural gas in Chile,
New Zealand, Trinidad, Canada and the United States, e receipt of governmental approvals related to natural gas
e production rates of our facilities, exploration rights,
* receipt of remaining required permits in connection with xx the establishment of new fuel standards,
the Geismar project,
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 the Geismar project
and our initiatives to increase production in New
Zealand and Canada,
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,
enforcement of contractual arrangements and ability to
perform contractual obligations by customers, natural
gas and other suppliers and other third parties, and
satisfaction of conditions precedent contained in the
Geismar project natural gas supply agreement.
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 for and
price of methanol and its derivatives, including
demand for methanol for energy uses,
the price of natural gas, coal, oil and oil derivatives,
the success of natural gas exploration and
development activities in southern Chile and New
Zealand and our ability to obtain any additional gas
in Chile and New Zealand on commercially
acceptable terms,
the ability to successfully 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,
competing demand for natural gas, especially with
respect to domestic needs for gas and electricity in
Chile and Egypt,
actions of governments and governmental authorities,
including, without limitation, the 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,
worldwide economic conditions,
satisfaction of conditions precedent contained in the
Geismar project natural gas supply agreement, and
other risks described in the 2012 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 ones own due diligence and judgment. The outcomes anticipated in
forward-looking statements may not occur and we do not undertake to update forward-looking statements except as required by
applicable securities laws.
THE COMPANY
Methanex Corporation was incorporated under the laws of Alberta on March 11, 1968 and was continued under the Canada
Business Corporations Act on March 5, 1992. Its registered and head office is located at 1800 Waterfront Centre, 200 Burrard Street,
Vancouver, British Columbia, V6C 3M1 (telephone: 604-661-2600).
The following chart includes the Company”s principal operating subsidiaries as of December 31, 2012 and, for each subsidiary, its
place of organization and the Company”s percentage of voting interests beneficially owned or over which control or direction is
exercised. The chart also shows our principal production facilities and their locations.
3 Chile S.A. so
38 | 100% (Chile) Plants!”
< (Chile)
No _
C DN
Waterfront Shipping
Company Limited
100%| – (Cayman Islands) –
Medicine Hat (1) Our three plants in Chile represent 2.8
million tonnes of annual production
Methanex Methanol (Alberta) capacity. Since 2007 we have operated the
5 . site significantly below capacity due to gas
3 xx Company, LLO supply issues
2 100% (Delaware) Suppiy 1Ssues.
Z
E (2) Our 470,000 tonne per year plant in
> Tian Medicine Hat was restarted in April 2011.
E Methanex Trinidad Methanol We are currently debottlenecking – the
3 000 (Titan) Unlimited Plantó? Medicine Hat facility which is expected to
z % (Trinidad) ÚU Crrinidad) add a further 90,000 tonnes of annual
E production capacity by the end of the third
< jarter of 2013.
E Atlas Methanol fo Atos E
5 Company Unlimited Ma (3) The Titan plant represents 875,000 tonnes of
z 3.1%] (Trinidad) (Trinidad) annual production capacity.
1 (4) Our equity interest in the Atlas plant
Methanex USA Geismar represen 1-1 million tomnes of annual
LLC Plant production capacity.
100% Delawa Louisiana
l Delaware) MW ouisiana) (5) In July 2012 we reached a final investment
Methanex GÚ J) decision to relocate the Chile II plant to
Corporation Geismar, Louisiana. The relocated plant is
” N expected to commence operations by the end
(Canada) of 2014 and will represent approximately 1.0
million tonnes of annual production
capacity.
100% (Hong Kong) (6) We restarted one Motunui plant in 2008 and
the second Motunui plant was restarted in
2 July 2012. Due to current distillation
3 capacity constraints at the Motunui site, the
É¿ Methanex New Motunui current operating capacity of both plants is
Meth: v lotunui approxima Gil
Z Zealand Limia o approximately 1.5 million tonnes per year.
< 100% New Zealand) Plants?
(New Zealand) – ano (7) In March 2013, we committed to the restart
Methanex Motunui yA of our 530,000 tonne per year Waitara
100% Limited Valley plant by the end of 2013.
6] (NewZealand) Waitara Valley
Methanol (8) Our equity interest in the EMethanex plant
Plant” represents 760,000 tonnes of annual
l Mov zeleoy Y) production – capacity and commenced
– commercial operations in March 2011
C N
2
a Methanex Europe
5 SA/NV
a 100% (Belgium)
3 a
3
2 Egyptian Methanex EMethanex
E < Methanol Company Methanol
3 E 60m | S.A.E. (EMethanex) Plant*
25 (Egypt) (EgypD)
S z
BUSINESS OF THE COMPANY
Overview of the Business
Methanol is a clear liquid commodity chemical that is predominantly produced from natural gas and also, particularly in China,
from coal. Approximately two-thirds of all methanol demand is used to produce traditional chemical derivatives, including
formaldehyde, acetic acid and a variety of other chemicals that form the basis of a large number of chemical derivatives for which
demand is influenced by levels of global economic activity. The remaining one-third of methanol demand comes from energy-related
applications. There has been strong demand growth for direct methanol blending into gasoline, as a feedstock in the production of
dimethyl ether (DME), which can be blended with liquefied petroleum gas for use in household cooking and heating, and in the
production of biodiesel. Methanol is also used to produce methy]l tertiary-butyl ether (MTBE), a gasoline component, and olefins. This
latter use is emerging as a significant methanol demand driver.
We are the world”s largest supplier of methanol to the major international markets in Asia Pacific, North America, Europe and
Latin America. Our total annual production capacity, including Methanex equity interests in jointly owned plants, is currently 9.5
million tonnes and is located in New Zealand, Trinidad, Egypt, Canada and Chile. We are currently relocating one of our Chile
facilities to Geismar, Louisiana and we expect the relocated facility will be operational by the end of 2014. We have marketing rights
for 100% of the production from the jointly owned plants in Trinidad and Egypt and this provides us with an additional 1.2 million
tonnes per year of methanol offtake supply when the plants are operating at full capacity. In addition to the methanol produced at our
sites, we purchase methanol produced by others under methanol offtake contracts and on the spot market. This gives us flexibility in
managing our supply chain while continuing to meet customer needs and support our marketing efforts.
Our operations consist of the production and sale of methanol, which constitutes a single operation segment. Revenue, sales
volumes and production volumes for each of the last two years can be found under Financial Highlights in our 2012 MD8A.
DEVELOPMENT OF THE BUSINESS AND CORPORATE STRATEGY
Our Strategy
Our primary objective is to create value by maintaining and enhancing our leadership in the global production, marketing and
delivery of methanol to customers. Our simple, clearly defined strategy – global leadership, low cost and operational excellence – has
helped us achieve this objective.
Global Leadership
Global leadership is a key element of our strategy. We are focused on maintaining and enhancing our position as the major
supplier to the global methanol industry, enhancing our ability to cost-effectively deliver methanol supply to customers and supporting
both traditional and energy-related global methanol demand growth.
We are the leading supplier of methanol to the major international markets in Asia Pacific, North America, Europe and Latin
America. Our 2012 sales volumes of 7.5 million tonnes represented approximately 15% of global methanol demand. Our leadership
position has enabled us to play an important role in the industry, which includes publishing Methanex reference prices that are
generally used in each major market as the basis of pricing for most customer contracts.
The geographically diverse locations of our production sites allow us to deliver methanol cost-effectively to customers in all
major global markets, while investments in global distribution and supply infrastructure, which include a dedicated fleet of
ocean-going vessels and terminal capacity within all major international markets, enable us to enhance value to customers by
providing reliable and secure supply.
A key component of our global leadership strategy is to strengthen our asset position and we have increased our operating
capacity over the last two years. In 2011, we restarted our 0.5 million tonne per year Medicine Hat, Alberta facility and the 1.3 million
tonne per year methanol plant in Egypt commenced operations. In 2012, we restarted a second facility in New Zealand and this
increased our operating capacity in that country by 0.7 million tonnes. We have several other initiatives in progress in New Zealand
that are expected to increase our operating capacity further and allow us to reach the site”s full production capacity of 2.4 million
tonnes. Our New Zealand facilities are ideally situated to supply the growing Asia Pacific market.
During 2012, we operated our Chile methanol facilities significantly below site capacity. We expect to idle our Chile operations
in March 2013 due to insufficient natural gas feedstock to operate the plant through the southern hemisphere winter. We are in the
process of relocating one of our four Chile facilities to Geismar, Louisiana. The Geismar facility will have an annual production
capacity of approximately 1.0 million tonnes and is expected to be operational by the end of 2014. We are also considering other
projects to increase the utilization of our Chile assets, including the potential to relocate an additional facility to the Geismar site.
Another key component of our global leadership strategy is our ability to supplement methanol production with methanol
purchased from third parties to give us flexibility in our supply chain and continue to meet customer commitments. We purchase
through a combination of methanol offtake contracts and spot purchases. We manage the cost of purchased methanol by taking
advantage of our global supply chain infrastructure, which allows us to purchase methanol in the most cost-effective region while still
maintaining overall security of supply.
The Asia Pacific region continues to lead global methanol demand growth and we have invested in and developed our presence in
this important region. We have storage capacity in China, Korea and Japan that allows us to cost-effectively manage supply to
customers and we have offices in Hong Kong, Shanghai, Beijing, Seoul and Tokyo to enhance customer service and industry
positioning in the region. This enables us to participate in and improve our knowledge of the rapidly evolving and high growth
methanol markets in China and other Asian countries. Our expanding presence in Asia has also helped us identify several
opportunities to support the development of applications for methanol in the energy sector.
Low Cost
A low cost structure is an important competitive advantage in a commodity industry and is a key element of our strategy. Our
approach to major business decisions is guided by a drive to improve our cost structure, expand margins and create value for
shareholders. The most significant components of total costs are natural gas for feedstock and distribution costs associated with
delivering methanol to customers.
Our ownership interest in production facilities in Trinidad and Egypt represents 2.8 million tonnes per year of competitive-cost
production capacity. These facilities are well located to supply global methanol markets and are underpinned by natural gas purchase
agreements where the gas price varies with methanol prices. This pricing relationship enables these facilities to be competitive
throughout the methanol price cycle.
In January 2013, we entered into a 10-year agreement to purchase all of the natural gas required for the methanol plant we are
relocating to Geismar, Louisiana. The agreement is structured so that the natural gas price is linked to the methanol price, which will
enable the project to be profitable across a broad range of methanol prices. We also have a 0.5 million tonne facility located in
Medicine Hat, Alberta, and we believe that the long-term natural gas dynamics in North America will support the long-term operation
of this facility.
The cost to distribute methanol from production locations to customers is also a significant component of total operating costs.
These include costs for ocean shipping, in-market storage facilities and in-market distribution. We are focused on identifying
initiatives to reduce these costs, including optimizing the use of our shipping fleet and taking advantage of prevailing conditions in the
shipping market by varying the type and length of term of ocean vessel contracts. We are continuously investigating opportunities to
further improve the efficiency and cost-effectiveness of distributing methanol from our production facilities to customers. We also
look for opportunities to leverage our global asset position by entering into product exchanges with other methanol producers to
reduce distribution costs.
Operational Excellence
We maintain a focus on operational excellence in all aspects of our business. This includes excellence in the manufacturing and
supply chain processes, marketing and sales, human resources, corporate governance practices and financial management.
To differentiate ourselves from competitors, we strive to be the best operator in all aspects of our business and to be the preferred
supplier to customers. We believe that reliability of supply is critical to the success of our customers” businesses and our goal is to
deliver methanol reliably and cost-effectively. We have a commitment to Responsible Care (a risk-minimization approach developed
by the Chemistry Industry Association of Canada) and we use it as the umbrella under which we manage issues related to health,
safety, the environment, community involvement, social responsibility, sustainability, security and emergency preparedness at each of
our facilities and locations. We believe a commitment to Responsible Care helps us reduce the likelihood of unplanned events and
achieve an excellent overall environmental and safety record.
Product stewardship is a vital component of a Responsible Care culture and guides our actions through the complete life cycle of
our product. We aim for the highest safety standards to minimize risk to employees, customers and suppliers as well as to the
environment and the communities in which we do business. We promote the proper use and safe handling of methanol at all times
through a variety of internal and external health, safety and environmental initiatives, and we work with industry colleagues to
improve safety standards. We readily share technical and safety expertise with key stakeholders, including customers, end-users,
suppliers, logistics providers and industry associations in the methanol and methanol applications marketplace through active
participation in local and international industry associations, seminars and conferences, and online education initiatives.
As a natural extension of the Responsible Care ethic, we have a Social Responsibility policy that aligns corporate governance,
employee engagement and development, community involvement and social investment strategies with our core values and corporate
strategy.
Our strategy of operational excellence also includes the financial management of the Company. We operate in a highly
competitive commodity industry. Accordingly, we believe it is important to maintain financial flexibility and we have adopted a
prudent approach to financial management. During 2012, we issued a total of $600 million of unsecured notes and a portion of the
proceeds was used to repay $200 million of unsecured notes. Also during 2012, we extended the maturity on our undrawn revolving
credit facility to 2016 and increased the amount to $400 million. At December 31, 2012, we had a strong balance sheet with a cash
balance of $746 million, including $36 million relating to the non-controlling interest in Egypt. We believe we are well positioned to
meet our financial commitments and continue investing to grow the Company.
METHANOL INDUSTRY INFORMATION
General
In 2012, approximately 65% of all methanol was used to produce formaldehyde, acetic acid and a variety of other traditional
chemical derivatives, for which demand is influenced by levels of global economic activity. These derivatives are used to manufacture
a wide range of end products, including plywood, particleboard, foams, resins and plastics. The remainder of methanol demand comes
from the energy sector, principally in fuels applications (direct blending into gasoline and cooking fuels), and as a feedstock in the
production of DME, biodiesel and MTBE. We consider the emerging demand for methanol-to-olefins (MTO) to be another energy
application of methanol as methanol can be cost competitive relative to the traditional production of olefins from naphtha. The
demand for methanol into energy applications is primarily influenced by global energy prices.
The methanol market is global and, over the last several years, has become more complex and subject to increasingly diverse
influences due to the expanding number of uses for methanol and its derivatives around the world, combined with volatile global
energy prices and significant increases to capital costs for new methanol plants.
We estimate that 2012 demand for methanol was 51 million tonnes. See Demand Factors below for more information.
Refer to the Risk Factors and Risk Management section of our 2012 MDéA for more information regarding risks related to
methanol demand.
Demand Factors
Reflecting the diversity of its uses, methanol demand is influenced by a wide range of economic, industrial, environmental, legal,
regulatory and other factors, including energy prices due to the growing use of methanol in energy applications.
We estimate that global demand for methanol in 2012, excluding methanol produced in integrated MTO facilities, increased by
about 5% to approximately 51 million tonnes. This increase was driven primarily by growth in Asia, particularly in China, in both
traditional chemical derivatives and energy applications.
Overall, energy demand accounted for nearly 60% of the annual 2012 growth and grew by 9% year-over-year, while traditional
chemical derivatives accounted for the remainder of the annual 2012 growth and grew by 4% year-over-year.
Traditional Chemical Derivative Demand
Historically, demand growth for methanol in chemical derivatives has been closely correlated to economic and industrial
production growth rates. The use of methanol derivatives such as formaldehyde and acetic acid in the building industry means that
building and construction cycles and the level of wood products production, housing starts, refurbishments and consumer spending are
important factors in determining demand for such derivatives. Demand is also affected by automobile production, durable goods
production, industrial investment and environmental and health trends, as well as new product development. Historically, chemical
derivative demand for methanol has been relatively insensitive to changes in methanol prices. We believe this demand inelasticity is
due to the fact that there are few cost-effective substitutes for methanol-based chemical derivative products and because methanol
costs in most cases account for only a small portion of the value of many of the end products. In 2012, chemical derivative demand
represented approximately 65% of total global demand.
Formaldehyde Demand
In 2012, methanol demand for the production of formaldehyde represented approximately 32% of global methanol demand. The
largest use for formaldehyde is as a component of urea-formaldehyde and phenol-formaldehyde resins, which are used as wood
adhesives for plywood, particleboard, oriented strand board, medium-density fibreboard and other reconstituted or engineered wood
products. There is also demand for formaldehyde as a raw material for engineering plastics and in the manufacture of a variety of
other products, including elastomers, paints, building products, foams, polyurethane and automotive products.
Acetic Acid Demand
In 2012, methanol used to produce acetic acid was approximately 11% of global methanol demand. Acetic acid is a chemical
intermediate used principally in the production of vinyl acetate monomer, acetic anhydride, purified terephthalic acid and acetate
solvents, which are used in a wide variety of products, including adhesives, paper, paints, plastics, resins, solvents, pharmaceuticals
and textiles.
Other Chemical Derivative Demand
The remaining chemical derivative demand for methanol is in the manufacture of methylamines, methyl methacrylate and a
diverse range of other chemical products that are ultimately used to make products such as adhesives, coatings, plastics, film, textiles,
paints, solvents, paint removers, polyester resins and fibres, explosives, herbicides, pesticides and poultry feed additives. Other end
uses include silicone products, aerosol products, de-icing fluid, windshield washer fluid for automobiles and antifreeze for pipeline
dehydration.
Energy and Other Chemical Demand
There are several energy-related uses for methanol that have developed more recently and many of these have experienced
substantial growth. We believe that these energy-related uses have significant potential to grow further, particularly in an environment
of higher energy prices. These include direct blending of methanol into gasoline (primarily in China), DME and biodiesel. In addition,
due to favourable economics, methanol-to-olefins (MTO) is rapidly emerging in China as a competitive alternative to naphtha for
producing olefins. Methanol has also been used to make MTBE, a gasoline additive, for many years. While methanol demand in
energy-related applications is strongest in China, an increasing number of countries around the world have projects in place or are
considering adopting these applications on a wider scale. We believe demand potential into energy-related applications, including
olefins production, will continue to grow.
In 2012, methanol demand for energy-related uses continued to grow in a favourable energy demand environment and represented
approximately 35% of total global methanol demand. This demand was comprised of methanol for the production of MTBE, which
represented about 12% of total 2012 demand, while other energy applications, including direct blending of methanol into gasoline,
DME, biodiesel, and merchant MTO (i.e. non-integrated projects) accounted for approximately 23% of total 2012 demand. Merchant
MTO and fuel blending were the fastest-growing end-use segments for methanol in 2012.
Methanol Demand for Fuel
Methanol may be blended into gasoline for use as a transportation fuel to reduce reliance on imported oil products and due to its
clean air benefits and competitive pricing relative to gasoline. Methanol-gasoline blending in China has grown rapidly over the last
several years. In addition, smaller quantities of methanol are also used directly as a cooking fuel. In 2012, we estimate that methanol
demand for these fuel applications in China was approximately 6.0 million tonnes. Chinese demand for methanol blending into
gasoline has remained strong due to the favourable economics of methanol compared to other gasoline components. In addition,
automobile sales in China and thus gasoline demand have remained healthy. China*s federal and provincial governments have
implemented a range of fuel-blending standards for methanol that promote the use of methanol as a fuel. Direct methanol blending
into gasoline is being used in small quantities in the United Kingdom, Netherlands and Iceland, and other countries, including
Australia and Israel, are conducting fuel-blending trials.
Methanol-to-Olefins (MTO) Demand
Light olefins (ethylene and propylene) are the basic building blocks used to make many plastics that have wide application in
packaging, textiles, plastic parts and containers and automotive components. Olefins can be produced from various feedstocks,
including naphtha, LPG, ethane and methanol. In China, olefins have historically been produced using naphtha, an oil product. Over
the past two years, methanol demand into olefins has emerged as a significant new energy derivative for methanol. China is leading
the commercialization of MTO, and at current energy prices, the process is cost competitive relative to the traditional production of
olefins from naphtha. The first MTO plant in China started up in 2010, and there are now five plants operating in China, with the
capacity to consume over seven million tonnes of methanol annually. Three of these plants were not expected to impact the merchant
methanol market as they are integrated coal-to-methanol-to-olefins projects. However, over the past two years, these integrated plants
have purchased merchant methanol to supplement their own methanol production. The two non-integrated plants (representing over
two million tonnes of total methanol demand annually) are dependent on merchant methanol supply. Several other integrated and
non-integrated projects are currently under construction in China and the demand for MTO is anticipated to continue to grow.
DME Demand
DME is a clean-burning fuel that can be stored and transported like liquefied petroleum gas (LPG) and is often described as
“synthetic LPG”. DME, which is typically produced from methanol, can be blended up to approximately 20% with LPG and used for
household cooking and heating. We believe that DME demand for blending into LPG will remain steady in the coming years,
particularly in China and in an environment of higher energy prices. DME can also be used as a clean-burning substitute for diesel fuel
in transportation. However, while the technology for using DME as a diesel fuel substitute is well advanced, it has not yet entered
widespread commercialization. In 2011, the new “DME as city gas” national standard was implemented in China to support the
country”s DME industry. In 2012, global methanol demand for use in DME was estimated at approximately 3.7 million tonnes. In
addition to DME production in China, DME is being produced and DME projects are under development in other countries including
Japan, Taiwan, Turkey, Trinidad, the United States, India and Indonesia.
Biodiesel Demand
Biodiesel is a renewable fuel made from plant oils or animal fats that requires an alcohol, such as methanol, as part of the
production process. In addition, methanol is used to manufacture the catalyst employed to produce biodiesel. In 2012, global demand
for methanol use in biodiesel was estimated at 2.1 million tonnes. We expect future growth in biodiesel will be driven primarily by
government programs to promote energy self-sufficiency and renewable alternatives to petroleum fuels.
MTBE Demand
MTBE is used primarily as an oxygenate blended in gasoline to contribute octane and reduce the amount of harmful exhaust
emissions from motor vehicles. MTBE is an efficient and cost-competitive gasoline component and, as such, is increasingly used in
developing countries targeting gasoline pool extension and clean air benefits at a cost lower than that of alternatives. Asia represents
the majority of global MTBE demand with China being a significant and growing market. China is now the world”s largest automotive
market and the combination of its growing gasoline demand as well as China”s desire to reduce exhaust emissions is driving new
MTBE capacity additions. In Europe, MTBE demand remains impacted by the promotion of alternative oxygenates such as ETBE. In
the US, MTBE production continues to increase for export markets as idled assets are restarted to take advantage of competitive
feedstock prices. We believe that global demand for MTBE will experience positive growth over the coming years.
Regulatory Developments Affecting Demand
There are various studies and legislative proposals currently under way in a number of countries with respect to the
carcinogenicity classification of, and the reduction of permitted exposure levels for, methanol, formaldehyde and MTBE. Such studies
and proposals could lead to regulatory or other actions that could materially reduce demand for methanol. Refer to the Risk Factors
and Risk Management section of our 2012 MDéA for more information regarding risks to methanol demand related to regulatory
developments.
Supply Factors
While a significant amount of new methanol capacity has come on stream over the past several years, a large number of methanol
producers with higher cost structures have shut down plants. Methanol is predominantly produced from natural gas and is also
produced from coal, particularly in China. In addition, the industry has historically operated significantly below stated capacity on a
consistent basis, even in periods of high methanol prices, due primarily to shutdowns for planned and unplanned repairs and
maintenance as well as shortages of feedstock and other production inputs.
Newer world-scale methanol plants have generally been constructed in remote coastal locations with access to lower cost
feedstock, although this advantage is sometimes offset by higher distribution costs due to their distance to major demand markets. As
regional natural gas prices fluctuate and shipping costs escalate, there may be a greater incentive to build new methanol capacity
closer to customers in major markets. There is typically a span of four to six years to plan and construct a new world-scale methanol
plant. As well, additional methanol supply can potentially become available by restarting methanol plants whose production has been
idled, relocating methanol plants to lower production cost locations, carrying out major expansions of existing plants and
de-bottlenecking existing plants to increase their production capacity.
Typical of most commodity chemicals, periods of high methanol prices encourage high-cost producers to operate at maximum
rates and also encourage the construction of new plants and expansion projects, leading to the possibility of oversupply in the market.
However, historically, many of the announced capacity additions have not been constructed for a variety of reasons. There are
significant barriers to entry in this industry. The construction of world-scale methano! facilities requires significant capital over a long
lead time, a location with access to significant natural gas or coal feedstock with appropriate pricing, and an ability to cost-effectively
and reliably deliver methanol to customers.
During 2012, there were two significant methanol production capacity additions outside of China that totalled approximately 1.4
million tonnes per year; our own Motunui plant restart in New Zealand (0.7 million tonnes) and the restart of a plant in Beaumont,
Texas (0.7 million tonnes). Over the next two-year period to the end of 2014, it is projected that new methanol capacity, restarts and
expansions outside of China will add approximately 3.0 million tonnes of annual capacity to the global industry.
With respect to China, we estimate that approximately 6.0 million tonnes of net new capacity was added in 2012. Over the next
two-year period to the end of 2014, we anticipate that approximately 5.0 million tonnes of net new capacity (not including integrated
MTO production) will be added to meet growing domestic methanol demand in China. The Chinese methanol industry has historically
operated at low rates due to various constraints related to feedstock availability, weather restrictions (typically during winter) and
technical/operational issues. Historically, there has been increasing pressure on the Chinese methanol industry?s cost structure as a
result of escalating feedstock costs for both coal and natural-gas-based producers, although coal prices in 2012 declined due to
adequate supply and soft demand as a result of the general economic downturn. We believe that in an environment of high global
energy prices and growing industrial production, methanol demand in China should continue to grow at healthy rates. We believe that
this demand growth will more than offset increases of domestic production in China and thus anticipate that imports of methanol into
China will continue to grow over the coming period.
Methanol Prices
The methanol business is a highly competitive commodity industry and prices are affected by supply and demand fundamentals.
Methanol prices have historically been, and are expected to continue to be, characterized by cyclicality. New methanol plants are
expected to be built and this will increase overall production capacity. Additional methanol supply can also become available in the
future by restarting idle methanol plants, carrying out major expansions of existing plants or debottlenecking existing plants to
increase their production capacity. Historically, higher-cost plants have been shut down or idled when methanol prices are low, but
there can be no assurance that this practice will occur in the future. Demand for methanol largely depends upon levels of global
industrial production, changes in general economic conditions and energy prices.
IHS US GULF AND WESTERN EUROPE METHANOL CONTRACT PRICES AND
METHANEX ASIAN POSTED CONTRACT PRICE (APCP)
JANUARY 2003 – JANUARY 2013
1,000
900
800
700
600
500
US$/MT
400
300
200
100
o
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
| –US Gulf Contract $/MT –W. Europe Contract $/MT –Methanex Asian Posted Contract Price (APCP) $/MT
We are not able to predict future methanol supply and demand balances, market conditions, global economic activity, methanol
prices or energy prices, all of which are affected by numerous factors beyond our control. Since methanol is the only product we
produce and market, a decline in the price of methanol would have an adverse effect on our results of operations and financial
condition.
PRODUCTION
Production Process
The methanol manufacturing process used in our facilities typically involves heating natural gas, mixing it with steam and passing
it over a nickel catalyst where the mixture is converted into carbon monoxide, carbon dioxide and hydrogen. This reformed gas (also
known as synthesis gas or syngas) is then cooled, compressed and passed over a copper-zinc catalyst to produce crude methanol.
Crude methanol consists of approximately 80% methanol and 20% water by weight. To produce chemical-grade methanol, crude
methano!l is distilled to remove water, higher alcohols and other impurities.
Operating Data and Other Information
We endeavour to operate our production facilities around the world in an optimal manner to lower our overall delivered cost of
methanol. Scheduled shutdowns of plants typically occur every three or more years and are necessary to change catalysts or perform
maintenance activities that cannot otherwise be completed with the plant operating (a process commonly known as a turnaround), and
these shutdowns typically take between three and five weeks. Catalysts generally need to be changed every three to six years
depending on technology, although there is flexibility to extend catalyst life if conditions warrant. Careful planning and scheduling is
required to ensure that maintenance and repairs can be carried out during turnarounds. In addition, both scheduled and unscheduled
shutdowns may also occur between turnarounds. We prepare an eight-year turnaround plan that is updated annually for all of our
production facilities.
The following table sets forth the annual production capacity and actual production for our facilities that operated for the last two
years (in the case of Atlas and Egypt, the table reflects our equity interest share of 63.1% and 60%, respectively):
Annual
Production 2012 2011
Year Built Capacity” Production Production
(000 tonnes/year) | (000 tonnes) | (000 tonnes)
Chile
Chile I 1988 882 – –
Chile HI 1999 1,088 313 554
Chile IV 2005 840 – –
Trinidad
Titan 2000 875 786 711
Atlas 2004 1,125 826 891
New Zealand?
Motunui 1 1985 950 377 –
Motunui 2 1985 950 731 830
Waitara Valley 1983 530 – –
Egypt 2011 760 557 532
North America
Medicine Hat, Canada”? 1981 470 481 329
Geismar, United States? – 990 – –
Total 9,460 4,071 3,847
(1) The annual production 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 annual production capacity
due to a number of factors, including natural gas composition or the age of the facility”s catalyst.
(2) Due to the current distillation capacity constraints at the Motunui site, the current operating capacity of both plants is approximately 1.5 million tonnes, which is
lower than the combined production capacity shown above of 1.9 million tonnes, depending on natural gas composition. We recently announced our commitment
to debottleneck the Motunui facility and restart the Waitara Valley facility by the end of 2013.
(3) The Medicine Hat facility was restarted in April 2011.
(4) In July 2012, we reached a final investment decision to relocate the Chile II facility to Geismar, Louisiana in the United States. The Geismar facility is expected to
commence operations by the end of 2014.
Refer to the Production Summary section of our 2012 MD¿A for more information.
MARKETING
We sell methanol on a worldwide basis to every major market through an extensive marketing and distribution system with
marketing offices in North America (Vancouver and Dallas), Europe (Brussels), Asia Pacific (Hong Kong, Shanghai, Tokyo, Beijing
and Seoul), Latin America (Santiago), and the Middle East (Dubai). Most of our customers are large global or regional petrochemical
manufacturers or distributors. Refer to the Risk Factors and Risk Management section of our 2012 MDéA for more information
regarding customer credit risk.
We believe our ability to sell methanol from a number of geographically dispersed production sites enhances our ability to serve
major chemical and petrochemical producers as customers for whom reliability of supply and quality of service are important.
In addition to selling methanol that we produce at our own facilities, we also sell methanol that we purchase from other suppliers
through methanol purchase agreements and on the spot market. This provides us with flexibility in our supply chain and allows us to
continue to meet customer commitments.
DISTRIBUTION AND LOGISTICS
All of our methanol production facilities except Medicine Hat are located adjacent to deepwater ports. Methanol is pumped from
our coastal plants by pipeline to these ports for shipping. We currently own or manage a fleet of 18 ocean-going vessels to ship this
methanol. We lease or own in-region storage and terminal facilities in the United States, Canada, Europe, Latin America and Asia. We
also use barge, rail and, to a lesser extent, truck transport in our delivery system.
To retain optimal flexibility in managing our shipping fleet, we have entered into short-term and long-term time charter
agreements covering vessels with a range of capacities. We also ship methanol under contracts of affreightment and through spot
arrangements. We use larger vessels as key elements in our supply chain to move product from our production facilities to storage
facilities located in major ports and for direct delivery to some customers. We also use smaller vessels capable of entering into
restricted ports to deliver directly to other customers.
The cost to distribute methanol to customers represents a significant component of our operating costs. These include costs for
ocean shipping, storage and distribution. We are focused on identifying initiatives to reduce these costs and we seek to maximize the
use of our shipping fleet to reduce costs. We take advantage of prevailing conditions in the shipping market by varying the type and
length of term of ocean vessel charter contracts. We are continuously investigating opportunities to further improve the efficiency and
cost-effectiveness of distributing methanol from our production facilities to customers. We also look for opportunities to leverage our
global asset position by entering into product exchanges with other methanol producers to reduce distribution costs.
Our Atlas and Titan plants in Trinidad are ideally located to supply customers in the United States and Europe. Our plant in
New Zealand supplies customers in the Asia Pacific region. Our production site in Chile can supply all global regions due to its
geographic location. Our Egypt plant primarily services our European markets, but can also supply Asia and North America. Our
Medicine Hat plant serves our customer base in North America.
NATURAL GAS SUPPLY
General
Natural gas is the principal feedstock for methanol at our production facilities and accounts for a significant portion of our total
production costs. Accordingly, our profitability depends in large part on both the security of supply and the price of natural gas. An
important part of our strategy is to ensure long-term security of supply of natural gas feedstock. If, for any reason, we are unable to
obtain sufficient natural gas for any of our plants on commercially acceptable terms or there are interruptions in the supply of
contracted natural gas to our facilities, we could be forced to curtail production or close such plants. Refer to the Risk Factors and
Risk Management – Security of Natural Gas Supply and Price section of our 2012 MDéA.
Most of the natural gas supply contracts for our production facilities are “take-or-pay” contracts denominated in United States
dollars. “Take-or-pay” means that we are obliged to pay for the gas supply regardless of whether or not we take delivery. Such
commitments are typical in the methanol industry. These contracts generally provide for a quantity of gas that is subject to take-or-pay
terms that is lower than the maximum quantity that we are entitled to purchase and for gas which is paid for but not taken to be taken
at a subsequent point in time. For all of our production facilities except Medicine Hat, the natural gas supply contracts have pricing
terms with base and variable price components that 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. We believe this pricing relationship enables
these facilities to be competitive throughout the methanol price cycle and provides gas suppliers with attractive returns.
New Zealand
We have three plants in New Zealand with a total production capacity of up to 2.4 million tonnes per year. Two plants are located
at Motunui and the third is located at nearby Waitara Valley. In 2012, we restarted a second Motunui facility and we recently
committed to debottleneck the Motunui site and restart the Waitara Valley facility. Upon completion of the current projects in New
Zealand, we expect to be able to operate the sites at a total capacity of 2.4 million tonnes, depending on natural gas composition. We
have entered into several agreements with various suppliers to underpin our New Zealand operations with terms that range in length
up to ten years. All agreements in New Zealand are take-or-pay agreements and include base and variable price components where the
variable price component is adjusted by a formula related to methanol prices above a certain level. Some of these contracts require the
supplier to deliver a minimum amount of natural gas with additional volumes dependent on the success of exploring and developing
the related natural gas field.
We continue to pursue opportunities to contract additional natural gas supply to our plants in New Zealand and are also pursuing
natural gas exploration and development opportunities in that country. We have an agreement with Kea Petroleum (“Kea”), an oil and
gas exploration and development company, to explore areas of the Taranaki basin, which is close to our plants. Under the agreement
with Kea, funding is shared 50% by both parties, and we will be entitled to all natural gas deliveries from our participation at a price
that is competitive to our other locations in Trinidad, Chile and Egypt. We can elect to provide funding on a project-by-project basis
and we have agreed to jointly fund an onshore exploration well with Kea in which drilling commenced in early 2013.
The future operation of our New Zealand facilities depends on methanol industry supply and demand, the ability of our contracted
suppliers to meet their commitments, and the success of ongoing exploration and development activities.
Trinidad
Our equity interest in two methanol facilities in Trinidad (Titan and Atlas) represents approximately 2.0 million tonnes of annual
production capacity. Natural gas for these facilities is supplied under long-term take-or-pay contracts with The National Gas Company
of Trinidad and Tobago Limited (NGC), which purchases the natural gas from upstream gas producers. The contracts for Titan and
Atlas expire in 2014 and 2024, respectively, and have base and variable price components where the variable component is
determined with reference to methanol prices.
Since 2011, large industrial consumers in Trinidad, including our Titan and Atlas facilities, have experienced periodic
curtailments of natural gas supply due to a mismatch between upstream commitments to supply NGC and downstream demand from
NGC”s customers which becomes apparent when an upstream supplier has a technical issue or planned maintenance that reduces gas
delivery. We are engaged with key stakeholders to find a solution to this issue, but in the meantime expect to continue to experience
some gas curtailments to our Trinidad facilities.
Egypt
We have a 25-year, take-or-pay natural gas supply agreement for the 1.26 million tonne per year methano! plant in Egypt in which
we have a 60% equity interest. The plant began commercial production in March 2011. The price paid for gas is based on a US dollar
base price plus a variable price component that is determined with reference to methanol prices. Under the contract, the gas supplier is
obligated to supply, and we are obliged to take-or-pay for, a specified annual quantity of natural gas. Gas paid for, but not taken, in
any year may be received in subsequent years subject to limitations. In addition, the natural gas supply agreement has a mechanism
whereby we are partially compensated when gas delivery shortfalls occur.
The Egypt facility experienced periodic natural gas supply constraints commencing in mid-2012 (refer to the Egypt section on
page 18 for more information).
Canada
We have a 0.5 million tonne per year plant in Medicine Hat, Alberta that returned to production in April 2011. We currently have
a program in place to purchase natural gas for this facility on AECO – the Alberta gas trading market – and we believe that the
long-term natural gas dynamics in North America will support the long-term operations of this facility.
Chile
Since 2007, we have operated our methanol facilities in Chile significantly below site capacity primarily due to curtailments of
natural gas supply from Argentina. In June 2007, our natural gas suppliers from Argentina curtailed all gas supply to our plants in
Chile. Under the existing circumstances, we do not expect to receive any further natural gas supply from Argentina. As a result of the
Argentinean natural gas supply issues, all of the methanol production at our Chile facilities since June 2007 has been produced with
natural gas from Chile.
We continue to operate our Chile facilities significantly below site capacity. Our methanol facilities in Chile produced 0.3 million
tonnes of methanol in 2012 compared to 0.55 million tonnes in 2011. During 2012, natural gas deliveries were lower than in 2011
primarily as a result of declines in deliverability from existing wells. While both Methanex and its natural gas suppliers have made
significant investments in natural gas exploration and development in southern Chile and there have been new gas discoveries in the
region, the potential for a significant increase in gas deliveries to our plants is more challenging than we originally anticipated. As we
entered 2013, we were operating one plant at approximately 20% capacity and we expect to idle our Chile operations in March 2013
due to insufficient natural gas feedstock to keep the plant operating through the southern hemisphere winter, when residential energy
demand is at its peak.
We are continuing to work with gas suppliers 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 supply of natural gas to operate over the
medium term.
We are also developing other projects to increase the utilization of our Chilean assets. In July 2012, we reached a final investment
decision to proceed with the relocation of one of our four plants in Chile to Geismar, Louisiana. We are also evaluating the relocation
of a second plant from Chile to Geismar and expect to make a final investment decision on this project by the middle of 2013.
Refer to the Risk Factors and Risk Management – Chile section of our 2012 MDáA for more information.
16
United States
We are in the process of relocating one of our idled Chile methanol plants to Geismar, Louisiana. It is anticipated that this plant
will have a production capacity of 1.0 million tonnes and commence operations by the end of 2014. We have recently entered into a
ten-year natural gas agreement for the supply of all of the plant’s natural gas requirements. Contractual deliveries and obligations
commence on the first date of commercial operations. Once the contract is in effect, the supplier is obligated to supply, and we are
obliged to take and pay for, a specified annual quantity of natural gas. The price to be paid for the gas is based on a US dollar base
price plus a variable price component that is determined with reference to methanol prices.
FOREIGN OPERATIONS AND GOVERNMENT REGULATION
General
We have substantial operations and investments outside of North America, and as such we are affected by foreign political
developments and federal, provincial, state and other local laws and regulations. We are subject to risks inherent in foreign operations,
including loss of revenue, property and equipment as a result of expropriation; import or export restrictions; anti-dumping measures;
nationalization, war, civil unrest, insurrection, acts of terrorism and other political risks; increases in duties, taxes and governmental
royalties; renegotiation of contracts with governmental entities; as well as changes in laws or policies or other actions by governments
that may adversely affect our operations.
We derive the majority of our revenue from production and sales by subsidiaries outside of Canada, and the payment of dividends
or the making of other cash payments or advances by these subsidiaries to us may be subject to restrictions or exchange controls on
the transfer of funds in or out of the respective countries or result in the imposition of taxes on such payments or advances. We have
organized our foreign operations in part based on certain assumptions about various tax laws (including capital gains and withholding
taxes), foreign currency exchange and capital repatriation laws and other relevant laws of a variety of foreign jurisdictions. While we
believe that such assumptions are reasonable, we cannot provide assurance that foreign taxation or other authorities will reach the
same conclusion. Further, if such foreign jurisdictions were to change or modify such laws, we could suffer adverse tax and financial
consequences.
The dominant currency in which we conduct business is the United States dollar, which is also our reporting currency. The most
significant components of our costs are natural gas feedstock and ocean-shipping costs and substantially all of these costs are incurred
in United States dollars. Some of our underlying operating costs, capital expenditures and purchases of methanol, however, are
incurred in currencies other than the United States dollar, principally the Canadian dollar, the Chilean peso, the Trinidad and Tobago
dollar, the New Zealand dollar, the Euro and the Egyptian pound. We are exposed to increases in the value of these currencies that
could have the effect of increasing the United States dollar equivalent of cost of sales, operating expenses and capital expenditures. A
portion of our revenue is earned in Euros, Canadian dollars and British pounds. We are exposed to declines in the value of these
currencies compared to the United States dollar, which could have the effect of decreasing the United States dollar equivalent of our
revenue.
Trade in methanol is subject to duty in a number of jurisdictions. Methanol sold in China from any of our producing regions is
currently subject to duties ranging from 0% to 5.5%. In 2010, the Chinese Ministry of Commerce investigated allegations made by
domestic Chinese producers related to the dumping into China of imported methanol. In December 2010, the Ministry recommended
that duties of approximately 9% be imposed on methanol imports from New Zealand, Malaysia and Indonesia for five years starting
from December 24, 2010. However, citing special circumstances, the Customs Tariff Commission of the State Council, which is
China’s chief administrative authority, suspended enforcement of the recommended dumping duties with the effect that methanol will
continue to be allowed to be imported from these three countries without the imposition of additional duties. If the suspension is lifted,
we do not expect there to be a significant impact on industry supply/demand fundamentals and we would realign our supply chain.
Currently, the costs we incur in respect of duties are not significant. However, there can be no assurance that the duties that we
are currently subject to will not increase, that the suspension of Chinese dumping duties will not be lifted, that duties will not be levied
in other jurisdictions in the future or that we will be able to mitigate the impact of future duties, if levied.
Chile
Our wholly owned subsidiary Methanex Chile S.A. (“Methanex Chile”) owns three methanol plants on our Chilean production
site. Chilean foreign investment regulations provide certain benefits and guarantees to companies that enter into a foreign investment
contract (“DL 600 Contract”) with Chile. Methanex Chile has entered into DL 600 Contracts, substantially identical in all matters
material for Methanex Chile, for each of the plants. Under the DL 600 Contracts, Methanex Chile is authorized to remit from Chile, in
United States dollars or any other freely convertible currency, all or part of its profits and, after one year, its equity. As well, under the
DL 600 Contracts, Methanex Chile has elected to pay income tax at the general applicable rate, currently 35%. The DL 600 Contracts
provide that they cannot be amended or terminated except by written agreement.
Please also refer to the Natural Gas Supply – Chile section starting on page 16 for a discussion of the imposition of a significant
increase to the duty on exports of natural gas from Argentina to Chile.
Trinidad
Our Atlas plant was declared an approved enterprise under the Fiscal Incentives Act of Trinidad and was granted, for a ten-year
period beginning in 2004, total relief from corporate income tax for the first two years of operation, a rate of 15% for the following
five years and a rate of 20% for the following three years. Atlas also has total relief from income tax on dividends or other
distributions out of profits or gains derived from the manufacture of methanol (other than interest) and has been granted import duty
concessions on building materials, machinery and equipment imported into Trinidad and used in connection with the facility. The
applicable corporate income tax rate without tax relief is currently 35%.
New Zealand
New Zealand has enacted legislation to safeguard claims by Maori tribes (the indigenous people of New Zealand) against lands
previously owned by state-owned enterprises and subsequently privatized. The land on which certain parts of the infrastructure for the
Waitara Valley and Motunui plants are located (for example, a tank farm and various pipelines and pipeline valve and mixing stations)
is subject to this legislation. There is a possibility that the tribunal that deals with Maori land claims could recommend the return of
such land to Maori ownership. The New Zealand government would be required to comply with such a recommendation, subject to
payment of compensation to the affected owner. We believe that, subject to receiving adequate compensation, such a forced
divestment would not likely have a material adverse effect on our operations or financial condition. The land upon which the Waitara
Valley and Motunui plants are located and the surrounding buffer zones of farmland owned by us are not subject to such forced
divestment procedures.
Egypt
Egypt’s government is currently in a transition that has resulted in ongoing civil unrest, political uncertainty and an adverse
impact on the country”s economy. We believe that the political uncertainty is causing delays in decision-making within the Egyptian
government including with respect to upstream natural gas development and this, as well as the economic situation in the country, is
contributing to constraints in the development of new supplies of natural gas coming to market. In addition, domestically-produced
natural gas is increasingly being used instead of more expensive imported energy for the purpose of generating domestic electricity.
These factors have led to periodic natural gas supply restrictions to the EMethanex facility. This situation may persist in the future and
become more acute during the summer months when electricity demand is at its peak.
RESPONSIBLE CARE
As a member of the Chemistry Industry Association of Canada (“CIAC”), the American Chemistry Council, Asociacion Gremial
de Industriales Quimicos de Chile, Responsible Care New Zealand and Gulf Petrochemicals and Chemicals Association, and as a
signatory to the Association of International Chemical Manufacturers Responsible Care Manifesto (China), we are committed to the
ethics and principles of Responsible Care.
Responsible Care is the umbrella under which we manage our business in relation to health, safety, the environment, community
involvement, social responsibility, sustainability, security and emergency preparedness at each of our facilities and locations.
Accordingly, we have established policies, systems and procedures to promote and encourage the responsible development,
introduction, manufacture, transportation, storage, handling, distribution and use of methanol and ultimate disposal of hazardous waste
and residual chemical products so as to do no harm to human health and well-being, the environment and the communities in which
we operate while striving to improve the environment and people’s lives.
Methanex”s Responsible Care/Social Responsibility (“RC/SR”) policies and programs are based on CIAC”s RC Ethic and
Principles for Sustainability and the CIAC RC Codes of Practice. Some of the countries where we operate have different standards
than those applied in North America. Our policy is to adopt the more stringent of either Responsible Care practices or local regulatory
or association requirements at each of our facilities.
Sound corporate governance is the foundation of our long-term success and the sustainability of our operations. Our corporate
governance policies ensure that we have strong management and clear direction for all of Methanex”s business affairs. The application
of Responsible Care begins with our Board of Directors, which has appointed a Responsible Care Committee, and extends throughout
our organization.
The Companys Board of Directors and senior management team establish the direction for Methanex”s RC/SR practices. The
Board’s Responsible Care Committee oversees RC program performance and related matters at the policy level, while the Public
Policy Committee provides focus on the SR program. The two committees consider ethics, accountability, governance, business
relationships, products and services, community involvement and the protection of people and the environment. The senior
management team has overall responsibility for Methanex”s RC/SR policies and programs, ensuring that they align with the Board”s
requirements and the Company”s business strategy. These programs are directed and managed by the Director, Responsible Care and
the Director, Government £ Public Affairs, who lead Methanex”s Global Responsible Care Team and Global Public Policy Team,
respectively.
Methanex evaluates the performance of its RC/SR management system through internal and third-party external audit and
assessment programs. The internal program includes ongoing in-region self-audits as well as global audits conducted by Methanex
subject matter experts. Third-party verification of the performance of Methanex”s RC/SR program occurs every three years through
the CIAC RC verification process. The most recent third-party verification was successfully completed in 2011.
We have an established Environment Policy that requires that our facilities have systems in place to monitor and comply with all
local environmental regulations as well as internal standards, periodically audit environmental performance and compliance, measure
environmental performance against key performance indicators, report incidents with the potential to cause environmental harm, and
demonstrate continual improvement. A Greenhouse Gas (“GHG”) Management Policy was introduced in 2010 in order to identify and
address the risks associated with GHG emissions. The policy directs the Company to consider the GHG-related risks when assessing
new investments, improve reliability and utilization performance, evaluate energy-efficiency improvement opportunities and keep an
inventory of GHG emissions. These policies are reviewed at least biennially, are endorsed by the Board of Directors and approved by
the Company”s senior management team.
We have also adopted a number of risk assessment tools that are formally applied as part of our normal business processes to
identify and mitigate current and future environmental and process safety-related risks. When incidents do occur, we have a formal
incident investigation process that ensures effective mitigation as well as application of lessons learned throughout our organization.
As a natural extension of our RC ethic, we have a Social Responsibility Policy that aligns our corporate governance, employee
engagement and development, community involvement and social investment strategies with our core values and corporate strategy.
Specifically, our Social Responsibility Policy commits the Company to recognize and respond to community concerns about the
manufacture, storage, handling, transportation and disposal of our products and promptly provide information concerning any
potential health or environmental hazard to the appropriate authorities, employees and all stakeholders. Methanex”s Social
Responsibility Policy further commits the Company to have an open, honest, proactive relationship with the communities where we
have a significant presence; to be accountable and responsive to the public; to have effective processes to identify and respond to
community concerns; and to inform the community of risks associated with our operations.
We believe that Responsible Care helps us achieve safe and reliable operations, which in turn results in strong financial
performance, effective and innovative minimization of environmental impacts and improved quality of life, particularly in
communities where our employees reside.
ENVIRONMENTAL MATTERS
The countries in which we operate all have laws and regulations to which we are subject governing the environment and the
management of natural resources as well as the handling, storage, transportation and disposal of hazardous or waste materials. We are
also subject to laws and regulations governing emissions and the import, export, use, discharge, storage, disposal and transportation of
toxic substances. The products we use and produce are subject to regulation under various health, safety and environmental laws.
Non-compliance with these laws and regulations may give rise to compliance orders, fines, injunctions, civil liability and criminal
sanctions.
Laws and regulations protecting the environment have become more stringent in recent years and may, in certain circumstances,
impose absolute liability rendering a person liable for environmental damage without regard to negligence or fault on the part of such
person. Such laws and regulations may also expose us to liability for the conduct of, or conditions caused by, others, or for our own
acts even if we complied with applicable laws at the time such acts were performed. To date, environmental laws and regulations have
not had a significant adverse effect on our capital expenditures, earnings or competitive position. However, operating petrochemical
manufacturing plants and distributing methanol exposes us to risks in connection with compliance with such laws and we cannot
provide assurance that we will not incur significant costs or liabilities in the future.
Management of Emissions
We believe that minimizing emissions and waste from our business activities is good business practice. Carbon dioxide (“CO)”) is
a by-product of the methanol production process. The amount of CO, generated by the methanol production process depends on the
production technology (and hence often the plant age), the feedstock and any export of by-product hydrogen. We continually strive to
increase the energy efficiency of our plants, which not only reduces the use of energy but also minimizes CO, emissions. We have
reduced CO, emission intensity in our manufacturing operations by 30% between 1994 and 2012 through asset turnover, improved
plant reliability and energy efficiency and emissions management. Plant efficiency, and thus CO, emissions, is highly dependent on
the design of the methanol plant, so the CO) emission figure may vary from year to year depending on the asset mix that is operating.
We also recognize that CO, is generated from our marine operations, and in that regard we measure the consumption of fuel by our
ocean vessels based on the volume of product transported. Between 2002 and 2012, we reduced our CO, intensity (tonnes of CO,
from fuel burned per tonne of product moved) from marine operations by nearly 27%. We also actively support global industry efforts
to voluntarily reduce both energy consumption and CO, emissions.
We manufacture methanol in Chile, Trinidad, New Zealand, Canada and Egypt. All of these countries signed and ratified the
Kyoto Protocol; however, Canada has since removed itself from that Agreement. We are not currently required to reduce GHGs in
Trinidad, Egypt and Chile but our production in New Zealand and Canada is subject to GHG reduction regulations.
New Zealand passed legislation to establish an Emissions Trading Scheme (“ETS”) that came into force in 2010. The ETS
imposes a carbon price on producers of fossil fuels, including natural gas, which is passed on to Methanex, increasing the cost of gas
that Methanex purchases in New Zealand. However, as a trade-exposed company, Methanex is entitled to a free allocation of
emissions units to partially offset those increased costs. Recently, the New Zealand government concluded that the legislation will
continue providing further moderation and free allocation of any residual cost exposure until at least 2015. Consequently, our
ETS-related costs are not expected to be significant to the end of 2015. However, after this date, the moderating features are expected
to be removed and our eligibility for free allocation of emissions units may also be progressively reduced. As a consequence, we will
likely incur increasing costs after 2015. It is impossible to accurately quantify the impact on our business of ETS-related costs after
2015 and therefore we cannot provide assurance that the ETS will not have a significant impact on our business beyond 2015.
Our Medicine Hat facility is located in the Canadian province of Alberta, which has an established GHG reduction regulation that
applies to our plant. The regulation requires that facilities reduce emissions intensities by up to 12% of their established emissions
intensity baseline. “Emissions intensity” means the quantity of specified greenhouse gases released per unit of production. In order to
meet the reduction obligation, a facility can choose to make emissions reduction improvements or it can purchase either offset credits
or “technology fund” credits for CDN$15 per tonne of CO, equivalent. Financial obligations are set to begin in 2014, and based on the
expected GHG baseline intensity, we do not believe that the cost will be material.
The federal government of Canada is in the process of developing a sector-by-sector approach to reduce GHG emissions in the
chemical sector in support of its commitment to reduce GHGs from 2005 levels by 17% by 2020. Final proposed regulations are
expected by the end of 2013. As the sole methanol producer in Canada, Methanex is engaged in a consultative process to ensure
achievable performance standards are set and that these incorporate equivalency agreements to prevent the potential of paying for
GHG emissions under both provincial and federal regimes.
We are currently in the process of relocating one of our idle methanol plants in Chile to Geismar, Louisiana. The reassembled
plant in Geismar is expected to be operational by the end of 2014. Today, there is no GHG legislation that impacts us in the US. We
continue to monitor the development of potential GHG legislation in the US and Louisiana to ensure compliance with any potential
future requirements once the plant becomes operational. At this time, it is unknown what impact potential new GHG legislation or
regulations could have on our operations in Geismar.
20
As part of our commitment to the ethic of Responsible Care, we believe it is important to promote renewable energy where it
makes sense for our business. In this regard, we have constructed three wind turbines in southern Chile that were completed in late
2010 and are now supplying electricity to our nearby production facility. The wind power site has an installed generation capacity of
2.55 megawatts with an expected generation capacity of 1.28 megawatts based on a usage factor of approximately 50%. This project
contributes to the diversification of energy resources in southern Chile.
Refer also to the Risk Factors and Risk Management section of our 2012 MDáA for more information regarding risks related to
environmental regulations.
We have accrued $23 million for site restoration costs related to the decommissioning and reclamation of our methanol
production sites and oil and gas properties. During 2012, cash expenditures applied against the site restoration liability were $2.4
million for completing remediation of the Kitimat site.
INSURANCE
The majority of our revenues are derived from the sale of methanol produced at our plants. Our business is subject to the normal
hazards of methanol production operations that could result in damage to our plants. Under certain conditions, prolonged shutdowns of
plants due to unforeseen equipment breakdowns, interruptions in the supply of natural gas or oxygen, power failures, loss of port
facilities or any other event, including any event of force majeure, could adversely affect our revenues and operating income. We
maintain operational and construction insurance, including business interruption insurance and delayed start-up insurance, subject to
certain deductibles, that we consider to be adequate under the circumstances. However, there can be no assurance that we will not
incur losses beyond the limits or outside the coverage of such insurance. From time to time, various types of insurance for companies
in the chemical and petrochemical industries have not been available on commercially acceptable terms or, in some cases, have been
unavailable. There can be no assurance that in the future we will be able to maintain existing coverage, or that premiums will not
increase substantially.
COMPETITION
The methanol industry is highly competitive. Methanol is a global commodity and customers base their purchasing decisions
primarily on the delivered price of methanol and reliability of supply. The relative cost and availability of natural gas or coal feedstock
and the efficiency of production facilities and distribution systems are also important competitive factors. Some of our competitors are
not dependent on a single product for revenues, some have greater financial resources and some are state-owned enterprises. These
competitors may be better able than we are to withstand price competition and volatile market conditions. However, given our ability
to service our customers globally, the reliability and cost-effectiveness of our distribution system and the enhanced service we provide
customers, we believe we are well positioned to compete in each of the major international methanol markets.
EMPLOYEES
As of December 31, 2012, we had 1,051 employees (including the employees at the EMethanex and Atlas facilities).
RISK FACTORS
The risks relating to our business are described under the heading Risk Factors and Risk Management in our 2012 MDézA, and
are incorporated in this document by reference. Any of those risks, as well as risks and uncertainties currently not known to us, could
adversely affect our business, financial condition, results of operations or the market price of our securities.
DIVIDENDS
Dividends are payable to the holders of common shares of the Company (“Common Shares”) if, as and when declared by our
Board of Directors and in such amounts as the Board of Directors may, from time to time, determine. The Company”s current dividend
policy is designed so that the Company maintains conservative financial management appropriate to the historically cyclical nature of
the methanol industry to preserve financial flexibility and creditworthiness.
We pay a quarterly dividend on the Common Shares. The first quarterly dividend of $0.05 per share was paid on September 30,
2002 and the dividend amount has been increased every year since then with the exception of 2009 and 2010. The table below shows
the amount and percentage increases to the dividend since its inception in 2002:
21
Quarterly
Date Dividend Amount | % Increase
September 30, 2002 $0.050 n/a
September 30, 2003 $0.060 20%
September 30, 2004 $0.080 33%
June 30, 2005 $0.110 37.5%
June 30, 2006 $0.125 14%
June 30, 2007 $0.140 12%
June 30, 2008 $0.155 11%
June 30, 2009 $0.155 0%
June 30, 2010 $0.155 0%
June 30, 2011 $0.170 10%
June 30, 2012 $0.185 9%
The following table sets out the total amount of regular dividends per share paid on the Common Shares in each of the last three
most recently completed financial years:
Regular Dividend
Financial Year Ended Paid per Share
December 31, 2010 $0.620
December 31, 2011 $0.665
December 31, 2012 $0.725
CAPITAL STRUCTURE
We are authorized to issue an unlimited number of Common Shares without nominal or par value and 25,000,000 preferred shares
without nominal or par value.
Holders of Common Shares are entitled to receive notice of and attend all annual and special meetings and to one vote in respect
of each Common Share held; receive dividends if, as and when declared by our Board of Directors; and participate in any distribution
of the assets of the Company in the event of liquidation, dissolution or winding up.
Preferred shares may be issued in one or more series and the directors may fix the designation, rights, restrictions, conditions and
limitations attached to the shares of each such series. Currently, there are no preferred shares outstanding.
Our bylaws provide that at any meeting of our shareholders a quorum shall be two persons present in person, or represented by
proxy, holding shares representing not less than 20% of the votes entitled to be cast at the meeting. NASDAQ”s listing standards
require a quorum for shareholder meetings to be not less than 33-1/3% of a company”s outstanding voting shares. As a foreign private
issuer and because our quorum requirements are consistent with practices in Canada, our home country, under NASDAQ rules we are
not subject to NASDAQ”s quorum requirement.
RATINGS
The following information relating to the Company’s credit ratings is provided as it relates to the Company’s financing costs,
liquidity and operations. Specifically, credit ratings affect the Company’s ability to obtain short-term and long-term financing and the
cost of such financing. Additionally, the ability of the Company to engage in certain collateralized business activities on a
cost-effective basis depends on the Company’s credit ratings. A reduction in the current rating on the Company’s debt by its rating
agencies, or a negative change in the Company’s ratings outlook could adversely affect the Company’s cost of financing and its access
to sources of liquidity and capital. In addition, changes in credit ratings may affect the Company’s ability to, and the associated costs
of: (i) entering into ordinary course derivative or hedging transactions that may require the Company to post additional collateral under
certain of its contracts, and (ii) entering into and maintaining ordinary course contracts with customers and suppliers on acceptable
terms.
22
The following table sets forth the ratings assigned to the Company”s unsecured debt by Standard £ Poor’s Financial Services
LLC (“S8P”), Moody”s Investors Service, Inc. (“Moody”s”) and Fitch Ratings, Inc. (“Fitch”).
Security sep Moody’s% | Fitch?
Unsecured Notes BBB- Bal BBB-
(stable outlook) (positive (stable
outlook) outlook)
(1) SéP credit ratings are on a long-term debt rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities
rated. According to the SézP rating system, debt securities rated BBB exhibit adequate protection parameters. However, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitments on the securities. The ratings from AA to CCC may
be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
(2) Moody’s credit ratings are on a long-term debt rating scale that ranges from Aaa to C, which represents the range from highest to lowest quality of such securities
rated. According to the Moody”s rating system, debt securities rated Baa are subject to moderate risk. They are considered as medium-grade obligations and, as
such, may possess certain speculative characteristics. Moody”s applies numerical modifiers 1, 2 and 3 in each generic rating classification from Aa through Caa in
its corporate bond rating system. The modifier 1 indicates that the issue ranks in the higher end of its generic rating category, the modifier 2 indicates a mid-range
ranking and the modifier 3 indicates that the issue ranks in the lower end of its generic rating category.
(3) Fitch credit ratings are on a long-term debt rating scale that ranges from AAA to D, which represents the range from highest to lowest quality of such securities
rated. According to the Fitch rating system, debt securities rated BBB indicate that expectations of default risk are currently low. The capacity for payment of
financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity. The ratings from AA to B may
be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
The rating agencies regularly evaluate the Company, and their ratings of the Company’s long-term and short-term debt are
based on a number of factors, including the Company”s financial strength as well as factors not entirely within the Company”s
control, including conditions affecting the methanol industry generally and the wider state of the economy.
Credit ratings are intended to provide investors with an independent measure of the quality of an issue of securities. The foregoing
ratings should not be construed as a recommendation to buy, sell or hold the securities, as such ratings do not comment as to market
price or suitability for a particular investor. There is no assurance that any rating will remain in effect for any given period of time or
that any rating will not be revised or withdrawn entirely by a rating agency in the future if, in its judgment, circumstances so warrant.
If any such rating is so revised or withdrawn, we are under no obligation to update this Annual Information Form.
MARKET FOR SECURITIES
Our Common Shares are listed on the Toronto Stock Exchange in Canada (trading symbol: MX), on the NASDAQ Global Market
in the United States (trading symbol: MEOH) and on the Foreign Securities Market of the Santiago Stock Exchange of Chile (trading
symbol: Methanex). The following table sets out the market price ranges and trading volumes of our Common Shares on the Toronto
Stock Exchange as well as on the NASDAQ Global Market for each month of our most recently completed financial year (January 1,
2012 through December 31, 2012).
2012 Trading Volumes
The Toronto Stock Exchange NASDAQ Global Market
Trading Symbol: MX Trading Symbol: MEOH
High Low High Low
(CDNS$) |(CDNS$) Volume (US$) | (US$) Volume
January 28.55 | 23.66 5,983,245 January 28.48 | 23.17 2,429,940
February 31.25 | 27.21 7,634,522 February 31.61 | 27.28 2,012,711
March 33.92 | 29.44 9,298,763 March 34.37 | 29.36 2,659,427
April 34.97 | 30.06 5,443,497 April 35.47 | 29.96 2,993,238
May 35.00 | 28.16 6,125,729 May 35.41 | 27.56 3,446.883
June 31.30 | 26.19 6,349,713 June 30.62 | 25.58 3,793,255
July 30.25 | 26.55 5,125,976 July 30.01 | 26.30 2,104,285
August 29.57 | 26.04 4,240,797 August 29.83 | 25.87 2,188,513
September 29.53 | 26.15 4,934,035 September 30.12 | 26.59 2,099,892
October 30.60 | 27.79 4,571,418 October 30.56 | 28.20 1,925,138
November 30.87 | 28.54 4,387,963 November 31.02 | 28.49 1,160,497
December 31.91 | 30.11 4,833,981 December 32.38 | 30.34 1,153,736
23
DIRECTORS AND EXECUTIVE OFFICERS
As at December 31, 2012, the directors and executive officers of the Company owned, controlled or directed, directly or indirectly,
506,618 Common Shares representing approximately 0.54% of the outstanding Common Shares as at December 31, 2012.
The following tables set forth the names and places of residence of the current directors and executive officers of the Company,
the offices held by them in the Company, their current principal occupations, their principal occupations during the last five years and,
in the case of the directors, the month and year in which they became directors:
Name and
Principal Occupations and
Municipality of Residence Office Positions During the Last Five Years Director Since“!”
AITKEN, BRUCE Director Corporate Director. President and Chief Executive Officer of the July 2004
Vancouver, British Columbia Company from May 2004 to December 31, 2012.
Canada
BALLOCH, HowarD “Y Director Corporate Director. Chairman of Canaccord Genuity Asia Limited” December 2004
Beijing from January 2011 to March 2013; prior thereto President of The
China Balloch Group since July 2001.
Cook, PHILLIPS Director Corporate Director. May 2006
Austin, Texas
USA
FLOREN, JOHN Director, President and | President and Chief Executive Officer of the Company since January 2013
Eastham, Massachusetts Chief Executive Officer | January 1, 2013; prior thereto Senior Vice President, Global
USA Marketing £ Logistics of the Company since June 2005.
HAMILTON, THOMAS Director and Chairman | Corporate Director. Co-owner of Medora Investments, LLC” since, May 2007
Houston, Texas of the Board April 2003.
USA
KOSTELNIK, ROBERTO Director Corporate Director. Since February 2012, principal in GlenRock September 2008
Corpus Christi, Texas Recovery Partners, LLC”, President and Chief Executive Officer of
USA Cinatra Clean Technologies, Inc. from 2008 to May 2011.
MAHAFFY, DoucLAas OY Director Corporate Director. Chairman of McLean Budden Limited” from May 2006
Toronto, Ontario February 2008 until March 2010.
Canada
POOLE, A. TERENCE Y” Director Corporate Director. February 1994 except
Calgary, Alberta for June – September
Canada 2003
REID, JOHNS Director Corporate Director. September 2003
Vancouver, British Columbia
Canada
RENNIE, JANICE Director Corporate Director. May 2006
Edmonton, Alberta
Canada
SLOAN, MONICA PO Director Corporate Director. Chief Executive Officer of Intervera Ltd.” September 2003
Calgary, Alberta
Canada
from January 2004 to December 2008.
(1) Member of the Audit, Finance and Risk Committee.
(2) Member of the Corporate Governance Committee.
(3) Member of the Human Resources Committee.
(4) Member of the Public Policy Committee.
(5) Member of the Responsible Care Committee.
(6) Canaccord Genuity Asia Limited is an investment banking firm specializing in China and international firms active in the Chinese market.
(7) Medora Investments, LLC is a private investment firm.
(8) GlenRock Recovery Partners, LLC is a company that facilitates the sale of non-fungible hydrocarbons in the United States.
(9) McLean Budden Limited (currently MFS McLean Budden) is an investment management firm that manages over $30 billion in assets for pension, foundation and
private clients in Canada, the United States, Europe and Asia.
(10) Intervera Ltd. provided data quality products and services to the energy industry.
(11) The Directors of the Company are elected each year at the Annual General Meeting of the Company and hold office until the close of the next Annual General
Meeting or until their successors are elected or appointed.
24
Name and
Municipality of Residence
Office
Principal Occupations and
Positions During the Last Five Years
BACH, WENDY L.
West Vancouver, British Columbia
Canada
Vice President, Human
Resources
Vice President, Human Resources of the Company since July 2012;
prior thereto Director, Human Resources of the Company since June
2010; prior thereto Senior Counsel of the Company since October
2007.
CAMERON, IAN P.
Vancouver, British Columbia
Canada
Senior Vice President, Finance
and Chief Financial Officer
Senior Vice President, Finance and Chief Financial Officer of the
Company since January 2013; prior thereto Senior Vice President,
Corporate Development and Chief Financial Officer of the Company
since November 2010; prior thereto Senior Vice President, Finance
and Chief Financial Officer of the Company since January 1, 2003.
HERZ, MICHAEL J.
Hong Kong
(SAR) People’s Republic of China
Senior Vice President,
Corporate Development
Senior Vice President, Corporate Development of the Company since
January 2013; prior thereto Vice President, Marketing and Logistics,
Asia Pacific of the Company since August 2008; prior thereto
Director, Marketing and Logistics, Asia Pacific of the Company since
August 2004.
JAMES, VANESSA L.
New Plymouth
New Zealand
Senior Vice President,
Global Marketing and Logistics
Senior Vice President, Global Marketing and Logistics of the
Company since January 2013; prior thereto Vice President, Marketing
and Logistics, North America of the Company since August 2008;
prior thereto Director, Global Supply Chain and Market Planning of
the Company since January 2008.
MACDONALD, MICHAEL G.
Vancouver, British Columbia
Canada
Senior Vice President,
Global Operations
Senior Vice President, Global Operations of the Company since
November 2010; prior thereto Senior Vice President, Corporate
Development of the Company since January 2004.
MILNER, RANDALL M.
Vancouver, British Columbia
Canada
Senior Vice President, General
Counsel and Corporate Secretary
Senior Vice President, General Counsel and Corporate Secretary of
the Company since October 2002.
SCHIODTZ, PAUL
Senior Vice President,
Senior Vice President, Latin America of the Company since January 1,
Santiago Latin America 2006.
Chile
WEAKE, HARVEY Senior Vice President, Senior Vice President, Asia Pacific of the Company since December,
Auckland Asia Pacific 2005.
New Zealand
INTEREST OF MANAGEMENT AND OTHERS IN MATERIAL TRANSACTIONS
Since the start of our most recently completed financial year, and for the three most recently completed financial years, no
director or executive officer of the Company, and no person or company that beneficially owns, controls or directs, directly or
indirectly, more than 10% of the Company’s voting securities or any associate or affiliate of such persons, has had any material
interest in any transaction involving the Company.
EXPERTS
KPMG LLP are the auditors of the Company and have confirmed that they are independent with respect to the Company within
the meaning of the Rules of Professional Conduct of the Institute of Chartered Accountants of British Columbia and within the
meaning of the US Securities Act of 1933 and the applicable rules and regulations thereunder adopted by the Securities and Exchange
Commission and the Public Company Accounting Oversight Board (United States).
LEGAL PROCEEDINGS
The Board of Inland Revenue of Trinidad and Tobago has issued assessments against our 63.1% owned joint venture, Atlas
Methanol Company Unlimited (“Atlas”), in respect of the 2005 and 2006 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 that extend to 2014 and
2019 related to methanol produced by Atlas. The impact of the amounts in dispute for the 2005 and 2006 financial years is not
significant. Atlas has partial relief from corporation income tax until 2014.
The Company has lodged an objection to the assessments. Based on the merits of the case and legal interpretation, management
believes its position should be sustained.
25
AUDIT COMMITTEE INFORMATION
The Audit Committee Charter
The Audit, Finance and Risk Committee (“Committee”) is appointed by the Board to assist the Board in fulfilling its oversight
responsibility relating to: the integrity of the Company”s financial statements; the financial reporting process; the systems of internal
accounting and financial controls; the professional qualifications and independence of the external auditors; the performance of the
external auditors; risk management processes; financing plans; pension plans; and compliance by the Company with ethics policies
and legal and regulatory requirements.
The Committee?s mandate sets out its responsibilities and duties. A copy of the Committee”s mandate is attached here as
Appendix “A”.
Composition of the Audit Committee
The Committee is comprised of four directors: A. Terence Poole (Chair), Howard Balloch, John Reid and Janice Rennie. Each
Committee member is independent and financially literate. Mr. Poole is designated as the “audit committee financial expert”. The U.S.
Securities and Exchange Commission has indicated that the designation of Mr. Poole as an audit committee financial expert does not
make Mr. Poole an “expert” for any other purpose, impose any duties, obligations or liability on Mr. Poole that are greater than those
imposed on members of the Committee and Board who do not carry this designation or affect the duties, obligations or liability of any
other member of the Committee.
Relevant Education and Experience
The following is a brief summary of the education and experience of each member of the Committee that is relevant to the
performance of his or her responsibilities as a member of the Committee, including any education or experience that has provided the
member with an understanding of the accounting principles we use to prepare our annual and interim financial statements.
Mr. A. Terence Poole
Mr. Poole is a corporate director. Prior to his retirement in June 2006, he was Executive Vice President, Corporate Strategy and
Development of NOVA Chemicals Corporation (“NOVA”), a commodity chemical company with international operations. Prior to
that position, Mr. Poole was the Executive Vice President, Finance and Strategy of NOVA from 1998 to 2000; Senior Vice President
and Chief Financial Officer of NOVA from 1994 to 1998; and held other senior financial positions with NOVA from 1988. He has
worked at other large public companies in various financial and business management capacities since 1971.
Mr. Poole is a Chartered Accountant and holds a Bachelor of Commerce degree from Dalhousie University in Halifax, Nova
Scotia. Mr. Poole is a member of the Canadian, Quebec and Ontario Institutes of Chartered Accountants and is also a member of
Financial Executives International.
Mr. Poole serves on the board of Pengrowth Energy Corporation and chairs its Audit Committee.
Mr. Poole has served on the Committee since September 2003, as well as from February 1994 to June 2003. Mr. Poole has
chaired the Committee since May 2006.
Mr. Howard Balloch
From January 2011 until March 2013, Mr. Balloch was Chairman of Canaccord Genuity Asia Limited, an investment banking
firm specializing in China and international firms active in China. Prior to this Mr. Balloch was President of The Balloch Group for 10
years, a private investment advisory and merchant banking firm specializing in China and other Asian markets. Both these positions
were based in Beijing, China.
Through Mr. Balloch’s 12 years” experience leading private investment banking firms, he has a deep understanding of finance
and capital markets.
Mr. Balloch holds a Bachelor of Arts (Honours) in Political Science and Economics and a Master”s degree in International
Relations, both from McGill University, Montreal.
Mr. Balloch also serves on the board of Ivanhoe Energy Inc. and on the board of a private company, BeiKai Capital.
26
Mr. Balloch has served on the Committee since January 2013.
Mr. John Reid
Mr. Reid is a corporate director. He held the position of President and Chief Executive Officer of Terasen Inc., an energy
distribution and transportation company, from November 1997 to November 2005 and prior to that was Executive Vice President and
Chief Financial Officer of Terasen. Prior to joining Terasen, Mr. Reid was the President and Chief Executive Officer of Scott Paper.
He also held various other senior positions at Scott Paper, including Corporate Vice President, Finance and Controller.
Mr. Reid is a Chartered Accountant, holds an economics degree from Newcastle University and is a Fellow of the British
Columbia, England and Wales Institutes of Chartered Accountants.
Mr. Reid also serves on the board of Finning International Inc. as the Lead Director, is a member of its Audit Committee and in
the past was designated as its “financial expert.” Mr. Reid also sits on the board of the private company Corix Infrastructure Inc.
Mr. Reid has served on the Committee since September 2003.
Ms. Janice Rennie
Ms. Rennie is a corporate director. From 2004 to 2005, Ms. Rennie was Senior Vice President, Human Resources and
Organizational Effectiveness for EPCOR Utilities Inc. At that time, EPCOR built, owned and operated power plants, electrical
transmission and distribution networks, water and wastewater treatment facilities and infrastructure in Canada and the United States.
Prior to 2004, Ms. Rennie held senior management positions in a number of private firms, including Principal of Rennie $ Associates,
which provided investment and related advice to small and mid-sized companies.
Ms. Rennie holds a Bachelor of Commerce degree from the University of Alberta and is a Fellow of the Institute of Chartered
Accountants of Alberta and the Institute of Corporate Directors.
Ms. Rennie serves on the boards of Teck Resources Limited, Major Drilling Group International Inc., WestJet Airlines Ltd. and
West Fraser Timber Co. Ltd and is a member of all their Audit Committees, as well as Chair of the Audit Committee of West Fraser
Timber Co. Ltd. In addition, Ms. Rennie serves on the board and chairs the Audit Committee of Greystone Capital Management Inc.,
a private company.
Ms. Rennie has served on the Committee since May 2006.
Pre-Approval Policies and Procedures
The Committee annually reviews and approves the terms and scope of the external auditors” engagement. The Committee
oversees the Audit and Non-Audit Pre-Approval Policy, which sets forth the procedures and the conditions by which permissible
services proposed to be performed by KPMG LLP are pre-approved. The Committee has delegated to the Chair of the Committee
pre-approval authority for any services not previously approved by the Committee. All such services approved by the Chair of the
Committee are subsequently reviewed by the Committee.
AlI non-audit service engagements, regardless of the cost estimate, must be coordinated and approved by the Chief Financial
Officer to further ensure that adherence to this policy is monitored.
Audit and Non-Audit Fees Billed by the Independent Auditors
KPMGS*s global fees relating to the years ended December 31, 2012 and December 31, 2011 are as follows:
US$000s 2012 2011
Audit Fees 1,913 1,827
Audit-Related Fees 31 116
Tax Fees 103 99
Total 2,047 2,042
Each fee category is described below.
27
Audit Fees
Audit fees for professional services rendered by the external auditors for the audit of the Company”s consolidated financial
statements; statutory audits of the financial statements of the Company”s subsidiaries; quarterly reviews of the Company”s financial
statements; consultations as to the accounting or disclosure treatment of transactions reflected in the financial statements; and services
associated with registration statements, prospectuses, periodic reports and other documents filed with securities regulators.
Audit fees for professional services rendered by the external auditors for the audit of the Company”s consolidated financial
statements were in respect of an “integrated audit” performed by KPMG globally. The integrated audit encompasses an opinion on the
fairness of presentation of the Company”s financial statements as well as an opinion on the effectiveness of the Company”s internal
controls over financial reporting.
Audit-Related Fees
Audit-related fees for professional services rendered by the auditors for financial audits of employee benefit plans; procedures and
audit or attest services not required by statute or regulation; and consultations related to the Company”s transition to international
financial reporting standards (IFRS) and the accounting or disclosure treatment of other transactions.
Tax Fees
Tax fees for professional services rendered for tax compliance and tax advice. These services consisted of: tax compliance,
including the review of tax returns; assistance in completing routine tax schedules and calculations; and advisory services relating to
domestic and international taxation.
TRANSFER AGENT AND REGISTRAR
Our principal transfer agent is CIBC Mellon Trust Company at its offices in Vancouver, British Columbia. Our co-transfer agent
in the United States for our Common Shares is American Stock Transfer $ Trust Company LLC at its offices in New Jersey.
CONTROLS AND PROCEDURES
Our disclosure controls and procedures are described under the heading Controls and Procedures in our 2012 MD¿A and are
incorporated in this AIF by reference.
CODE OF ETHICS
We have a written code of ethics that applies to our directors, officers and employees, including our principal executive officer,
principal financial officer and principal accounting officer. A copy of our code, entitled “Code of Business Conduct”, can be found on
our website at www.methanex.com or upon request from the Corporate Secretary at the address below under the heading Additional
Information.
ADDITIONAL INFORMATION
Additional information relating to the Company, including directors? and officers” remuneration and indebtedness, principal
holders of the Company”s securities and securities authorized for issuance under equity compensation plans, is contained in our
Information Circular dated March 8, 2013 relating to our Annual General Meeting that will be held on April 25, 2013.
Additional financial information about the Company is provided in the Company”s financial statements for the year ended
December 31, 2012 and in our 2012 MDxxA.
28
Copies of the documents referred to above are available on the Canadian Securities Administrators” SEDAR website at
www.sedar.com and may also be obtained upon request from:
Methanex Corporation
Randy Milner
Senior Vice President, General Counsel and Corporate Secretary
1800 Waterfront Centre
200 Burrard Street
Vancouver, British Columbia V6C 3M1
Telephone: 604 661 2600
Facsimile: 604 661 2602
E-mail: rmilnerYmethanex.com
Additional information relating to the Company may be found on the Canadian Securities Administrators” SEDAR website at
www.sedar.com, on the United States Securities and Exchange Commission’s EDGAR website at www.sec.gov and on our website at
www.methanex.com.
29
APPENDIX “A”
METHANEX CORPORATION
AUDIT, FINANCE AND RISK COMMITTEE MANDATE
Creation
A committee of the directors to be known as the “Audit, Finance and Risk Committee” (hereinafter referred to as the
“Committee”) is hereby established.
Purpose and Responsibility
The Committee is appointed by the Board to assist the Board in fulfilling its oversight responsibility relating to: the integrity of
the Corporation”s financial statements; the financial reporting process; the systems of internal accounting and financial controls;
the professional qualifications and independence of the external auditors; the performance of the external auditors; risk
management processes; financing plans; pension plans; and compliance by the Corporation with ethics policies and legal and
regulatory requirements.
The Committee”s role is one of oversight. It is the responsibility of the Corporation’s management to plan audits and to prepare
consolidated financial statements in accordance with generally accepted accounting principles (“GAAP”), and it is the
responsibility of the Corporation”s external auditor to audit these financial statements. Therefore, each member of the Committee,
in exercising his or her business judgment, shall be entitled to rely on the integrity of those persons and organizations within and
outside the Corporation from whom he or she receives information, and on the accuracy of the financial and other information
provided to the Committee by such persons or organizations. The Committee does not provide any expert or other special
assurances as to the Corporation’s financial statements or any expert or professional certification as to the work of the
Corporation”s external auditor. In addition, all members of the Committee are equally responsible for discharging the
responsibilities of the Committee and the designation of one member as an “audit committee financial expert” pursuant to the
Applicable Rules (as defined below) is not a statement of intention by the Corporation to impose upon such designee duties,
obligations or liability greater than those imposed on such a director in the absence of such designation.
Committee Membership
Composition of the Committee a) The Committee must be composed of a minimum of
three directors.
Appointment and Term of Members b) The members of the Committee must be appointed or
reappointed at the organizational meeting of the Board
concurrent with cach Annual General Meeting of the
shareholders of the Corporation. Each member of the
Committee continues to be a Committee member until a
successor is appointed, unless he or she resigns or is
removed by the Board or ceases to be a director of the
Corporation. Where a vacancy occurs at any time in the
membership of the Committee, it may be filled by the
Board and shall be filled by the Board if the
membership of the Committee is less than three
directors as a result of the vacancy.
Financial Literacy and Independence c) Each member of the Committee shall meet the
independence and experience requirements, and at least
one member of the Committee shall qualify as an “audit
committee financial expert.” These requirements shall
be in accordance with the applicable rules and
regulations (the “Applicable Rules”) of the Canadian
Securities Administrators, the U.S. Securities and
Exchange Commission, the Toronto Stock Exchange
and the NASDAQ Stock Market.
30
Appointment of Chair and Secretary
Use of Outside Experts
4. Meetings
Time, Place and Procedure of
Meetings
Quorum
Quarterly Meetings
Notice of Meetings
Waiver of Notice
Attendance of External Auditors
Meeting with Financial Management
Meeting without Management
d)
The Board or, if it does not do so, the members of the
Committee, must appoint one of their members as
Chair. If the Chair of the Committee is not present at
any meeting of the Committee, the Chair of the meeting
must be chosen by the Committee from the Committee
members present. The Chair presiding at any meeting
of the Committee has a deciding vote in case of
deadlock. The Committee must also appoint a Secretary
who need not be a director.
Where Committee members believe that, to properly
discharge their fiduciary obligations to the Corporation,
it is necessary to obtain the advice of independent legal,
accounting or other experts, the Chair shall, at the
request of the Committee, engage the necessary experts
at the Corporation”s expense. The Board must be kept
apprised of both the selection of the experts and the
experts” findings through the Committee”s regular
reports to the Board.
The time and place of Committee meetings, and the
procedures for the conduct of such meetings, shall be
determined from time to time by Committee members,
provided that:
1) a quorum for meetings must be two members,
present in person or by telephone or other
telecommunication device that permits all persons
participating in the meeting to communicate with
each other;
li) the Committee must meet at least quarterly;
lii) notice of the time and place of every meeting must
be given in writing or by electronic transmission to
each member of the Committee and the external
auditors of the Corporation at least 24 hours prior
to the Committee meeting;
lv) a member may waive notice of a meeting, and
attendance at the meeting is a waiver of notice of
the meeting, except where a member attends a
meeting for the express purpose of objecting to the
transaction of any business on the grounds that the
meeting is not lawfully called;
v) the external auditors are entitled to attend each
meeting at the Corporation’s expense;
vi) the Committee will, at least annually, meet with
senior financial management, including the Chief
Financial Officer and the Corporate Controller,
without other members of management present;
vii) each regular meeting of the Committee will
conclude with a session without any management
personnel present;
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5.
1D)
Calling a Meeting
Committee Determines Attendees
Reports to the Board
Duties and Responsibilities of the Committee
Financial Statements and Disclosure
Annual Report and Disclosures
Prospectuses
Quarterly Interim Reports
and Disclosures
Accounting Policies and Estimates
b)
xx)
d)
viii)a meeting of the Committee may be called by the
Secretary of the Committee on the direction of the
Chair or Chief Executive Officer of the
Corporation, by any member of the Committee or
the external auditors; and
(ix) notwithstanding the provisions of this paragraph,
the Committee has the right to request any officer
or employee of the Corporation or the
Corporation”s outside counsel or external auditor to
be present or not present at any part of the
Committee meeting.
The Committee shall make regular reports to the Board.
Review and discuss with management and the external
auditor, and recommend for approval by the Board, the
Corporation”s annual report, Annual Information Form,
audited Annual Consolidated Financial Statements,
annual Management’s Discussion and Analysis,
Management Information Circular, any reports on
adequacy of internal controls, and all financial
statements in prospectuses or other disclosure
documents.
Review and recommend for approval by the Board all
prospectuses and documents that may be incorporated
by reference into a prospectus, including without
limitation, material change reports and proxy circulars.
Review, discuss with management and the external
auditor, and approve the Corporation”s interim reports,
including the quarterly financial statements, interim
Management’s Discussion and Analysis and press
releases on quarterly and year-end financial results,
prior to public release.
Review and approve all accounting policies and
estimates that would have a significant effect on the
Corporation”s financial statements, and any changes to
such policies. This review will include a discussion
with management and the external auditor concerning:
1) any areas of management judgment and estimates
that may have a critical effect on the financial
statements;
li) the effect of using alternative accounting
treatments that are acceptable under GAAP;
iii) the appropriateness, acceptability and quality of the
Corporation”s accounting policies; and
iv) any material written communication between the
external auditor and management, such as the
annual management letter and the schedule of
unadjusted differences.
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Non-GAAP Financial Information
Regulatory and Accounting Initiatives
Litigation
Financing Plans
2) Risk Management and Internal Control
Risk Management Policies
Risk Management Processes
Adequacy of Internal Controls
8)
h)
xx)
Discuss with management the use of “*pro forma”” or
“non-GAAP information” in the Corporation’s
continuous disclosure documents.
Discuss with management and the external auditor the
effect of regulatory and accounting initiatives as well as
the use of off-balance sheet structures on the
Corporation”s financial statements.
Discuss with the Corporation’s General Counsel, and
with external legal counsel if necessary, any litigation,
claim or other contingency (including tax assessments)
that could have a material effect on the financial
position or operating results of the Corporation, and the
manner in which these matters have been disclosed in
the financial statements.
Review the financing plans and objectives of the
Corporation, as received from and discussed with
management.
Review and recommend for approval by the Board
changes considered advisable, after consultation with
management, to the Corporation”s policies relating to:
1) the risks inherent in the Corporation”s businesses,
facilities and strategic direction;
li) financial risks, including foreign exchange, interest
rate and investment of cash;
iii) overall risk management strategies and the
financing of risks, including insurance coverage in
the context of competitive and operational
considerations;
iv) the risk retention philosophy and the resulting
uninsured exposure of the Corporation; and
v) shipping risk.
Review with management at least annually the
Corporation’s processes to identify, monitor, evaluate
and address important enterprise-wide strategic and
business risks.
Review, at least quarterly, the results of management’s
evaluation of the adequacy and effectiveness of internal
controls within the Corporation in connection with the
certifications signed by the CEO and CFO.
Management’s evaluation will include a review of:
1) policies and procedures to ensure completeness and
accuracy of information disclosed in the quarterly
and annual reports, prevent earnings management
and detect material financial statement
misstatements due to fraud and error; and
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3)
Financial Risk Management
External Auditors
Appointment and Remuneration
Resolving Disagreements
Direct Reporting to Committee
Quality Control and Independence
d)
a)
b)
d)
li) internal control recommendations of the external
auditors and arising from the results of the internal
audit procedures, including any special steps taken
to address material control deficiencies and any
fraud, whether or not material, that involves
management or other employees who have a
significant role in the Corporation’s internal
controls.
Review with management activity related to managing
financial risks to the Corporation, including hedging
programs.
Review and recommend to the Board:
1) the selection, evaluation, reappointment or, where
appropriate, replacement of external auditors; and
li) the nomination and remuneration of external
auditors to be appointed at each Annual General
Meeting of Shareholders.
Resolve any disagreements between management and
the external auditor regarding financial reporting.
The external auditors shall report directly to the
Committee and the Committee has the authority to
communicate directly with the external auditors.
Review a formal written statement requested at least
annually from the external auditor describing:
1) the firm’s internal quality control procedures;
li) any material issues raised by the most recent
internal quality control review, peer review of the
firm or any investigation by governmental or
professional authorities within the preceding five
years respecting one or more independent audits of
the Corporation carried out by the firm;
lii) any steps taken to deal with any such issues; and
iv) all relationships between the external auditors and
the Corporation.
The Committee will actively engage in a dialogue with
the external auditor with respect to whether the firm’s
quality controls are adequate, and whether any of the
disclosed relationships or non-audit services may
impact the objectivity and independence of the external
auditor based on the independence requirements of the
Applicable Rules. The Committee shall present its
conclusion with respect to the independence of the
external auditor to the Board.
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4)
External Audit Plan
Rotation of Senior Audit Partner
Remuneration of External Auditors
Restrictions on Hiring Employees of
External Auditor
Report from the External Auditors
Meeting with Auditors and
Management
Internal Audit
Internal Audit Plans
Audit Findings and Recommendations
Meeting with Auditors
8)
h)
J)
a)
b)
Review and approve the external audit plan and enquire
as to the extent the planned audit scope can be relied upon
to detect weaknesses in internal control or fraud or other
illegal acts. Any significant recommendations made by
the auditors for strengthening internal controls will be
reviewed.
Ensure the rotation of senior audit personnel who have
primary responsibility for the audit work, as required by
law.
Review and approve (in advance) the scope and related
fees for all auditing services and non-audit services
permitted by regulation that are to be provided by the
external auditor in accordance with the Corporation”s
Audit and Non-Audit Services Pre-Approval Policy,
which is to be annually reviewed and approved by the
Committee.
Ensure the establishment of policies relating to the
Corporation”s hiring of employees of or former
employees of the external auditor, if such individuals
have participated in the audit of the Corporation, as
required by law.
Prior to filing the Quarterly Consolidated Financial
Statements and the Annual Consolidated Financial
Statements, the Committee should receive a report from
the external auditors on the results of their review or
audit.
The Committee should meet with the external auditors
without management present and discuss any issues
related to performance of the audit work, any
restrictions and any significant disagreement with
management. The Committee should also meet
separately with management to discuss the same
matters as those discussed with the external auditors.
Review and approve the annual Internal Audit Plan and
objectives.
Review the significant control issues identified in
internal audit reports issued to management and the
responses and actions taken by management to address
weaknesses in controls.
The Committee will meet, without management present,
with representatives of the accounting firm and/or the
Corporation”s Internal Auditor that executed the annual
Internal Audit Plan.
35
5) Pension Plans
With respect to all investing and funding aspects of all defined benefit corporate sponsored pension plans of the Corporation and its
wholly owned subsidiaries that have estimated actuarial liabilities in excess of US$10 million (collectively the “Retirement Plans”):
Constitute Pension Committees
Statements of Pension Investment
Policy and Procedures
Amendments to Retirement Plans and
Material Agreements
Appointment of Auditors, Actuaries
and Investment Managers
Retirement Plan Financial Statements
Retirement Plan Report
Terms of Reference of the Pension
Committees
Delegation to the Pension Committees
Actuarial Reports and Funding
Assumptions
a)
b)
d)
2)
Annually constitute Committees (the “Pension
Committees”) with responsibility for the investment
activities of the Retirement Plans” trust funds.
Review the Corporation’s Statement of Pension
Investment Policy for the Retirement Plans” trust funds
whenever a major change is apparent or necessary.
Review and recommend to the Board any amendments to
the Retirement Plans” trust agreements and any material
document written or entered into pursuant to the
Retirement Plans” trust agreements.
Approve the recommendations of the officers of the
Corporation regarding the reappointment or
appointment of auditors and recommendations of the
Pension Committees regarding appointment of
investment managers and actuaries of the Retirement
Plans.
Review and approve the annual financial statements of
the Retirement Plans, and related trust funds, and the
auditors” reports thereon.
Review and recommend for approval by the Board, the
annual report on the operation and administration of the
Retirement Plans and related trust funds.
Review and recommend to the Board for approval the
Terms of Reference of the Pension Committees (to be
approved jointly with the Human Resources Committee
of the Board) and any material amendments thereto.
Approve the delegation of certain responsibilities to
members of the Pension Committees.
Review the actuarial reports on the Retirement Plan as
required by applicable regulations and any special
actuarial reports.
With respect to all investing and funding aspects of all defined contribution pension plans and defined benefit pension plans that have
estimated actuarial liabilities of less than US$10 million of the wholly owned subsidiaries of the Corporation (“other Retirement
Plans”):
Other Retirement Plans Report J) Receive from management and review with the Board, at
least annually, a report on the operation and
administration of other Retirement Plans” trust funds,
including investment performance.
Delegation of Authority k) Administer and delegate to management-committees as
considered advisable all other matters related to other
Retirement Plans” trust funds to which the Committee has
been delegated authority.
36
6) General Duties
Code of Business Conduct
Compliance
Code of Ethics
Compliance Reporting Process
Regulatory Matters
Disclosure Policy
Related-Party Transactions
Mandate Review
Annual Evaluation
b)
d)
8)
h)
Obtain a report at least annually from the Senior Vice
President, General Counsel $£ Corporate Secretary on
the Corporation’s and its subsidiary/foreign-affiliated
entities? conformity with applicable legal and ethical
compliance programs (e.g., the Corporation’s Code of
Business Conduct).
Review and recommend to the Board for approval a
code of ethics for senior financial officers.
Ensure that a process and procedure has been
established by the Corporation for receipt, retention,
and treatment of complaints regarding non-compliance
with the Corporation’s Code of Business Conduct,
violations of laws or regulations, or concerns regarding
accounting, internal accounting controls or auditing
matters. The Committee must ensure that procedures
for receipt of complaints allow for confidential and
anonymous submission of complaints from employees.
Discuss with management and the external auditor any
correspondence with regulators or governmental
agencies and any published reports that raise material
issues regarding the Corporation’s compliance policies.
Review annually and recommend to the Board for
approval, the Corporation’s Disclosure policies. In
particular, the Committee will review annually the
Corporation”s procedures for public disclosure of
financial information extracted or derived from the
Corporation”s financial statements.
Review and approve all related-party transactions.
Review and recommend to the Board for approval
changes considered advisable based on the Committee”s
assessment of the adequacy of this Mandate. Such
review will occur on an annual basis and the
recommendations, if any, will be made to the Board for
approval.
The Committee will conduct an annual evaluation to
ensure that it has satisfied its responsibilities in the
prior year in compliance with this Mandate.
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