METHANEX: Valuation and Strategic Review MICHAEL COOK ERIN ROBINSON PHIL WALLACE RUSHAB HARIA RAJANVIR AHUJA Recommendation: BUY 1-year Price Target: C$36.15 Price as of Feb 7 th : C$34.24 Dividend Yield: 2.15% Total Implied Return: 7.68%

AGENDA METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 1 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions

Introduction: What is Methanol? METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 2 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Dimethyl Ether Fuel Blending Formaldehyde Acetic Acid

Industry Analysis: A Market Set for Growth METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 3 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions MarketIndustry Driver Formaldehyde/acetic acidConstruction industry Energy/MTOFuel blending and plastics Source: Company Reports

METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 4 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Industry Analysis: Methanol Markets 61% of world demand comes from Asia Distribution channels critical for transfers from supply to demand markets Source: Company Reports, Team Research

METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 5 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Company Overview Plant distribution allows low cost natural gas inputs Increasing production in strategic North American locations Source: Company Reports

Reasons to Buy METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 6 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Increased demand forecast to outpace short- term supply Methanol price stability Low cost positioning is stable and improving Oil-natural gas arbitrage play Source: Company Reports

Reasons to Buy – Chinese Fuel Blending METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 7 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Source: Company Reports

Investment Risks METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 8 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions 500 MT/year plant in Egypt Demand growth dependent on Chinese energy policy Political Undertaking massive plant transplant Less reliable feedstock suppliers in Trinidad & Tobago Execution Methanex lacks diversification of products Highly sensitive to market prices Market

Investment Risks METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 9 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions $10 Δ in Methanol price ≈ $37m Δ in EBITDA Historical Methanol Posted & Realized Price Source: Company Reports

Valuation: Methodology METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 10 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Final Share Value $36.15 DCF (75%) $37.05 Peer Analysis (20%) $33.77 Historical Analysis (5%) $32.12 Recent Price (Feb 7 th ) $34.24

Valuation: DCF METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 11 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Production is predominantly from reliable regions (tapering off in Egypt) Production Forecast

Valuation: DCF METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 12 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Sales Mix (by volume) 60% 31% 9%

Valuation: DCF METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 13 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Cash Flow Analysis

6.7x$3,976M CompanyEV/EBITDAEV 13.6x$939M 7.1x$9,403M 10.5x$23,385M 8.4x$6,106M 7.5x$61,510M 7.3x$15,297M Valuation: Comparables METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 14 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions

Valuation: Comparables METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 15 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Forward EV/EBITDA Growth in 2014 implies MX is trading at a discount to historical levels

Conclusion METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge 16 Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Potential Positive News Potential Negative News Move Second Plant to Louisiana Increasing Usage as a Fuel Additive North Sea Shipping Regulations Restart of Chilean Operations Chinese Growth Slowdown Production Disruptions Recoupling of Oil/Nat Gas

QUESTIONS

Appendix: Sensitivity Analysis METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Sensitivity Analysis (DCF) Prices outside this range can have a material impact on Nat Gas supply contract prices

Appendix: Competitor Analysis METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions Similarity Score Geographic Scope Product Similarity Net Margins Beta Correlation Total Weighting EV/EBITDA (2013) Points Possible ALBEMARLE CORPORATION %8.4 BALCHEM CORPORATION %13.6 CELANESE CORPORATION %7.1 EASTMAN CHEMICAL CO %7.3 PPG INDUSTRIES, INC %10.5 DOW CHEMICAL COMPANY %7.5

Appendix: Income Statement METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions F2014F2015F2016F2017F Revenue by Segment Produced Methanol* 1, , , , , ,256.7 Purchased Methanol* , ,128.3 Commission Sales* Total Revenue 1, , , , , ,628.8 Cost Of Goods Sold 1, , , , , ,742.7 Gross Profit Gross Profit Margin 23.4%26.7%25.7%23.8%24.3%24.4% SG&A* EBITDA EBITDA Margin 13.8%19.2%18.2%16.3%18.3%18.4% Depreciation & Amort EBIT EBIT Margin 6.8%13.2%11.7%10.8%13.3%13.5% Net Interest Exp. (28.2) (60.1) (70.8) (59.4) (55.7) (55.9) (59.5) (60.9) Unusual Items (361.5) Income Tax Expense (83.7) Earnings from Cont. Ops (34.6) Minority Int. in Earnings 2.0 (26.7) (33.5) Net Income (68.1) * Historical segmented and SG&A expenses are estimated costs based on financial disclosures

Appendix METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions DuPont Analysis D/E Ratio Changes in ROE come from Net Margin. Shifting towards high margin segments will boost ROE.

Appendix METHANEX: Valuation and Strategic Review, 22 nd February, 2013 Prepared for the 2013 CFA Research Challenge Introduction Industry Analysis Company Overview Reasons to Buy Investment Risks Valuation Conclusions WACC Debt12.73% Equity87.27% Cost of Debt YTM on Debt3.28% Tax Rate23.06% =2.52% Cost of Equity Risk Free Rate1.66% Risk Premium6.00% Unlevered Beta 1.53 =10.85% WACC9.79% Beta Leavered Beta1.84 Tax Rate23.06% D/E 0.26 Unleavered Beta1.53 Historical Beta Historically beta was very low Since 2008 beta has been consistently between 1.75 and 2.0