Methanex Defers Geismar 3 Project on Coronavirus Outbreak

Methanex Corporation MEOH has announced that it is taking steps to defer roughly $500 million of earlier-planned capital expenditure on its Geismar 3 project for up to 18 months due to substantial uncertainty, arising from the coronavirus pandemic.

The company is placing its Geismar 3 methanol project on temporary “care and maintenance” for up to 18 months. Notably, the estimated capital spending during a deferral of up to 18 months is the same as the projected capital expenditure that would have been incurred if the project was terminated outright. Notably, the action allows the company to complete the project when market conditions improve.

Methanex anticipates spending roughly $100 million in the first quarter of 2020 and another $200 million between Apr 1, 2020, and Sep 30, 2020, on the Geismar 3 project, much of which is the expenditure that has been incurred or committed during the first quarter of 2020. Notably, the new amount is around $500 million lower over the next 18 months compared with $800 million projected to be spent over the same time frame. Construction activities, and the procurement of bulk materials and non-critical equipment will be discontinued until market conditions allow for a restart of the Geismar 3 project.

The company also provided an update on certain measures it is taking to bolster its financial position.

It is minimizing other near-term capital expenditure by roughly $25 million by delaying scheduled maintenance operations to retain cash and support balance sheet strength. The flexible cost structure of Methanex along with expected lower logistic costs is expected to minimize operating costs in the current environment.

Methanex has fully drawn on its revolving credit facility of $300 million and has also drawn $136 million of its $800-million construction credit facility for the Geismar 3 project to enhance its cash position and retain financial flexibility.

Shares of Methanex have lost 78.9% in the past year compared with the industry’s 47.2% decline.

 

 

Zacks Rank & Stocks to Consider

The company currently carries a Zacks Rank #4 (Sell).

Some better-ranked stocks in the basic materials space are DRDGOLD Limited DRD, Franco-Nevada Corporation FNV and Barrick Gold Corporation GOLD.

DRDGOLD has a projected earnings growth rate of 562.5% for 2020. The company’s shares have surged 179.5% in a year. It currently flaunts a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Franco-Nevada has a projected earnings growth rate of 22% for 2020. It currently carries a Zacks Rank #2 (Buy). The company’s shares have rallied 42.5% in a year.

Barrick Gold currently has a Zacks Rank #2 and a projected earnings growth rate of 41.2% for 2020. The company’s shares have gained 46.4% in a year.

Looking for Stocks with Skyrocketing Upside?

Zacks has just released a Special Report on the booming investment opportunities of legal marijuana.

Ignited by new referendums and legislation, this industry is expected to blast from an already robust $6.7 billion to $20.2 billion in 2021. Early investors stand to make a killing, but you have to be ready to act and know just where to look.

See the pot trades we're targeting>>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Franco-Nevada Corporation (FNV) : Free Stock Analysis Report
 
Barrick Gold Corporation (GOLD) : Free Stock Analysis Report
 
DRDGOLD Limited (DRD) : Free Stock Analysis Report
 
Methanex Corporation (MEOH) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.