Methanex shareholder M&G Investment Management has warned the methanol producer in a public letter that moving ahead with the Geismar 3 project in the US state of Louisiana without a partner would represent an “unacceptable financial risk,” given the cyclical nature of its cash flow.

M&G said the scale of capital expenditure and indebtedness required to complete such a project is much larger than Methanex should contemplate bearing alone. The UK investment group added that advancing without a partner would also remove the balance sheet flexibility for Methanex to take advantage of the opportunity to buy back its shares when they trade at substantial discounts to replacement cost.

Without this financial flexibility, M&G said it struggled to see the attraction of Methanex remaining a publicly listed entity and would advocate pursuit of a full sale to a strategic buyer.

To this end, M&G is proposing to nominate directors to the Methanex board at the upcoming annual general meeting on Apr. 25. “Engaging in a proxy contest is extraordinary action for us, but in this situation we feel we have no alternative,” the investor said.

In response, Methanex said it would prefer to proceed with its third methanol project with a strategic partner, but would not rule out going solo. The Canadian producer added that it will continue to evaluate the progress of Geismar 3, including the optimal financing structure and plans to mitigate risks.

However, it noted that it will not be in a position to fully evaluate the project and make a final investment decision until it has completed its assessment of the risks, prepared plans to mitigate the risks and finished the plant’s front-end engineering design (FEED).

“Until that assessment is complete, the board does not believe it is appropriate to limit the company’s flexibility by committing to one structure rather than another,” Methanex said. A final investment decision is still planned for mid-2019.

US engineering and construction company KBR is providing FEED services for Geismar 3, which will produce 5,000 t/d of methanol. Methanex believes that locating a third plant at the site on the Mississippi river would give it significant integration advantages and reduce capital and operating costs compared to a stand-alone project on the Gulf Coast.

According to a filing with the US Securities and Exchange Commission, M&G has a 16.49% stake in Methanex.