Q2 2020 Tronox Holdings PLC Earnings Call
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After todays presentation, so we'll be an opportunity to ask questions.
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Hey stuff like that is being recorded I would now like turn conference over to try to for cancer Vice President of Investor Relations. Please go ahead.
Thank you and welcome to our second quarter 2020 conference call and workout.
On our call today, our Jeff Quinn, Chairman and Chief Executive Officer, John Friends Watchers, Young Chief Operating Officer, John Romano, Chief commercial in strategy Officer, and Tim Carlson Chief Financial Officer.
We will be using side as the nuclear today's call. Both of you listening by Internet broadcast via our website should already have them for those listening by telephone if you haven't done so already you can access them on our website at Investor Dot Tronox Dot com.
Thing to fly to.
A reminder, that comments made on this call and the information provided in our presentation and on our website includes certain statements that are forward looking and subject to various risks and uncertainties, including but not limited to the specific factors summarized in our FCC filings.
This information represents our best judgment based on today's information. However, actual results may vary based on these risks and uncertainties. The company undertakes no obligation to update or revise any forward looking statement.
During the conference calls people refer to certain non U.S. GAAP financial terms that people use and the management of our business I believe are useful to investors and evaluating the company's performance.
Reconciliations to their nearest U.S. GAAP terms are provided in our earnings release and in the appendix I'd be accompanying presentation.
Just on our earnings release, we provided our results on both the recorded basis and a pro forma basis to assist in our discussion of second quarter 2020 performance compared to the second quarter 2019 performance.
Primary focus on this call will be on the comparison, a pro forma results to enhance your understanding of the underlying trends in our business performance and our markets.
In the appendix of our earnings release, and the accompanying presentation, our statement of operations and adjusted EPS and adjusted EBITDA reconciliation, including on a pro forma basis for the second quarter of 2019 moving to slide three it's now my pleasure to turn the call over to Jeff Quinn Jeff.
Thanks, Jennifer good morning, everyone and thank you for joining us today.
Tronox delivered solid financial results in the quarter. Despite the significant reduction in demand and the other challenges associated with the cope it not p. pandemic.
Oh results reflect the demand profile.
Yes that must be outlook provided at the time of our first quarter earnings release, offset partially by our crystal transaction synergies cost reduction initiatives.
Prudent management of working capital.
I will briefly discussed some of the highlights of the quarter before turning it over to other members of my team for a deeper dive.
Revenues in the second quarter declined 30% versus the Euro go quarter, 20% sequentially compared to the first quarter.
[laughter]. This decline in revenue was driven by lower sales volumes due to the economic impact of the cold would not be pandemic into various world regions.
P. out to sales volumes and pricing were consistent with our outlook for quarter, two was dotcom volumes and pricing, we're slightly favorable to our expectations due to shipment timing and favorable product mix.
During the quarter T Ao true volumes reached a low point, maybe with the full impact a block down what's built before recovering syndicate in June which was the best month of the quarter.
We expect that momentum to carry forward into the third quarter Jonel Nazareno will provide more commentary on the market in a moment.
Adjusted EBITDA was 142 million for the quarter and our adjusted EBITDA margin was a very strong 25% attributable to delivery of the synergies from the Crystal transaction and our continued focus on operational excellence, John French law would discuss both good these contributors to our results.
A few minutes.
But there's still a little bit of his thunder, we'd see total synergies of $107 million year to date, which are 84 million was reflected in EBITDA and 23 million in tax and other synergies.
We remain on target great cheating, our anticipated synergy targets for the year.
Certainly we are in a very different economic and market situation and what we anticipated at the time to Crystal transaction was completed.
But the ability to go wherever the synergies from the acquisition or make is making a huge difference in our financial performance as I've said before the combined company is much stronger it's weathering the storm much better than either of the predecessor companies would have done on their own.
Adjusted EPS of three cents, what's impacted by lower sales volumes as well as an eye.
As an unusually higher effective tax rate for the quarter due to the generation of losses in tax jurisdictions in which we had valuation allowances our CFO, Tim Carsten will discuss this and other detail in a few minutes.
We have over $1.1 billion in available liquidity, which is more than sufficient to sustain our business any situation.
During the quarter as we previously announced we signed a definitive definitive agreements to acquire the case your T.T. I'd business from aromatic 300 million.
This is a highly strategic acquisition, which will bother our vertical integration strategy by increasing our titanium feedstock production capacity, thereby enabling us to more broadly be our feedstock requirements internally and better serve our pigment customers. What then even lower cost position.
The facility will reduce our cost by reducing our reliance on third party feedstocks and also presents an opportunity for costing operating synergies.
In addition, only P.T. I will provide technology support for just just on increasing the likelihood of success, there even bother enhancing our vertical integration and lowering our cost.
We're continuing to work through the regulatory approval process and other customary closing conditions associated with the P.T.I. acquisition.
Speaking of just on during the quarter, we also.
Into an amendment to the technical service agreement <unk> related to that facility as we briefly addressed in our Q1 earnings call.
This amendment well, while phone arms to increase technical and managerial resources devoted to the project. That's a project continues to advance toward star <unk>. The first half a 2021 and sustainable operations in late 2021. The project has experienced some delays due to do too.
Travel restrictions associated with Cobot 19, we are working with you make an auto tech to call box some of that cod.
All in all which are very good quarter for drilling dots.
<unk> operating results given a truly unprecedented situation and several significant strategic advancements.
I'm pleased with our delivery of these results given the challenges the men and women have tronox overcame the quarter.
As an organization we had remained relentlessly focused on the health and safety of our employees managing our ongoing operations protecting preserving and strengthening our business and laying the foundation for the future.
Efforts of my colleagues to proactively implement effective access protocols and other safeguards at all of our world worldwide locations at minimize the spread of the bars at our facilities and preserved our ability to operate.
Result, we have continued to meet our customers' needs despite the environment.
This focus will not waiver as the economic climate improves in the back half a year.
I'll now turn the call over to John Romano, Our chief commercial in strategy Officer, who will comment on our commercial performance and the trends we're seeing in the global markets John.
Thanks, Jeff moving to slide four first I'll take you through a year on year comparison, which Jennifer said focus is on the pro forma numbers for the year ago quarter for comparison purposes.
Revenue of $578 million was 30% lower than 827 billion for the year ago quarter due to the impacts of covert 19 pandemic.
She had to pigment sales of $466 million were 29% lower driven primarily by the sales volume decline of 27%, reflecting weaker demand across all regions. Following the onset of the global Cobot 19 pandemic.
Well the pandemic has had a significant impact on the sales volumes pricing has remained relatively stable.
So to selling prices were 2% lower on a local currency basis or 3% lower when adjusted for currency.
Pricing and 2020 has been relative stable with some larger movements and sulfate pricing does it though the declines in sulfate pricing appear to be improving in Q3.
Moving to zircon sales of $68 million were 24% lower than a year ago.
Zircon sales volumes were 12% lower when compared to Q2 of 2019, driven by softer market conditions globally.
And selling prices were 13% lower than a year ago. As you may recall from our first quarter discussion zircon prices decline late in the fourth quarter and early into the first quarter. So this comparison demonstrates the roll forward of the trend on a year over year comparison.
Product mix actually had a favorable impact on pricing this quarter. So the decline was less significant than the Q1 year over year comparison.
And in feedstock and other products sales of $44 million declined 46%.
Largely due to the lack of mandated CP slag sales associated with a remedy for the crystal transaction.
Lower pig iron sales due to the global economic slowdown.
Moving to the sequential comparison versus first quarter of 2020.
Revenue of $578 million declined 20% from the prior quarter on lower tier two and feedstock and other products sales due to lower demand attributable to covert 19.
And partially offset by higher zirconium <unk> revenues.
C O two pigment sales of $466 million were 20% lower compared to 580 million.
Sales volumes were 19% lower and selling prices were level on both the local currency on the U.S. dollar basis, both in line with the expectations that we discussed on our first quarter call.
<unk> sales volumes in June recovered significantly off a low and may leading June to be our best month of the quarter.
Moving to zircon sales of $68 million increased by 5% from the previous quarter slightly above our outlook sales volumes were up 2% as a result of shipment timing representing some volumes that were expected in Q3 that shifted into Q2 and selling prices also increased by 2% due to.
Favorable product mix.
And finally feedstock and other products sales of $44 million declined 43% due to know mandated CP slag sales in the quarter as I mentioned previously lower pig iron sales due to cope with 19 at an opportunistic spots sale of excess ilmenite in Q1 that did not repeat in Q2.
Now turning to the next slide I like to speak to the demand trends, we saw in Q2 by region and how we're seeing those transition into Q3.
In North America, social restrictions began lifting halfway through the second quarter. We've continued to see strengthened in the DIY market with construction and professional paint market seeing improving conditions later in the quarter.
Which we believe will continue into the third quarter.
Well the U.S. is experiencing a resurgence of cases in some regions, which could influence the recovery we have not seen any significant impact on demand in Q3 and believed the recovery will continue into the quarter.
Similarly in Europe, social restrictions began lifting midway through the quarter on a country by country basis, our customers operation started to reopen in May and as a result, we began to see a greater demand pull in June we are continuing to see improving the band <unk> into Q3, I believe the recovery in Europe will continue factory.
Again, the seasonal slowdown that we normally see due to the holiday period.
South and Central America, where the most impacted during the quarter and remain challenged valmont volumes. There are beginning to recover but the region remains behind the curve relative to other regions.
India like South and Central America also saw a significant surgeon cases in Q2, but began reopening in early June.
Despite an increasing number of cases in the country, we have not seen a signaling of another complete locked down and have not seen a pullback in orders for Q3 up to this point.
China demand continues to recover but given an excess of T. O two inventory in the region, we have not yet seen a full recovery. We have however started to see to see a tightening of inventory levels and signals of increasing demand. The rest of Asia Pacific remains mixed and very significantly by country and we will continue.
To diligently monitored the recovery into Q3.
For the third quarter, we anticipate T. I have to demand will continue to improve relative to the second quarter.
And with zircon, we expect the market to remain relatively level with the last several quarters zircon volumes are expected to remain largely in line with first quarter volumes were down slightly relative to Q2 due to the shipment I referenced earlier that sailed in Q2 as opposed to Q3.
We anticipate lower demand in southern Europe in India will continue to offset improving demand in China through the end of the quarter.
I'll now turn the call over to J.F. for a review of our operating performance and profitability in the quarter JF.
Thank you Joe one.
Moving to slide [laughter], Let's first review the year on year adjusted EBITDA comparison.
Adjusted EBITDA of 142 million dollar was 29% lower than pro forma adjusted EBITDA of the year ago quarter.
As John mentioned demand decline across the business were driven by the global economy condition.
We benefit this quarter versus the year ago quarter from 14 million dollar in synergy.
Favorable exchange rate, primarily the South African Rand and improve Australian mining costs.
This was offset by the absence of the differ margin benefit from Q2 29 team.
Your net cost and cost associated with the shutdown of the South African mining operation and slowed down of the South African smelting operation during the 21 day countrywide locked down period combined with the remaining cost impact Oh.
The case, then shut down for the Relining discussed on the fourth quarter call.
Sequentially adjusted EBITDA of 142 million dollar decreased 18% from Hundredd and 74 million dollar driven primarily by decrease CIO too.
And feedstock and order products sales volume.
Well as increased net cost and the impact of the 21 days countrywide locked down period or North South African operation.
This was partly offset by incremental synergy of 9 million dollar achieved in Q2 versus Q1 and favorable foreign exchange rate.
Turning to slide seven.
We achieved $46 million synergy reflected in EBITDA in Q2 amounting to year to date synergy of 84 million dollar in the EBITDA or Hundredd and 7 million dollar in total with the balance intact and order synergy.
Okay.
We remain on track to achieve our target for the year <unk> hundred 90 million dollar in total synergy.
Which hundredd and 14 million dollar will be reflected in EBITDA.
As a reminder, the majority of the targeted synergies are coming from true cost saving and not anticipated volume. So we therefore feel confident in our ability to achieve this figure despite the macro backdrop.
Overall, our operation has been stable and on eventful in the quarter.
But she is always a positive indio parading world.
This is particularly a great accomplishment considering the environment in which we are operating.
Okay. Many thanks to my team and our employee for making this a reality. Thank you.
Our focus continues to be on satisfying our cost the murdered for need.
Providing the same high level of service or customer have grown to expect from Tronox, while exit Q thing on our cost reduction opportunity.
Using our operational excellence program and our integrated business planning tool, we have identify and are implementing cost reduction program to mitigate the impact of increased fixed cost absorption on or cost per ton.
I will now turn the call over to Tim Carlson for a review of our financial position Tim.
Thanks, Jr.
On slide eight we've outlined or liquidity in capital resources at the end of the quarter.
We have over 1.1 billion in total available liquidity, including 722 million of cash and cash equivalents.
Our cash is appropriately distributed amongst our global operations and we have no trapped cash in any jurisdiction.
The 722 million of cash and cash equivalents exclude 27 million of restricted cash of which 18 million is an escrow related to the T.T.I. acquisition.
Our current liquidity is sufficient to fund the TTR acquisition and preserve optionality for our business.
Turning to the next slide.
On slide nine we highlight the strength of our balance sheet.
Our current total debt is $3.5 billion and our net debt is 2.8 billion.
Our current trailing 12 month net leverage is 4.2 times on a pro forma basis.
We have no maturities on our term loans or bonds until 2024.
We also have no financial covenants on our term loans or bonds.
Our capital allocation policy remains unchanged, we continue to prioritize disciplined capital spending on high return projects and deleveraging within targeted net leverage of two to three times in a gross debt level up $2.5 billion.
Capital expenditures in the second quarter were 44 million in our depreciation depletion and amortization expense was 72 million.
Capital expenditures totaled 82 million in the first half of the year.
We anticipate capital expenditures for the back half of the year to increase to 118 to 128 million due to critical capital projects in Q3 in Q4, including our neutron business transformation initiative and the development of our Atlas can pass be mine to prepare for a seamless transition.
It's exceeding the snapper Jinko mine, which is expected to phase out next year.
Our free cash flow for the quarter was $56 million driven by working capital improvements.
Our accounts receivable balance in mid July was 97% occurrence. So I don't see any impact on our aging that causes us concern.
Turning out to the next slide I'll discuss our outlook.
As John mentioned, we anticipate third quarter two volumes continue to improve versus Q2, 2020, and we anticipate Zurich on markets remain relatively stable as compared to the last several quarters.
As Jeff mentioned, we're managing our operations utilizing our integrated business planning capabilities to ensure we continue to satisfy customer needs, while prudently managing working capital.
We will continue this focus through the rest of the year, which as a result will increase the amount of fixed cost absorbed in the inventory, resulting in a slight reduction in margins until the higher cost inventory works its way through the system.
We're not for the cost saving initiatives, Jeff mentioned, the impact would be greater.
I would also like to comment on our income tax expense this quarter, our effective tax rate was 157% influenced by income in losses in jurisdictions with full valuation allowances.
A $2 million valuation allowance charge, we took in Saudi Arabia, and our jurisdictional mix of income tax rate is different than the UK statutory rate.
We anticipate our full year income tax expense to be $30 million to $40 million.
As Jeff said, we also maintain our previous synergy target of 190 million of which 140 million will be an EBITDA.
Moving onto our expectations for full year 2020 uses of cash we anticipate net cash interest expense of 165.
$170 million cash taxes of 20 to 25 million reduced slightly from our previous expectation of 20 to 30.
Working capital of $75 million to $90 million increased from our previous expectation of 40 to 50 million.
Capital expenditures of 200 210 million.
Reduced from 225 million in cash for pension contributions remains unchanged at $15 million to $20 million.
These represent our estimates based upon our current market outlook, we have ample levers to maintain flexibility and manage cash generation and we remain confident in our ability to generate strong free cash flow for the year.
With that I'd like to turn the call back to Jeff to provide closing remarks before turning the call over to you and Hey, Jeff.
Thank you Tim Tim just walk you through our latest views on the demand profile for the quarter in cash outlays for the year based upon the current macroeconomic situation.
While the globe globally, there appears to be more optimism about the recovery.
Certainly remains this outlook is based on current information available to US we remain diligent and monitoring the status of our markets and had developed the ability to adapt very quickly.
The cost reduction initiatives, we have implemented have shown results.
And we have identified other actions that could be taken it there is a father decline in the economic environment.
I continue to believe in our differentiated global network of assets and our vertical integrated business model.
Our business model will continue to define us as the most adaptable resilient T. L. Two industry leader and allow us to continue to deliver industry, leading financial performance.
The T.I. acquisition as the next step and furthering our vertical integration strategy will enable us to continue to lower our calls and provide improved service to our customer base.
I would like to thank my colleagues around the world for continued to tackle you need New challenge that is presented I am proud of their commitment to delivering safe quality low cost sustainable times for our customers I.
I, especially want to thank our senior leadership team around the world. During this time they have provided strong positive leadership consistent with our Tronox values leadership does matter and Tri Moxi us even more so I'm very grateful to had the privilege working.
With this T everyday.
We remain focused on providing the same high level of service our customers have grown to expect tronox, while ensuring the safety of our employees, who make this possible and be a good stewards of our shareholders' capital.
This concludes our prepared remarks for this morning.
That a lot to turn the call back to the operator grant for your questions. Thank you.
We will now begin the question answer session Tosca question, yet a star then one or Touchtone phone.
If you are using speakerphone, please pick up your handset before facility.
So what are your question. Please press Star then too.
At this time, we'll pause momentarily so some more roster.
Our first question suppose from right niche with Permian Research. Please go ahead.
Hi, good morning, Frank.
Hey, guys. It's actually these on for Frank.
My first question was.
We've been seeing Chinese producers announcing a price increases I'm just to get a sense of how you're seeing that playing out and any regional impacts associated with it.
Thank you.
John do you want to address that.
Yes, yes sure Jeff so.
We have been seeing we believe as we exited the second quarter pricing and China has bottomed out and we are in the midst of.
Implementing some pricing and the upward direction as I mentioned in her prepared comments, we do expect to see pricing on the Sulfates I'd start to move up.
Okay, and I know you guys mentioned synergies are still on track irrespective of volume trends.
Is there a level, where you guys. Thank you might have been X corona buyers and might we see a step up when and if we returned to normal.
Well I think you know the synergies as a general most of those the synergies were not related to volumes.
At all so so I think you know as volumes do improve in the back half the year as we get no get through this this this pandemic a bit.
There was some.
Right change and sort of the buckets, it's that the synergies there will be realized in but I would not expect to see a a significant increase in that number we remain on target with.
With no what we've said before with perhaps a little upside.
As we progress through the rest of the year.
Got it thank you so much.
Thank you.
Our next question will come from Duffy Fisher with Barclays. Please go ahead.
Yeah good morning.
First question just you know some of your customers on the page slide in the plastic side that come out with their numbers already in aggregate it looks like they're down kind of high teens versus your tier two volume down high Twentys. So do you think your volume was off more than industry and can you kind of trying to that where you think industry.
Volumes in the second quarter were versus wheel consumption that the customer level.
John you want to address that.
Yes, so I can't really speak to.
The industry at whole, but I don't believe we've lost any share and when we think about our quarter over quarter comparison being down 19% on volume.
A lot of that had to do with customers pulling back on purchases. So we do believe that there was an inventory draw down on that as well so they weren't buying as much.
Early in the quarter I think early in the second quarter, we anticipated that could be a little bit higher than that I think our guidance was a high teens to to low twentys on the downside from Q2. So I think based on what we know right now I believe were in line with a with what was happening in the market based.
On the coven 19th.
Okay.
And.
The second question just on the doubling of the cash needed for working capital.
The volumes being down our use of working capital throws off more cash than you would expect so what's the dynamics happening there why that needs to come soon so much more cash than we thought originally.
I can do you want to address that.
He thinks for the question it was more of and an increase in inventory in Q2.
As a result of the significant decline in in demand.
As we adjust our operations to meet customer demand, we're managing working capital a little bit more prudently in in Q3 in Q4.
But I was just a little bit bigger build in Q2 than we anticipated.
Great. Thanks phones.
Our next question will come from Hassan Ahmed but.
Eliminate global please go ahead.
Good morning, just.
How can you know over the last couple of quarters, we started seeing some sort of pricing momentum develop on the or side of things, particularly the high grade or did you guys see that continuing through Q2, and you know what's the outlook you know Q3 and beyond and how do you see the industry.
Reacting to that.
Yeah. Thanks Hassan R.J.F., you want to address that in terms of what we're seeing on the or sorry.
Yeah, I see and that the deep or price has been.
Quite stable I think that there was a momentum in price moving up.
As we entered the first quarter end that momentum haven't thought.
Because as you know those contract car long term and.
They take time to react.
And so I'd say that some of the high grade feed stuck like roof tile that was in very high shortage.
We have seen price still moving up but I think that this will pull was because of covet 19, and the fact that.
Look everybody has to react too.
Lower demand and so we will have a more balance high grade feedstock going forward.
Understood understood very helpful and as a follow up.
You know again over the last few quarters, we had seen you know certain market share sort of shifts a within within within the big one side of things.
Particularly in on the plastics additive side, a and marketplace.
I mean are those mostly behind US did you guys you know mostly in the industry seed relatively stable market shares.
Yes on I think from our viewpoint, we maintained a market shares not to say that a if there's been a certain situation out there where we saw a pricing moving at a direction that wasn't consistent with the value. We believe we need to get from our product that we haven't adjusted.
At our strategies remain the same to focus on getting at least fair value for the products, we produce and aligning ourselves with strategic customers that are growing faster than the markets I'd say, we're consistent on that line.
Very helpful. Thank you so much.
Our next question will come from Jim Sheehan with Suntrust. Please go ahead.
Thank you good morning.
Could you were talking about Oh, Yeah can you talk about your key I used to volumes there what that year over year decline rate was in June and what you're seeing so far in July has you talked about improvement there just curious about you know what your year over year change is in July.
Relative to June.
Good luck.
We're not going to break down the quarter by month, but what I can tell you is similar to what we had in the prepared comments April was down obviously may was the worst quarter. We had a worst month, we had in the quarter in June Rebouncing rebounded significantly and when we look at July July is you know and the same kind of.
James as we saw in June so what we think about moving into the quarter. That's why we're pretty confident at this point point in time, assuming that there's no significant change, which we haven't seen and covert 19 resurgence or slowed or lockdowns and economies that are volumes in Q3 will be north of where they weren't.
Two.
Thank you and when we look at that CIO too.
Go ahead.
I hope I'm sorry.
On T. I have two or the industry in China.
Can you talk about the high cost producers, there and what pressures they they might be under or do you expect any high cost capacity in China to be shutting down anytime soon.
Look I think at this particular stage, there's always the risk of a Chinese producers closing down clearly pricing coming out of China had dropped we talked about that.
Those were not sustainable levels in my opinion.
And our opinion as a company and.
It's always possible that those plants could close down and actually you've got some third party and let our analyst in the market that are actually expecting that to happen. So.
The issue is as pricing moves up you typically can start sulfate plants up again, but from the standpoint of where the pricing was flat.
Factoring in environmental liabilities and restrictions that are changing in China, it's definitely a possibility that as those close this time, they could close permanently, but it's yet to be seen.
I don't know if you have another.
I'll start on that Jeff.
No John I think that's exactly right I mean, there is pressure for.
And the couple of that.
I'm at pressure with the.
Continuing environmental.
Regulation in their forsman and the no. The fact consult they is sort of a falling out of favor a bit a good I think there is.
Certainly the likelihood that some of the marginal producers will will be under extreme pressure.
And when you think about where pricing is today and compare that to where ilmenite pricing is Chinese ilmenite prices still in the you know 170 to 200 dollar range, which is significantly higher than it was the last time pricing dropped down to this level. So the pressure there is more significant and I mean, we have a bit more visibility into that.
At this time around because we have a plant in China.
Thank you very much.
Our next question will come from Roger Spitz with Bank of America are used to.
Thanks, and good morning on given the additional design smelter services agreement advisory activity that you'll be doing.
We take away that there are more issues regarding.
Starting up the smelter than you were previously awareness.
No I don't think they're more issues Raj I think I think what it is is that.
No. The arrangement that was put in place at the time of the Crystal acquisition No assumed a set of circumstances, but there are several no no sitting in time to go and as as the price. It to the has developed there was this more opportunities that were identified where the the resources and.
Experience expertise of Tronox could make up make a real difference and so I think no by big by be more and Bob not only do we bring our technical services, we bring our project management skills and whatnot. So it's it's just a oh and enhancement a bad and increasing the likelihood of success, but not not re.
Really any any new issues I mean, it's it's it's not a certainly right just on <unk> always identified as being something where there was no. There was risk and so we think this is just a very prudent manner and no manner of increasing overhauled likelihood of success, John France, while you want to comment on sort of your perspective as well.
We know our efforts there.
Yeah, and I think Jeff.
Mentioned the project management killed it it's clear that tronox with with all global footprint 10 or experience.
And we had good people that we could dedicated to help Japan and put some more discipline and how to to make the modification that toward being made at the moment and increase the likelihood of success.
And that's really what that and then said technical agreement they've all about so we're more involved in all so getting ready for when the tech will had modify the smelter.
And with the operation readiness, and so training preparation of the operator preparation of how we're going to ramp up and operate will be more involved and last time around so all of that hopefully will help.
The probability of success doing Creek.
There's no real on our side hasn't change you know I mean, what do we have to explain to you or commit our financial commitment hasn't changed and.
We're not putting more risk on our side.
On the contrary I think that the it that the possible gain harm or or higher you know for tronox.
No that's great.
Secondly, can can you compare the fuzzier ilmenite, so the cost position and quality of your South Africa, Australia and ilmenite operations.
And any thoughts.
Regarding the comparison to the relatively nearby harnesses Norwegian overnight mines. Thank you. So I'll comment and JF, maybe you can follow up I think you know all in all with our integrated business planning no capabilities will we'll be able to to use the T. T ilmenite I mean, but.
<unk> no output at our plants in Europe, where we can get the most effect for that and no improve our overall.
Cost of feedstocks, good but for the entire portfolio a JF you want to comment on the on the relative.
Okay competitiveness of the various sources.
Sure and and look want one one element that I want to emphasize Roger is TTR high for US is the best way to increase the chance of just than to be successful because the T.I. smelter in Norway use the technology that is the most similar to.
The Japan technology, and that's obviously, a big driver of our strategic well strategically acquiring that has set so we could increase the hard of just then of being successful. So that's that's the first element and no other big element is the Norwegian.
Smelter at U.S Hydro power.
As the source of energy and it's a clean power so that make it one of the most green and titanium smelter in the world and we see that has a big advantage.
With with the stability on the highest Scott.
Which which is which is power.
And so we see that has as an advantage in our portfolio and look we identify synergy that are really like like the synergy that we have identified.
With the Crystal pigment plant there will be gain in technology, it could change between South Africa, and Norway, and and and this is only having the capability to attract the synergy versus what whatever I met with able to do so all in all look there.
There, there plus or minus from a cost point of view.
But a very good asset you know with comparative cost structure to what we have in South Africa.
Yeah, I think Jeff that's that's the current no. This is a world class assets we've been.
The majority customer Oh from the convinced that this was sold before for a number of years and Oh, the ability to internal wise this production and to eliminate sort of the double marginalisation will reduce our costs and a lower our cost position.
And you know and make us an even more competitive do have a producer of T ao to pigment.
Hi, Thank you very much.
Again, if you buy topic question it as Star then one.
Star then one ask your question.
Our next question will come from John Mcnulty with BMO capital markets. Please go ahead.
Hey, good morning, Mrs Colton Bean on for John.
So so I guess on my first question is kind of a follow up to the pricing question that was asked earlier. So a number of on North American coatings producers pointed to the possibility for chloride T O two prices to be up modestly in the coming quarters, that's something that from where you guys said is starting to look like more of a possibility.
John you want to you want to address that.
Yeah sure I mean, what I mentioned on our prepared comments again talking about pricing moving into the third quarter.
We didn't give too much specificity on that but with regards to what we're seeing right now pricing in the Americas has remained stable or at least in the U.S. and we have seen a bit of variability, but nothing out of the range of what we would have seen over the course of the last six quarters. So obviously I would say yesterday.
Possibility in the <unk> and the coming quarters that we could see price improvement.
Moving into the third quarter.
We think about where we are today, we're not going to provide a lot of guidance, but I'm not going to be significantly out of line for with where we were on pricing.
For the last six quarters with regards to movement with regards to China. I think we all are aware at least we mentioned drama called that there has been some volatility there pricing in China in the second quarter at least as far as Chinese CIO, two and sulfate products move down more significantly in the back half of the quarter. So.
Entering the third quarter, our average on that so pay prices a bit lower and again, we're starting to see that price move up as we move into Q3.
Okay.
Okay. Okay. Thanks, that's helpful and I'm just one more question I mean, you guys are you guys mentioned the sequential pickup in Zurich on mix I was just wondering is on any of that pick up is that customers in China switching back to the kind of premium quality is our comment are you starting to see some.
Real possibly longer term improvement in the Chinese circon markets.
Yeah. So that makes variants when you think about a pandemic in China. There was a fair amount of concentrate that was shipped into China and the first quarter in into the early part of the second quarter and some of those Chinese concentrate producers who are upgrade that material didn't have product available. So I'm it gave us an opportunity.
Actually fill that void with some of our higher grade products. So I wouldn't says I wouldn't say at this particular stage that.
Maybe long term sustainable, but moving into Q3, we're seeing a similar pattern maybe not as significant as it was in Q2.
Okay. That's great. Thank you thanks for taking my questions.
<unk>.
Thank you.
Our final question will come from Travis Edwards.
Goldman Sachs. Please go ahead.
Good morning. This is dirty lay on for travel on just a question could you remind us that you're targeting around the vertical integration now with the TV acquisition amount on the guidance you provided on just on Oh, That's you bought it project equal wholesome catch up but.
I guess number.
Yeah, No currently we're sort of in the 75% range and no depending upon nodes that pigment demand of that Mike Mike increased a little bit no as we go through the year with less no third party feedstock.
Purchases, but as knows as we bring TTR into the portfolio that will increase.
And certainly will increase no towards full vertical integration and then would use on comes on the.
We'll we'll be able to reach out to full vertical integration, but of course, they know design will come on in a in a sort of a staged mandatory plus I think it's important to say, but just on looking when design comes on we will have the ability to grow and still remain at a very high vertical integration level.
So there may always be some third party feedstock in the mix just for them the mix profile, but no with TTR inches on we will effectively be fully vertically integrated.
Great. Thank you very much for that color and secondly, as a follow up I'd be selling the major tier two producers get that material, so last year and everything but I pass recovery, how should we expect to pick the man to be distributed among taken.
John you want to address that.
Yeah, I'm, sorry, I heard that was a bit broke it could you repeat the question one more time please.
Yes, I got that I, just thought one of the major T. I have two producers to give up materials share last year and everything about pasta recovery, how should we expect a pickup in demand just everything.
Yes.
It looks so it's our intent moving into the quarter to try to maintain our share as I mentioned earlier.
I can't give you clear guidance on what our competitors are doing that was obvious but one of our competitors had lost some share due to a different program. They had in place our project our plan is to be consistent.
That's how we've been growing our business overtime, so aligning ourselves with the customers that are growing faster than the market. So that we can continue to develop and gain.
Share as the market grows.
Does that answer the question.
Yes, thanks tenants.
This will conclude our question answer session I would now like to turn the conference back over to Jeffrey Cohen, Chairman and CEO for any closing remarks.
Yes, Thanks Grant Oh, I, just want to conclude by thinking all of you for milk through time. This morning, and your continued interest in Tronox.
Certainly it's an unprecedented time, we look forward to being able to reengage with many of you in person and the muster com. We look forward to keep speaking with you here in a few months to update you on the third quarter as economies around the world does start get no start to get back to bill.
Yes.
I think and some you know the the state of Tronox is very is very strong solid operating performance prudently managing our working capital in cash.
Managing our working cap on our capital expenditures are but no not turning a blind eye to the future no. We we think it's very important to continue to position the company from a position of strength to fully participate in the recovery that will come and we look forward in future quarters talking with you guys about.
That so thank you very much everyone have a have a great day.
The conference has now concluded thank you for attending today's presentation.
You may now disconnect.