Q3 2021 Tronox Holdings PLC Earnings Call
Good morning, everyone and welcome to the Tronox Holdings Q3, 2021 earnings conference call.
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And at this time I'd like to turn the conference call over to Jennifer Gunther Vice President of Investor Relations Ma'am. Please go ahead.
Thank you and welcome to our third quarter 2021 conference call and webcast on our call today are John Romano and John first of all I touch on co Chief Executive Officer, and Tim Carlson Chief Financial Officer.
We will be using slides as we move through today's call. Those of you listening by Internet broadcast through our website should already have them.
For those listening by telephone if you haven't already done. So you can access them on our website at Investor Dot Tronox Dot com.
Moving to slide three.
A friendly reminder, that comments made on this call and the information provided in our presentation and on our website include certain statements that are forward looking and subject to various risks and uncertainties, including but not limited to the specific factors summarized in our SEC filings. This information represents our best judgment based on today's information. However, actual results may be.
Based on these risks and uncertainties the company undertakes no obligation to update or revise any forward looking statements.
During the conference call, we will refer to certain non U S. GAAP financial terms that we use in the management of our business and believe are useful to investors in evaluating the company's performance reconciliations to their nearest U S. GAAP terms are provided in our earnings release and in the appendix of the accompanying presentation moving to slide four it's now my pleasure to turn the call over to John.
Hello, John Thanks.
Thanks, Jennifer and good morning, everyone and thank you for joining us today.
I'd like to set the stage. This morning by providing you with a quick overview of Tronox.
We're the world's largest vertically integrated <unk> producer with nine pigment plants, six mines and five upgrading facilities on six continents, our trailing 12 months totaled.
Our trailing 12 months revenue totaled approximately $3 $5 billion, which is fairly evenly distributed across the Americas, Europe Middle East and Africa, and Asia Pacific are $1 1 million tons of pigment capacity supports our well balanced base of more than 1200 global customers.
Our vertically integrated business model supplies, approximately 85% of our internal feedstock needs and this ensures consistent and secure supply for our customers and.
In addition to Tio too we generate significant value as the world's second largest producer of zircon with approximately 297000 tons of production capacity.
We are very proud of the organization. We've created following the transformative acquisition two years ago and the value, we have and will continue to generate for our stakeholders.
Turning to slide five.
We've maintained our strong execution this quarter expanding margins as improved pricing and cost savings have offset increased commodity and freight costs. We generated another record quarter of free cash flow from our differentiated business model, allowing for deleveraging ahead of our targeted objectives.
The third quarter saw a continuation of higher volumes and average selling prices for both <unk> and zircon compared to the prior year, owing to sustained recovery across our end markets along with strong demand for our products.
Additionally, our capital projects remain on track with neutron implementation progressing on schedule to provide the digital transformation that will enable meaningful long term cost reduction.
Turning to slide six we are very pleased with our third quarter results and they were in line with our previously issued guidance revenue in the third quarter increased 29% year over year, driven by higher average selling prices and volumes.
Sequentially. This represented a 6% decline as higher average selling prices were offset by lower volumes as we anticipated and flagged last quarter.
Yeah.
This was due to isolated flooring availability issues, which impacted production early in the quarter, but have since been resolved and logistics challenges that persisted throughout the quarter.
Net income for the quarter was $113 million and diluted earnings per share was <unk> 70 cents.
While adjusted earnings per share was <unk> 72 cents the difference between diluted EPS and adjusted EPS is due primarily to debt redemption costs.
The company delivered third quarter, adjusted EBITDA of $252 million, another record for Tronox and a year over year improvement of $104 million.
This figure came in in the middle of our guided range due to higher average selling prices across all products increased zircon in T O two volumes and improved absorption at our mining of pigment sites, partially offset by unfavorable exchange rates increased freight costs and higher process chemical and energy costs compared to the prior year quarter.
Our adjusted EBITDA margin was 29%, a 700 basis point improvement year over year due to increased pricing favorable product mix and our ability to deliver on our cost improvement initiatives, we generated record free cash flow of $191 million in the third quarter, owing to our differentiated business model.
On vertical integration, enabling favorable fixed cost absorption and lower feedstock costs relative to the market and ongoing benefit of having zircon is a co product.
And our portfolio.
We continue deleveraging in the quarter, reducing total debt to $2 7 billion and net leverage ratio to two six times within our long term targeted range of two to three times well ahead of our stated 2023 time frame.
Moving to slide seven I'll now review, our commercial performance in more detail as.
As previously highlighted the third quarter saw strong pricing trends driven by the continuation of our recent regional pricing initiatives.
T O to sell the strongest third quarter volume on record due to high demand as it continues to outstrip supply and inventories remain below normal levels throughout the supply chain.
T I O two revenue was $682 million, an increase of 26% year over year, driven by a 13% increase in volumes and a 12% increase in average selling prices on both a local and U S currency basis.
Volume growth was led by double digit growth in Europe, Middle East Africa, and Asia Pacific compared to the prior year.
Compared to the second quarter tier two revenues declined 8%. This was driven by a 4% increase in T O two prices on a local currency basis.
Offset by volumes declining 10% at the bottom end of our guided range.
Zircon also saw the strongest third quarter volumes on record volumes were up 81% year over year on sustained strong demand and average selling prices increased 13% leading to an increase in revenue of 107%.
As anticipated zircon volumes declined sequentially due to higher sales from inventory in the second quarter.
Feedstock and other products declined year over year due to no external feedstock sales in the quarter compared to the prior year, partially offset by increased pig iron revenue and higher average selling prices.
Our quarter over quarter basis revenue increased driven by higher pig iron pricing.
JF and I are once again very proud of the way our team navigated through numerous external challenges challenges this quarter to deliver financial results in line with our third quarter guidance, we're working tirelessly with our dedicated team of employees to ensure we are the supplier of choice for our customers by leveraging our unmatched <unk>.
Footprint and vertically integrated business model.
Given inventory levels remain below normal coupled with the strategic initiatives. We have in place. We believe we're well positioned to continue to meet growing customer demand.
In the fourth quarter demand is expected to outpace supply.
We're anticipating fourth quarter T O two volume levels to be flat to down mid single digits. Due to continued supply chain disruptions pricing is expected to continue to increase consistent with the quarterly movement, we've seen in 2020 one.
Zircon sales volumes are expected to remain elevated above 2019, and 2020 levels. However volumes in the fourth quarter will be lower than those in the third quarter more in line with production levels.
Zircon pricing improvement in the fourth quarter is expected to more than offset volume headwinds on an EBITDA basis, and we now expect this trend to continue for the full year 2022.
I'll now turn the call over to J F for a review of our operating performance and profitability in the quarter J F.
Thank you John moving to slide eight.
As John mentioned adjusted EBITDA of $252 million was another record for Tronox.
Increased volume and pricing.
Supported significant increase at EBITDA year over year, which were partially offset by unfavorable FX rate and higher freight rates.
With production costs in the prior year comparison.
Commodity cost increases were offset by improved absorption and cost reduction initiatives.
On a sequential basis increased price across all products and favorable FX rate drove improved EBITDA.
Partially offset by higher freight rate and increased production costs.
Within production costs in the sequential comparison cost improvement from favorable absorption due to our resumption of normal production at our synthetic rutile facility and at all.
But like pigment plant were offset by increased commodity costs.
Inflationary pressure, including both external all approaches and commodity price such as energy and sulfur as well as increased logistic costs continue to impact our earnings but have largely been offset by car.
Cost improvement initiative.
Higher freight and commodity costs trend will continue in the fourth quarter.
All of the level, we previously anticipate how.
However, our mining and upgrading facility continued to run at high operating rate at the time when feedstock are critical.
This combined with our integrated planning capability will allow us to increase production in Q4 and produce an additional 40000 ton next year.
Turning to slide nine I'd like to provide an update on our key capital projects.
We continue to progress project neutron our enterprise wide cost reduction initiative that will transform our business, enabling us to remain among the lowest cost T. IL two producer and then third this to our customer.
We will achieve this true and optimize global supply chain.
<unk> maintenance spend.
And then automation and throughput.
And standardized process.
We expect neutron to unlock cost reduction of 150 to 200 dollar per ton by the end of 2023.
The capital outlay for project neutron remain 150 million combine across 2021 and 2022.
Approximately $65 million will be invested this year with the balance expected to be invest in 2022.
Our business model is our source of differentiation and Atlas can pass be represent the next phase of investing in our vertically integrated portfolio.
This mining project will replace the existing snapper Gingko mine in Eastern Australia.
And is expected to come online in the second half of 2022.
These tenants are abundant in natural rutile, I values, zircon and high grade ilmenite suitable for synthetic rutile production slag processing or direct pigment production.
Estimated capital expenditure are $70 million in 2021 and $80 million in 2022.
This investment will sustain tronox, 85% internalization of feedstock supporting approximately $300 per ton saving relative to average high grade feedstock market price.
Yes.
We also want to update you on the Slagging operation in Japan.
And we have complete the technical modification and coal commissioning and commissioning is currently in progress.
We anticipate the first slag production late this quarter.
However, as a reminder, slag production much must reach sustainable operation before Tronox will assume ownership of the site base.
Based on the current plant the earliest the site could achieve sustainable operation would be fourth quarter of 2022.
At Tronox, we are on a journey of transformation.
And these key projects will allow us to deliver on our commitment to our stakeholder.
We will continue to keep the market updated on the progress of the project I will now turn the call over to Tim Carlson Tim.
Thank you J F on slide 10, I'll review, our financial position liquidity and capital resources at the end of the quarter.
This quarter, we achieved net leverage target of two to three times two years early and in the third quarter with $2 six times net leverage on a trailing 12 month basis down from four one times at the end of 2020.
Total debt was $2 $7 billion, a significant reduction from the $3 3 billion balance at the end of 2020, we are well on our way to reach our $2 5 billion gross debt target, which we expect to achieve no later than Q1 2022.
Total available liquidity as of September 30th with $764 million, including $309 million in cash and cash equivalents and $455 million available under revolving credit agreements.
Moving to the right hand side of the page capital expenditures in the third quarter were $65 million totaling $183 million on a year to date basis. We are currently anticipating $120 million of capital expenditures in Q4, reflecting the pacing of expenditures related to the neutron and Atlas capacity capital projects and other maintenance.
And our total year outlook is now approximately $300 million.
Depreciation depletion and amortization expense was $72 million in the quarter, our free cash flow in the quarter was $191 million totaling $418 million year to date due to our strong cash earnings year to date, we also returned $46 million to shareowners in the form of dividends.
Turning to slide 11, I'd like to share our outlook as John mentioned, both tier two in zircon prices are expected to continue to increase as we make progress with our regional pricing initiatives.
K O tio to market demand remains very strong, though we are balancing our market outlook with the unquote going global supply chain and logistics constraints, we expect.
Fourth quarter tier two volumes to be flat to down mid single digits.
Zircon sales volumes are expected to remain elevated above 2019, and 2020 quarterly volume levels, but lower than Q3 levels.
We expect our Q4 2021, adjusted EBITDA to be $230 million to $245 million due to logistics challenges higher freight and commodity costs and some less favorable product mix.
FX rates have come off their recent lows and are expected to remain relatively neutral net net on a sequential basis.
Moving to our expectations for full year 2021, we anticipate the following uses of cash net cash interest expense of $130 million to $140 million $40 million to $50 million of cash taxes capital expenditures of approximately $300 million, which includes expenditures related to neutron and Atlas capacity.
And pension contributions of less than $5 million, we expect working capital to be a modest source of cash for the year. These.
These represent our best estimates based upon our current market outlook with regard to capital allocation with our $2 5 billion gross debt target in sight, we expect a prioritized capital expenditures continued annual dividend increases and shareholder shareholder repurchases share repurchases I'll now turn the call back over to JF for <unk>.
In your remarks before opening the call up for questions JF. Thank you Tim.
We want to close the call by spending a few minutes on our strategy sustainability.
<unk> ability effort and key takeaway as we add into the final month of the year.
First on slide 12, I want to revisit our strategy to become an advantaged global tier two leader.
Which is built on five pillars the people the vertical integration the technology, the global footprint and our competitive costs.
Our effort and capital expenditure will be dedicated to pursue these pillar through project like neutron and Atlas capacity.
As I outline new trunk will transform our operation through automation and Digitization, both of which are fundamental in reducing our costs and enabling tronox to be a technology leader.
Atlas Campath B will reinforce our distinct advantage through feedstock integration.
Our strategy drives our ability to leverage our unique portfolio to optimize our asset and secure our position as the most adaptable resilient <unk> industry leader, allowing us to continue to deliver and.
The street, leading financial performance.
Turning to slide 13.
Producing safe quality low cost sustainable ton is a key part of our strategy and how we will differentiate ourself.
Sustainability has long been a part of everything we do at Tronox, we are improving our we disclose our progress and effort related to ESG performance as it become increasingly critical for our stakeholder.
During the third quarter, we announced the reorganization of our board committee structure to enhance oversight of ESG effort.
We publish our annual sustainability report in July, which I like our commitment to improvement for the future.
Including detail on plans to align with our global warming scenario below two degrees Celsius and achieve an aspirational goal of net zero greenhouse gas emission and zero waste to external dedicated landfill by 2050.
The report also feature the company's journey to zero, which is an initiative to achieve zero injury zero incident and zero arm.
<unk> oversight and inquiries disclosure is evidence of our ongoing commitment to ESG and sustainability.
Moving to slide 14.
As we wrap up today's prepared remark I want to take a moment to review the outstanding position Tronox is in due to the dedication by our organization throughout the last several year.
This would not be possible without our employees. So thank you to everyone for your ongoing effort.
This is a critical time for tronox with our portfolio of assets and market position. We are confident in our ability to continue to capitalize on our momentum and deliver on our commitment to our stakeholders.
2021 so far as been a great year for Tronox, we continued to navigate the current macro challenge, while transforming our company, which will ensure our future remains bright.
That concludes our prepared remarks with that I'd like to turn the call over for questions.
Jamie.
Ladies and gentlemen at this time, we'll begin the question and answer session.
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Our first question today comes from Frank Mitsch from Fermium Research. Please go ahead with your question.
Good morning, guys, it's aziza on for Frank.
My first question.
Can you walk us around the world and maybe explain how the China dynamic shaping up through the end of the year and into 2022.
With particular interest on the North American pricing nomination and environmental Crackdowns in China.
Yes. This is John Romano, Texas.
From the standpoint of the fourth quarter again, we're not going provide a lot of guidance on pricing. We did say that we would see increased pricing moving into the fourth quarter in line with what we've seen through 2021.
And that would be globally, and we're not just seeing pricing moving in one region. It's moving up in all regions and with regards to demand our demand continues or the demand continues to outpace supply.
So when we think about where we are today and the current economic environment environment through 2022, and we still are very optimistic about the volume growth, what's limiting our volume in the fourth quarter is strictly logistics issues.
And sorry, and then your second question regarding China.
There is a lot of discussion going on out there now around the dual control energy consumption policy that's in place.
Our our capacity has not been impacted I would say that there has been some capacity that has been constrained. Our estimate has added about 500000 tons and we would anticipate that to be through the fourth quarter based on what we know now it's tough to speculate exactly what's going to happen with regards to China, but at this particular stage we.
Still see good demand there it's strong it's it's above our capacity to supply it again for Tronox, specifically, China only represents about 6% of our total sales on a volume basis.
Very helpful.
Thank you for that.
A follow up.
Can you provide any comment concerns or Michigan.
Corn availability in the U S. Following our recent producer announcements of different products on the tariff you industry. Thank you.
As we stated on the call that was we did have an issue and the earlier in the quarter and the third quarter that has since been adjusted and we're getting plenty of chlorine now earlier in the year. We had one of the benefits of our vertical integration, we were able to actually modify our ore blend to offset some of that impact.
But at this particular stage, but we've addressed that issue and we're getting plenty of chlorine.
Thanks, Ken.
Okay.
Our next question comes from John Mcnulty from BMO Capital markets. Please go ahead with your question Hey, Good morning. Thanks for taking my question. So it looks like between you guys, having some some issues in terms of production around supply chain and a whole host of others across the industry.
We're at a point, where inventories are really kind of add anemic levels. At this point I guess can you speak to how long realistically it should take to kind of get the industry's inventories back on their feet again, especially given kind of what still appears to be a pretty strong demand environment just from a from a kind of normalized demand let alone from the inventory restock phase I guess how.
Should we be thinking about that.
Yes look so I'll I'll make a comment on that with regards to Tronox. We are running our assets as hard as we can at this particular stage there have been some limitations.
So to your point, we're well below seasonal norms on our inventory.
Although.
I think the effort would be to try to build a little bit of inventory to your point, because we need to maintain our service levels, but at this particular stage definitely not before mid year next year do we see the inventory actually starting to rebuild theres lots of questions about what the supply chain is doing we don't believe there's any of the inventory that's being built in the system of any significant amount.
Again, it's hard to monitor every single customer, but at this particular stage we have.
More inquiries coming in for volume then we can actually that we can fill so we feel pretty confident that our tier two inventories are going to remain low for a period of time.
Got it and then can you speak to some of the supply chain issues that you're specifically, having and when do you think realistically those will be alleviated and then I guess as a follow up to that.
<unk> mentioned.
A 40000 ton capacity increase in 'twenty, two versus 21, I didnt hear whether that was on the ore side or whether that was on the <unk> side. So if you could clarify that that would be helpful.
So John maybe I can start with that it's really on the pigment side that 40000 ton of additional capacity for next year. So that's that.
That's a story, we should have mentioned at and on the the other question that you had I think that we we resolve or chlorine issue, which is a good news for us and going forward, we don't expect that to be a constraint for us.
Being 85% vertically integrated.
Obviously.
Give us a huge advantage.
In the market at the moment, because it's very tight for feedstock and the fact that Japan will start then that we are buying from all of the major producer and obviously, 85% come from our own mine and as I mentioned those mine and upgrading facility are running very well at the <unk>.
So that help us on the supply chain side look our biggest challenge at the moment is energy price are like going to the roof.
I mean, we had unexpected increase of natural gas specifically in Europe.
That are coming in Q4 and look that's always a challenge we're working very hard to lower our costs and we're very confident in the value that our project neutron is delivering but unfortunately inflation you know is it.
<unk> is growing faster than those cost reduction and we talk a lot about logistics too and there is a cost element to that when we think about our fourth quarter kind of forecast.
Unfortunately, we are actually using a larger percentage of uncontrolled did lanes than we would historically just to make sure. We get those orders out there is a shortage of containers out there I'm not telling you anything you don't know, but the freight element of that is I would say not significant considering our global freight spend and that's on inbound and outbound.
Yeah got it thanks again.
Just to make reference as we go into the balance of the year, we're obviously negotiating.
Our contracted lanes and we believe some of that on the freight costs at least from the standpoint of being out of line with what we would normally have on contracted lanes will be resolved as we move into 2022.
Got it that's helpful and maybe just if I can sneak one last one in just on <unk> I understand like the earliest you can kind of officially take things on because everything ran well and passed all the tests is the end of 2022 are there specific mile markers, we should be looking at in terms of either operating rates or what have you that it will.
Get you and us comfortable that this is going to happen and even if it's before the fourth quarter that it feels like things are the problems of the past are solved and it seems like this is getting to the finish line.
Hello, John.
Look we will keep you inform has progress go I don't think theres much we can add at the moment, because we havent start.
But look it's a it's a ramp up of the new technology. So there's always.
The things that could happen, we hopefully that it's going to be smooth and successful ramp up.
But we've been conservative in our assumption of how much and how it's going to ramp up so I hope that helped but we will be able to talk more about it at the beginning of next year when we had.
A few months of operation behind Ourself, we're still in hot commissioning at the moment Scott Thanks, very much for the color.
First half is the first key got it okay. Thanks very much for the color appreciate it.
Our next question comes from Duffy Fischer from Barclays. Please go ahead with your question.
Yes, good morning.
Since the Reuters article that came out in early September I mean really the only thing people want to talk about it and you guys as the potential for Apollo.
Could you talk about the Genesis of that article and just you know your views on it.
Yeah look I'll take that one and that's going to be a short answer we don't part and we're not going to comment on market speculation about that article. So that's all we can really say about that.
I understand that but I mean, you guys are doing yourselves a guest service because nobody can really invest in you unless you have a view on that so I'm going to say nothing I think hurts the story so.
Again, just like.
My view on it.
So then.
You guys talked about inflation on energy can you talk about geographically or maybe by plant, whereas natural gas versus whereas electricity the issue.
Yeah Duffy. Thanks for the question I did want to highlight before I talked about the transitory headwinds in Q4 that the teams that we have globally have done a great job offsetting the inflationary commodity cost increase in Q3 through our cost saving programs and our cost controls natural gas itself.
As a nearly going to be about a $10 million headwind for us in Q4, primarily in the U K.
As our biggest increase their commodities.
These themselves are another about a 10 million dollar headwinds, primarily coke sulfur sulfuric acid sulfur issue is primarily.
In Brazil, and then we've got the just general cost inflation.
Inflation through the rest of the network that now we've offset a good chunk of it there was savings so far this year. There's just so much savings that we have in the in the plan in Q4, but we've got additional savings next year, obviously with neutron and.
With the ongoing savings.
So you know overall headwinds from a cost standpoint between natural gas commodities and in the freight issue that John talked about in terms of going to non contracted lanes is about a $30 million headwind.
In the quarter.
But despite those headwinds have duffy, we still remain very confident in our ability to expand margins in 2022.
Great. Thank you guys.
Our next question comes from David Begleiter from Deutsche Bank. Please go ahead with your question.
Thank you good morning.
Just on China can you discuss the impact you've seen on the cost curve over there the last few quarters and.
What's your thought on capacity.
Capacity that could be at risk throughout 2022, 2022 are given to a control and power curtailments.
Yeah as far as fourth quarter goes I mentioned it briefly at this stage in our internal estimate is that there is about 550000 tons that has been impacted by that.
A little bit hard to say, how that's going to run into 2022, but there is no question that the dual control energy consumption policy along with them.
Colder winter, we've already got some indications that there could be some power restrictions attached to colder months that happens every year with.
With regards to cost and cost in China, largely being driven by feedstock and sulfur and that's up significantly and it's been ups for a period of time, we haven't seen really any change in the feedstock market feedstock is going to continue to be in our opinion tight on both the sulfate side and the chloride side. So.
I don't know Jay if you want to make any additional comments, maybe I made the comment that this those power interruption and the extra effort on the environment as had a.
Very important limiting production impact impact on full on ilmenite production in China and that's why.
The price of ilmenite remain very high and we don't expect that trend to change with with that pressure on this and the other thing is ilmenite production in China is highly linked to iron ore production and with the reduction in hydro iron ore.
<unk> and <unk>.
There's less incentive to produce more ilmenite for the those mining company and that also push the price of ilmenite high and maintain it.
Very good and just on capital allocation, how does share buyback figure into your future plans to deploy capital.
And in principle, you know getting to our two and a half billion dollar target continues to be our number one priority, but you know we expect to get there.
In Q1.
We'll provide a lot more details as part of our year end call in terms of specific capital allocation.
But with that being said, we do expect to generate significant free cash flow next year, and we remain committed to returning capital to shareowners, while being prudent to ensure that.
Increases in dividends that we make we will make sure that every and each increase is sustainable.
With that being said I do believe we'll have additional free cash flow for share repurchase targeting dilution from equity compensation and also targeting the dilution from the <unk> 7 million shares that.
Zero issued.
Thank you.
And our next question comes from Josh Spector from UBS. Please go ahead with your question.
Yeah, Hi, guys. Thanks for taking my question just a quick follow up on the cost side.
Can you lay out the higher cost specifically on the energy side in the fourth quarter. If cost stay elevated is there another leg of that to come in first quarter is all of that baked into your fourth quarter comments.
Okay.
Yeah. So we do believe the energy costs are transitory just given the current natural gas curve that you see in the marketplace.
Some of it will roll into Q1, just given you know the winter season in the U K with the cost curves do come down quite a bit.
But with that being said as John mentioned earlier, we're also confidence on our ability to pass these costs on within the channel.
Look I would add on that George debt in the UK, it's not sustaining the price of natural gas at the moment there's many.
Plants that were shut down because of the cost of natural gas being so high and had in moving so quickly.
Look we're lucky because with our cost reduction initiative and the fact that we were able to increase our own price, where we're still running successfully in the U K, but we expect that it's going to improve in 2022 as Tim mentioned.
Okay. No understood just was wondering if there is some inventory timing issues, but that's that's there.
And just as a follow up when I look longer term and the back integration that's kind of key to your strategy. I mean, you guys are investing in Atlas to help I hope you get the materials needed.
For the next few years I guess I wonder if I look out 510 years is there another atlas type advantage investment that needs to happen to maintain that back integration or does Atlas gets you further than that.
So Josh it said.
It's a very good question and look like any mine.
They have a life, so obviously atlas capacity will give us.
<unk>.
A good 10 year and more of the production. So this this is there and the investment will be complete next year, but within our five year plant. We had some investment to do in South Africa to continue to do have the level of vertical integration that we.
Have in.
And that's the good news is we have project to sustain that vertical integration for.
More than 20 years with our <unk>.
Our resource and reserve.
Already in or in our hands, if I could if I could use that expression.
Got it thank you.
Our next question comes from Matthew.
Oh from Bank of America. Please go ahead with your question.
Good morning. Thanks.
Have you seen any shift in the availability of upstream ores.
In general it's been tight right, but we had a pretty significant outage during the.
During the summer and you know one of your competitors is committed to bringing down their asset in <unk>. So I'm just wondering is you.
<unk> seen a pick up in.
Market activity trading or anything that would lead you to be concerned about.
Raw material availability and more broadly on the west side.
Yes look it's clearly the <unk> market has been tight for an extended period of time and some of the disruptions that happened in South Africa did not I wouldnt say improve that made it.
Acerbate it from our standpoint, as we've stated we're 85% vertically integrated.
<unk> got feedstock managed internally and we also buy feedstock on the external market. So it's a challenge for us it's not as much of a challenge clearly for us as we're 85% vertically integrated.
And then as JF mentioned earlier, we've also got the opportunity.
Coming up with <unk>.
First type of slag coming in the fourth quarter JF.
Look I think Matthew.
What we could say on that is it's a market that we track closely we want to make sure that we're all right.
The waves ready for the coming year, so it's not something that we manage quarter by quarter, but we tried to have a full year view.
Okay and.
I think the timing the timing of our Atlas can pass B mind starting.
<unk> is also very good for us.
I think it's just a good point and when we think about.
Our five year plan for us you've got a five year plan for the business that supported by a 20% to 30 year plan to Jf's point. Other feedstocks. So feedstock is something that we spend a lot of time on.
Yeah kind of to build on that is there any shortfall in integration as you transition away from snapper and can go to Atlas capacity or is that expected to be fairly seamless like what should we see on the financial statements from that whole transition.
Yeah, No. That's that's a good question and it's a seamless transition and obviously as the Atlas ramp up.
Theres more benefit in Atlas, because it's a new it's a new mine and like every mine when you and the life of a mine you have higher costs and lower grade, but when you start a new mine you have the high grade zone that you start to exploit and we're going to have more production.
Of rutile and zircon.
Has the Atlas can pass the start.
Okay.
Yeah.
Alright, thank you.
Yes.
Our next question comes from Hassan Ahmad Ahmed from Alembic Global. Please go ahead with your question.
Good morning, guys.
Just wanted to revisit some of the commentary you made on feedstocks.
You talked earlier about.
Resolving the chlorine issues.
Just wanted to sort of dig deeper into what you mean by that I mean.
You actually have you gotten into sort of longer term volume contracts. If you have.
I mean is it based on some sort of formula based pricing just if you could help me think through.
The contractual nature of these things and the duration of of any contracts you may have truck.
Thanks, So look on the chlorine that was not a contract issue that was a supplier of the filed force majeure and we were able to manage thus less of the I guess the decreased volume specifically in Hamilton on chlorine by managing our head grades. So we were able to adjust the head grade use higher tio too con.
<unk> or to offset some of that towards the end of that process. We did have a little production issue.
Which we've referenced that's been resolved so the chlorine issue wasn't a contract issue was a force majeure and now we're getting chlorine.
Which more than offsets what we need for that particular facility.
And John talk about the force measure in the U S. But we also had the chlorine issue in the U K because there was a power.
The court and there is only one chlorine plant in the U K and obviously the plant was affected by debt loss of power and that gave US a few issue in those two happen to happen at the same time, Unfortunately, but those two events are resolved now and we feel that we.
We're in a good position.
Understood understood and as a follow up I understand the sensitivities around the Reuters article and the like.
So completely cognizant of that but there was a very specific number given $27 a share right.
Can you broadly talk about how you think about valuation as it pertains to Tronox I mean look the fact the matter is you guys are in a very unique situation, where you have multiple levers and what I mean by multiple levers.
Obviously, there seems to be a new baseline set for normalized earnings for you guys. So one can sort of assess valuation based off of that then you guys are generating ample free cash flow Youre de levering. So that obviously helps the evaluation as well.
Have Nols you have the design option, which are all sort of valuation accretive. So can you at least help me think through how you internally are thinking about valuation, particularly with your stock price where it is with the speculated $27 number Detroit has talked about in the leg.
Well Hassan I'll tell you almost answered the question for yourself. So you did a good job on that.
That's why they've made a big box, yes, we're not going to speculate again on the rumor but.
I think a lot of where we are at this particular stages. We do believe we've been undervalued and our strategy as we have been doing everything with regards to our one of our most important targets was reducing our debt.
And we've done that through extremely strong cash flow all of the work that we're doing on our.
Project, New trying to reduce cost is going to help us continue to have lower costs as we move into 2022, and it's not just about cost and margin expansion. Though we also are confident as we move into 2022 that we're going to have growth in our EBITDA. So Tim you want to make a comment I think you summarized it very well Jim.
Alright, Thank you guys.
Once again, if you would like to ask a question. Please press star and then one to join the question queue.
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Our next question comes from Vincent Andrews from Morgan Stanley. Please go ahead with your question.
Hi, guys. This is will hang on for Vincent.
Just a question on the demand side.
Given paint raws such as a proxy.
Right now are you seeing that impact.
Buying patterns of your paying customers and that they are slowing down purchasing or has their demand been relatively unaffected and then can you talk about the extent to which shortages of raw materials are impacting demand from other customers and other industries as well.
I'm sorry can you repeat the first part of your question it was a bit muffled.
Yeah, So I mean.
And Ron the Patheon Brammer really short right now.
And that impact the buying pattern.
Many customers.
They're slowing down.
Sure.
Again.
Okay.
Yes, I think I got that question and the short answer is yes, we had seen some I'd say specifically in North America, some reduction in the third quarter.
That being said, we're starting to see a pickup in that volume moving into Q4 and that shortage I would say of I guess on other raw materials that were impacting some people's capability to produce coatings.
For us we exported a lot more of that tier two to other markets, where it wasn't an issue. So from the standpoint of where we are today with even with that disruption in the coatings industry that came from other raw materials, we were still well oversold and we redistributed the volume and again redistributing that volume into other <unk>.
Other areas, where demand required it was exacerbated by the logistics issues that we've referenced so I think the short answer is we do believe a lot of that's been resolved you've probably heard some of the earnings calls of some of the larger coatings companies, which have indicated that and we're seeing a healthy demand in North America.
For coatings moving into the fourth quarter and beyond.
Got it.
Then just as a follow up question I mean, given all the volatility.
Supply chain is there any risk to kind of achieving your new.
Target.
Hey, guys.
See the savings regardless of external conditions.
No. We are still very committed to those saving and we could measure those and we could track those and we're confident they're not really relate to look obviously the inflation.
And could alleviate those saving but.
The savings are real you know specifically.
When we talk about improving our maintenance.
The automation of our plant in the digitalization of our asset look all of those transformation are real and will help our cost position.
Okay.
And we're still committed to dose.
Thank you.
And ladies and gentlemen, with that we'll conclude today's question and answer session. At this time I'd like to turn the floor back over to John Romano for any closing comments.
Thank you and thank you again for joining the call today I think we'd just like to end with a little bit clearly fourth quarter little bit of challenge moving into that but maybe more longer term moving into 'twenty. Two we are very optimistic about 2022, theres a significant amount of work that's gone into the projects that JF outlined with regards to <unk>.
Cost savings opportunities and our ability to increase our capacity to meet the demand of our customers along with where we are in the economic cycle. We think we're early in an up cycle from the standpoint of our ability to actually continue to generate additional <unk>.
Margin enhancement as well as EBITDA growth moving into 2022. So thank you again for your time and have a good day.
Yeah.
Ladies and gentlemen, with that we'll conclude today's conference call. We do thank you for attending you may now disconnect your lines.