Tronox Reports Second Quarter 2014 Financial Results

STAMFORD, Conn., Aug. 6, 2014 /PRNewswire/ — Tronox Limited (NYSE:TROX) today reported second quarter 2014 revenue of $490 million compared to $525 million in the second quarter 2013.  Second quarter revenue was $72 million higher than the $418 million produced in the first quarter 2014.  Adjusted EBITDA was $108 million in the second quarter versus $101 million in the prior-year quarter and $77 million in the first quarter excluding a $13 million net lower of cost or market (LCM) charge.  Adjusted net loss attributable to Tronox Limited in the second quarter was less than
$100,000, or $0.00 per diluted share, versus an adjusted net loss of $15 million, or $0.13 per diluted share, in the year-ago quarter and an adjusted net loss of $58 million, or $0.51 per diluted share in the prior quarter.

Tom Casey, chairman and CEO of Tronox, said: “Despite essentially flat selling prices in the first half, our second quarter performance was particularly strong as sales volumes increased across multiple products and geographic regions.  Pigment sales grew 8 percent over last year’s quarter and 13 percent above the first quarter.  Sales volume gains were realized in every region of the world.  Pigment adjusted EBITDA of $37 million more than doubled versus $17 million in the first quarter, marking the sixth consecutive quarter of sequential improvement.  Finished pigment inventories were at normal seasonal levels and plant operating rates were also at normal levels.

“Mineral Sands selling prices remain soft as they have for the past few quarters, which we continue to believe is primarily a result of the temporary build-up of feedstock inventories caused by last year’s reduced pigment plant operating rates.  However, compared sequentially to the first quarter, Mineral Sands revenue increased 28 percent, driven by a sales volume increase of 36 percent.  As a result of our vertical integration, softer feedstock selling prices contributed to greater margins in our Pigment business and will continue to do so as pigment made from that feedstock is sold — which is typically five to six months later.  We expect feedstock market conditions to gradually improve as pigment plant operating rates have returned to normal and as feedstock inventories are worked down.”

Casey continued: “We continue to pursue our growth strategy and focus on unlocking superior value.  We believe our strategic optionality was significantly enhanced in the quarter with the settlement in April of the so-called Anadarko litigation for $5.15 billion.  We calculate that we now have approximately $9.8 billion of tax attributes and future deductions with $9.2 billion in the U.S. and $600 million in foreign jurisdictions.  We are pursuing opportunities to maximize value creation in both our operating businesses and across our strategic options.”

Second Quarter 2014 Results

Mineral Sands

Mineral Sands segment revenue of $227 million was 27 percent lower than $312 million in the year-ago quarter, driven by lower zircon selling prices and sales volumes compared to record volumes in the year-ago quarter, as well as lower feedstock selling prices.  Compared to the first quarter 2014, revenue increased 28 percent versus $178 million, as sales volumes increased 36 percent driven by an 87 percent increase in CP titanium slag volumes and a 28 percent increase in zircon volumes.  Revenue from intercompany sales was $91 million in the quarter.  Sales to third parties were $136 million, including $25 million from CP titanium slag and $86 million from zircon and pig iron.  As current selling prices for high grade chloride feedstock currently produce inadequate returns, the
company expects to sell CP titanium slag and natural rutile solely to its Pigment business and to non-pigment customers until slag market conditions improve.  Mineral Sands continued to sell 100 percent of its synthetic rutile feedstock to Pigment on an intercompany basis.  Zircon revenue increased 30 percent versus the first quarter, as sales volumes increased 28 percent and selling prices increased 1 percent.  Compared to the prior-year quarter, zircon sales volumes were 41 percent below the record volumes sold in that quarter and selling prices were 8 percent lower.

Mineral Sands segment operating income of $18 million compares to operating income of $68 million in the year-ago quarter and first quarter operating income of $6 million excluding a $23 million LCM charge.  Adjusted EBITDA was $81 million versus $129 million in the prior year and $60 million in first quarter excluding the $23 million LCM charge.  Mineral Sands segment adjusted EBITDA is calculated before the elimination of gross profit on sales to the Pigment segment that occurs in consolidation at the company level.  In the second quarter, $11 million of Mineral Sands gross profit and $5 million related to Mineral Sands LCM activity was eliminated in consolidation, and $22 million of previously eliminated gross profit
was reversed for a net adjusted EBITDA contribution in consolidation of $6 million.

The company recently reached collective bargaining agreements with the National Union of Mineworkers and Solidarity, which cover all union-represented employees working in our mineral sands operations in South Africa.  The one year agreement was effective July 1, 2014.  Construction continues to progress at our KZN Sands Fairbreeze mine in South Africa.  All government permits and authorizations have been received.  The mine will serve as a feedstock supplier to our slag furnaces at KZN.  The Fairbreeze mine is expected to begin operations in the second half of 2015 and be fully operational in 2016.  Capital expenditures related to the Fairbreeze mine are estimated to be approximately $365 million, with approximately $85 million to be spent during 2014.  Approximately $30 million was spent through 2013.

Pigment

Pigment segment revenue of $328 million increased 8 percent versus $304 million in the prior year, as sales volumes increased 11 percent and selling prices declined 3 percent.  Sales volume gains were realized in all regions and especially strong in North American coatings and construction markets, partially related to demand catch up resulting from harsh first quarter weather conditions.  Compared to the first quarter, Pigment revenue increased 13 percent, as sales volumes increased 13 percent and selling prices were 1 percent lower.  The second quarter was the third consecutive quarter that our sales volumes have exceeded production volumes as we continued to reduce inventory.  At the end of the second quarter, finished pigment inventory was in the range of 45 to 50 days, which is the normal seasonal level for this time of the year.  Plant utilization
rates were also at normal levels, in the high-80 percent range.

Pigment segment operating income of $8 million improved significantly versus an operating loss of $56 million in the year-ago quarter.  Pigment adjusted EBITDA increased to $37 million in the quarter, a $63 million improvement versus adjusted EBITDA of ($26) million in the year-ago quarter.  On a sequential basis, adjusted EBITDA of $37 million improved for the sixth consecutive quarter from $17 million in the first quarter, driven by higher sales volumes and lower feedstock costs.  Average feedstock cost reflected in the Pigment segment in the second quarter was $834 per metric ton, down from $921 per metric ton in the first quarter.  During the second quarter, 100 percent of Pigment feedstock purchases were from Mineral Sands at an average cost of
$714 per metric ton.  Going forward, the Pigment segment will continue to benefit from lower feedstock costs.  The lag time between purchases of feedstock by Pigment to the time that feedstock is reflected in the Pigment segment income statement is typically in the range of 5 to 6 months.

Corporate and Other

Revenue in Corporate and Other, which includes our electrolytic operations, was $27 million as compared to $35 million in the year-ago quarter, primarily as a result of lower sales volumes of electrolytic manganese dioxide and lower pricing on sodium chlorate.  Corporate and Other loss from operations was $17 million in the quarter compared to an $11 million loss from operations in the prior-year quarter, which was also due to electrolytic performance.  Adjusted EBITDA in Corporate and Other was ($16) million, which is principally related to corporate operations.

Consolidated

Selling, general and administrative expenses for the company in the second quarter were $45 million versus $41 million in the prior-year quarter.  Interest and debt expense was $33 million versus $35 million in the year-ago quarter.  On June 30, 2014, gross consolidated debt was $2,405 million, and debt, net of cash, was $1,030 million.  For the quarter, capital expenditures were $31 million and depreciation, depletion and amortization was $84 million.

Second Quarter 2014 Conference Call and Webcast

Thursday, August 7, 2014, at 8:30 a.m. ET (New York): the live call is open to the public via Internet broadcast and telephone

Internet Broadcast:  https://www.tronox.com/
Dial-in telephone numbers:
U.S. / Canada: (877) 831-3840
International: (253) 237-1184
Conference ID: 74636009

Conference Call Presentation Slides: will be used during the conference call and are available on our website at https://www.tronox.com/

Conference Call Replay: available via the Internet and telephone beginning on August 7, 2014 at 11:30 a.m. ET (New York), until August 12, 2014.

Internet Replay: www.tronox.com
Replay dial-in telephone numbers:
U.S. / Canada: (855) 859-2056
International: (404) 537-3406
Conference ID: 74636009

About Tronox

Tronox is a global leader in the production and marketing of mineral sands, titanium dioxide pigment and electrolytic products.  Through the integration of its pigment and mineral sands businesses, the company provides its customers a dependable supply of brightening solutions for a variety of end uses.  For more information, visit https://www.tronox.com.

Forward Looking Statements

Statements in this release that are not historical are forward-looking statements within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements are based upon management’s current beliefs and expectations and are subject to uncertainty and changes in circumstances and contain words such as “believe,” “intended,” “expect,” and “anticipate” and include statements about expectations for future results including revenues. The forward-looking statements involve risks that may affect the company’s operations, markets, products, services, prices and other risk factors discussed in the company’s filings with the Securities and Exchange Commission (SEC), including those under the heading entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013.  Significant risks and
uncertainties may relate to, but are not limited to, our ability to integrate the recently acquired mineral sands business including achieving the expected cost savings; financial, economic, competitive, environmental, political, legal regulatory and technological factors including, our access to unrestricted cash, compliance with our bank facility covenants, the price of our shares, general market conditions, our customers potentially reducing their demand for our products due to, among other things, the economic downturn, more competitive pricing from our competitors, increased supply from our competitors; operating efficiencies and other benefits expected. Unless otherwise required by applicable laws, the company undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information or future developments.

Use of Non-U.S. GAAP Financial Information

To provide investors and others with additional information regarding Tronox Limited’s operating results, we have disclosed in this press release certain non-U.S. GAAP financial measures, including Adjusted EBITDA. These non-U.S. GAAP financial measures are a supplement to, and not a substitute for or superior to, the company’s results presented in accordance with U.S. GAAP.  The non-U.S. GAAP financial measures presented by the company may be different than non-U.S. GAAP financial measures presented by other companies.  The non-U.S. GAAP financial measures are provided to enhance the user’s overall understanding of the company’s operating performance. Specifically, the company believes the non-U.S. GAAP information provides useful measures to investors regarding the company’s financial performance by excluding certain costs and expenses
that the company believes are not indicative of its core operating results.  The presentation of these non-U.S. GAAP financial measures are not meant to be considered in isolation or as a substitute for results or guidance prepared and presented in accordance with U.S. GAAP.  A reconciliation of the non-U.S. GAAP financial measures to U.S. GAAP results is included herein.

Management believes these non-U.S. GAAP financial measures:

• Reflect Tronox Limited’s ongoing business in a manner that allows for meaningful period-to-period comparison and analysis of trends in its business, as they exclude income and expense that are not reflective of ongoing operating results;
• Provide useful information to investors and others in understanding and evaluating Tronox Limited’s operating results and future prospects in the same manner as management and in comparing financial results across accounting periods;
• Provide additional view of the operating performance of the company by adding interest expenses, taxes, depreciation, depletion and amortization to the net income. Further adjustments due to purchase accounting and stock-based compensation charges attempt to exclude items that are either non-cash or non-recurring in nature;
• Assist investors to assess the company’s compliance with financial covenants under its debt instruments;
• In addition, Adjusted EBITDA is one of the primary measures management uses for planning and budgeting processes and to monitor and evaluate financial and operating results. Adjusted EBITDA is not a recognized term under U.S. GAAP and does not purport to be an alternative to measures of our financial performance as determined in accordance with U.S. GAAP, such as net income (loss). Because other companies may calculate EBITDA and Adjusted EBITDA differently than Tronox, EBITDA may not be, and Adjusted EBITDA as presented in this release is not, comparable to similarly titled measures reported by other companies.

Segment Information

The company has two reportable operating segments, Mineral Sands and Pigment. The Mineral Sands segment includes the exploration, mining and beneficiation of mineral sands deposits, as well as heavy mineral production. These operations produce titanium feedstock, including ilmenite, chloride slag, slag fines, synthetic rutile and natural rutile, as well as co-products pig iron and zircon.  The Pigment segment primarily produces and markets TiO_2, and has production facilities in the United States, Australia and the Netherlands. The company’s Corporate and Other operations are comprised of corporate activities and electrolytic operations, which are located in the United
States.

Segment performance is evaluated based on segment income/(loss) from operations, which represents the results of segment operations before unallocated costs, such as general corporate expenses not identified to a specific segment, environmental provisions, net of reimbursements, related to sites no longer in operation, interest expense, other income (expense) and  income tax expense or benefit.

Media Contact: Bud GrebeyDirect: 203.705.3721

Investor Contact: Brennen ArndtDirect: 203.705.3722

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SOURCE Tronox Limited