Tronox Holdings plc Q4 FY2020 Earnings Call

Hello, and welcome to the Tronox Holdings plc Fourth Quarter and Full Year 2020 Earnings Call Webcast. Please note today's event is being recorded. I would now like to hand the conference over to Jennifer Guenther, Vice President of Investor Relations. Ms. Guenther, please go ahead.

Thank you, and welcome to our fourth quarter and full year 2020 conference call and webcast. On our call today are John Romano and Jean-François Turgeon, Co-Chief Executive Officers on an interim basis; 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.tronox.com. Moving to Slide 2. A 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 vary 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 3. It's now my pleasure to turn the call over to John Romano. John?

Thanks, Jennifer, and good morning, everyone, and thank you for joining us today. For today's call, I'll first provide a review of the year and the quarter and walk through the commercial performance summary and then I'll turn the call over to JF to discuss our operational performance, synergies and key capital projects for 2021. Tim will then review our financial position and outlook. But before we turn to the financial highlights, I wanted to take a moment and review the priorities we laid out in 2020 in response to COVID-19. Throughout the pandemic, our focus has been on the safety, health and well-being of our employees and their families. Operating safely in all respects with managing our ongoing operations and protecting, preserving and strengthening our business and laying the foundation for the future. JF and I are very pleased with the organization's delivery of these priorities. Safety has always been one of our first priorities at Tronox. And in 2020, we achieved a record safety year. We are very proud of this accomplishment, especially considering the challenging external circumstances presented over the last year. I'd like to take this opportunity to thank all of our employees for their continued commitment to safety. We are on a journey to zero, and that journey starts with the performance records like we had in 2020. At the start of the pandemic, our operations were designated as essential, allowing us to continue to operate producing reliable tons for our customers. Additionally and importantly, we kept an eye on protecting, preserving and strengthening our business and laying the foundation for the future. We continue to increase our focus on sustainability. For the first time in 2020, we published a GRI report for the combined Legacy Tronox and Cristal organization. And for 2021, we'll be adding to our annual bonus metrics on carbon reduction. Sustainability will continue to be at the heart of everything we do at Tronox. Now turning to Slide 4, I'll review the fourth quarter highlights. Our strong fourth quarter results reflected the benefits of our vertically integrated business model and optimized operations during the continuation of a market recovery across all products, end markets and geographies. Revenues in the quarter increased 13% year-over-year or 16% sequentially, driven by improved TiO2, zircon and feedstock and other volumes. I'll cover more on the market recovery in a few minutes. Adjusted EBITDA for the quarter was $204 million with an adjusted EBITDA margin of 26% compared to an adjusted EBITDA of $156 million in the year-ago quarter. This represents our strongest adjusted EBITDA margin quarter performance of 2020 and our strongest adjusted EBITDA performance since closing the Cristal acquisition, a demonstration of the power of the combination and the delivery of the transaction synergies. We delivered $243 million in total synergies in 2020, exceeding the $220 million run rate synergy target we set for 2022 at Investor Day in 2019, 2 years earlier than anticipated. EBITDA synergies were $193 million of the $243 million, ahead of the $185 million target we laid out in the third quarter earnings call. JF will provide more details on synergies and our expectations for continued incremental synergies later in the call. We generated $57 million in net income for the fourth quarter versus $1 million in the year-ago quarter. Our adjusted earnings per share for the quarter was $0.19 compared to $0.07 in Q4 of 2019. We generated $160 million in free cash flow for the year, evidence of the strength of our portfolio even in a challenged macro environment. JF, Tim and I remain committed to deleveraging and reducing our gross debt to $2.5 billion by 2023. We will make an additional $300 million discretionary debt repayment by the end of the first quarter from cash on the balance sheet, in addition to the $200 million discretionary debt repayment we made in December. Moving to Slide 5. As I mentioned previously, our commercial performance was extremely strong on the back of a continuation of the market recovery. Revenue of $783 million was 13% higher than $693 million for the year-ago quarter, driven by volume improvements across all products and favorable FX rates. TiO2 pigment sales of $587 million were 8% higher, driven primarily by a favorable deviation from the typical fourth quarter seasonality. Sales volumes improved most significantly in Asia Pacific, followed by South and Central America, Europe, Middle East and Africa versus the year-ago quarter. TiO2 selling prices were stable when adjusted for currency, as expected, and attributable, again, to the continued success of our margin stability program. Zircon sales of $94 million were 32% improved versus a year ago. Zircon sales volumes were 48% higher when compared to Q4 of 2019, driven by a significant improvement in market demand, primarily in China. Zircon selling prices were 10% lower than the year-ago quarter, consistent with the trends from previous quarters in the year due to a decline in zircon pricing late in the fourth quarter of 2019 and early in 2020. In feedstock and other products, sales of $102 million increased 31%, largely due to improved pig iron sales volumes. The fourth quarter was the final quarter for our mandated CP slag sales per the FTC consent order, which will have a temporary drag on our Q1 adjusted EBITDA margin as the margin benefit from the internal feedstock will not be realized until the second quarter when the TiO2 was sold. This is due to the 60- to 90-day period to take feedstock to move through our portfolio. Utilizing the feedstock internally will improve our vertical integration to approximately 85% in 2021. The quarter's performance represented a continuation of the third quarter improvement due to the market recovery, a trend we've seen continuing into the first quarter. Organic market demand has remained incredibly strong, which has continued to drive improved volumes on a year-over-year basis. If the current favorable trajectory continues through the end of the quarter, we anticipate TiO2 sales volumes for the quarter to increase 11% to 15% sequentially. We have experienced a few disruptions thus far in the quarter across the shipping sector, and we're working to mitigate those logistical disruptions to ensure we land comfortably inside the range for the quarter. We expect zircon demand to remain strong in the quarter as well, which should result in record zircon volumes. I'll now turn the call over to JF for a review of our operating performance and profitability in the quarter as well as a review of our synergies and key capital projects.

Thank you, John. Good morning, everyone. Moving to Slide 6, I will review our operational performance for the quarter. Adjusted EBITDA was $204 million, which is 31% higher than the same quarter last year. As John mentioned, it was a record quarter for Tronox, benefiting from improved volume and mix, $31 million in additional synergy this quarter, and favorable foreign exchange rates. We also received a $12 million reimbursement related to the Ginkgo concentrator failure from the Cristal transaction. Of this, $8 million was recognized in other income for a period before the acquisition, and $4 million was recorded as a reduction in cost of goods sold for the fourth quarter, which was offset by a decline in zircon prices. As John outlined earlier, the increase in production costs was due to adjustments in our operations related to the pandemic compared to Q4 2019, and as we forecasted in our previous earnings call, the situation improved sequentially due to lower idle facility charges. Overall, our operations remained stable this quarter, and given our excellent safety performance for the year, I am very proud of our organization for this significant achievement thanks to the dedication of the Tronox team. I am also pleased that the organization exceeded our synergy target. Now turning to Slide 7, we achieved $243 million in total synergy in 2020, surpassing the $220 million run rate synergy target set for 2022 at Investor Day in 2019, as shown on the left side of the slide. The chart on the right details the breakdown of EBITDA synergy across key areas. While the majority of synergy savings were from SG&A in 2020, we are increasingly realizing these savings from operations, feedstock, and supply chain. Because most of our target synergies stemmed from true cost-savings rather than being volume-dependent, we were able to achieve strong results two years ahead of our original timeline. We expect to continue realizing additional synergies in 2021 and 2022, which will depend on the pace of market recovery, as higher volumes will create more opportunities. We anticipate $60 million of incremental synergy for each of 2021 and 2022. The ongoing delivery of these synergies, in addition to momentum on the commercial side of the business, is expected to lead to adjusted EBITDA of $200 million to $210 million in Q1 2021. While synergies have been a major part of Tronox's narrative over the past two years, the next phase will focus on our capital projects in 2021, which I will discuss on the next slide. Please turn to Slide 8. As we discussed on our third quarter earnings call, 2 key capital projects will continue the advancements of our vertical integrated strategy, expected to enhance our position as a leading TiO2 producer and the industry leader in financial performance. Project newTRON is our global multiyear digital transformation strategy initiative aimed to reduce operational costs to enable Tronox to maximize the benefit of vertical integration and achieve a sustainable first quartile integrated cost position. This project will introduce proven enhanced automation technology, implement process improvement and deploy operational excellence across the portfolio of our mining, upgrading and pigment assets, reducing our production cost per ton of TiO2. We expect capital expenditure associated with this project of approximately $75 million in each of 2021 and 2022. This project will drive cost reduction of $150 to $200 per ton, with project returns starting this year. Additionally, there are incremental cost reduction opportunities of an additional $150 per ton in the second phase of newTRON with the rollout of the project across more of our sites. Also, Atlas-Campaspe is the next mine development in our pipeline of high-value mine projects, intended to maintain our feedstock integration from existing assets. This project will replace supply from our existing Snapper Ginkgo mine that is nearing end of life. This mine site located in Eastern Australia is abundant in natural rutile and high-value zircon and will be a significant source of high-grade ilmenite suitable for direct use, synthetic rutile production or slag processing. The project ensures that we maintain the current level of feedstock integration and zircon supply to strengthen our strategy of vertical integration. Capital expenditure associated with our mine development will total approximately $75 million in each of 2021 and 2022. In total, we expect capital expenditure of approximately $350 million in 2021. Our annual maintenance and EHS capital expenditure are approximately $125 million per year. Our high-return projects and cost improvement activities such as small debottlenecking projects typically are approximately $75 million to $125 million, bringing our normal capital expenditure in a given year to $200 million to $250 million. Project newTRON and the Atlas-Campaspe project drive the balance of the increase to the $350 million in 2021. We will continue, as we did in 2020, to manage our capital as required, depending on the global macroeconomic conditions and resulting market demand. I will now turn the call over to Tim Carlson for a review of our financial position.

Thanks, JF. On Slide 9, in the top left quadrant, we have outlined our liquidity and capital resources at the end of the quarter. We have $1 billion in total available liquidity, including $619 million of cash and cash equivalents, our cash is appropriately distributed amongst our global operations and we have no trapped cash. Moving to the top right quadrant. Our total debt at the end of the fourth quarter was $3.3 billion, and our net debt was $2.7 billion, resulting in a trailing 12-month net leverage of 4.1x. We have made a $200 million discretionary debt repayment in December and are anticipating an incremental $300 million discretionary debt repayment before the end of the first quarter from cash on the balance sheet, as we announced in January. As you will see in the chart, we have no maturities on our term loans or bonds until 2024, and we 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, including those JF just outlined, and deleveraging with a targeted net leverage of 2 to 3x and gross debt of $2.5 billion. Moving to the lower half of the page. Capital expenditures in the fourth quarter were $66 million, and our depreciation, depletion and amortization expense was $85 million. Year-to-date capital expenditures were $195 million, which represents a reduction of $80 million from the midpoint of our original target for the year due to prudent management of our growth and cost improvement capital as a result of COVID-19. Our free cash flow for the quarter was $133 million. Improvements in EBITDA, inventory levels and accounts payable, partly offset by increased capital spending, resulted in improved fourth quarter free cash flow. While our outstanding receivable balance increased at year-end given increased revenues, we continue to have no accounts receivable aging concerns. Turning to Slide 10. I'd like to review our outlook. As John mentioned, due to the expected continuation of strong sales trends from Q4 2020, we expect TiO2 sales volumes to increase 11% to 15% sequentially. As JF mentioned, we anticipate Q1 2021 adjusted EBITDA of $200 million to $210 million, driven by strong commercial performance and continued delivery of incremental synergies. Partly offsetting some of the benefits in Q1 will be headwinds from FX, primarily the South African rand and the Australian dollar. As a reminder, a ZAR 1 movement on a quarterly basis is equivalent to approximately $6 million to $7 million of EBITDA and a AUD 0.01 movement is equivalent to approximately a $1 million to $2 million impact on a quarterly basis. In addition to FX, we will see slightly increased cost of goods sold in Q1 versus Q4 as we lose the benefit of lower cost TiO2 tons produced in Q2 that were sold in Q4. So in Q1, we will be selling TiO2 which was produced at higher costs in Q4, given we reduced our production levels to align with market demand. Along the same vein, we'll have no margin contribution from CP slag sales in the first quarter, which will be a high single-digit headwind. This is a onetime impact in the first quarter and we'll see the benefit of using the low-cost feedstock in Q1 production when TiO2 is sold in Q2. As a result of these 2 items, we should see EBITDA margins improve for the remainder of the year. Given the continued market improvement, we want to remind the audience of our business sensitivities, the impact of TiO2 volume and price movements. Given our vertically integrated business model, we expect EBITDA margins of 25% to 30% on incremental TiO2 volumes. Additionally, for Tronox, a $100 per ton move in TiO2 price is approximately equivalent to $90 million in EBITDA on an annualized basis. We hope that a reminder of these figures will help investors more accurately understand the impacts to our EBITDA performance. Moving on to our estimated uses of cash for the full year 2021. We expect cash interest expense between $160 million and $170 million, cash taxes of $20 million to $40 million, capital expenditures of $350 million and net pension contributions of less than $10 million. We do not expect working capital to be a use of cash, and we're currently managing it to be a source of cash in 2021. High-return internal investments and debt pay down remain our highest capital priorities. And finally, as we announced in January, we have increased our annualized dividend from $0.28 to $0.32 per share, equivalent to a 14% increase effective when the normal Q1 2021 dividend is expected to be declared during the quarter.

Thank you, Tim. Before concluding our prepared remarks, I wanted to close by revisiting our strategy on Slide 11. While we at Tronox have gone through some interim senior management changes, our strategy and business model remain unchanged. It is still focused on these pillars to become an advantaged global TiO2 leader. Our focus on capital expenditures will be dedicated to pursuing these pillars. newTRON directly addresses several of those components. As JF outlined, the project will transform our operations through automation and digitalization, both of which are foundational in reducing our cost and enabling Tronox to be a technology leader. And Atlas-Campaspe will reinforce our distinct advantage to feedstock integration. We will continue to invest in these projects and delever with incremental free cash flow while continuing to improve our safety track record and drive progress and enable achievement across all of these pillars. As we've conveyed on this call, we have a great year in front of us. Our strategy drives our ability to leverage our unique portfolio to optimize our assets and secure our position as the most adaptable, resilient TiO2 industry leader and allow us to continue to deliver industry-leading financial performance. That concludes our prepared remarks. And with that, I'd like to open the call for questions.

And the first question comes from John McNulty with BMO Capital Markets.

Could you provide some insight into the volume strength you anticipate for the first quarter? You seem to expect a strong sequential improvement, which appears to exceed the usual seasonal patterns. What are your thoughts on how seasonality will unfold this year? Should we expect the typical increase from the first quarter into the second and third quarters before it tapers off again, or will this year be different? What are your expectations regarding this?

Yes. Look, this is John Romano. So I'll answer that one. So the fourth quarter, as we mentioned, strayed significantly away from normal seasonality. We had a fourth quarter that was very strong, and the first quarter is coming out to be very strong as well. So I would say that the normal seasonality is not in place because of the strong demand that we're seeing. There's, I'd say, a fair amount of upside even moving into the second quarter based on the volume patterns that we're seeing right now. So normal seasonality, I would say, is not the case in Q4 and not what we're projecting in Q1 either. So I hope that answers your question.

Yes, that's helpful. Can you discuss how you're approaching pricing as we progress through the year? We've observed significant price increases and announcements globally. Could you elaborate on your pricing strategy for the year? Additionally, for the longer-term contracts you're securing, how might they affect your pricing this year?

Yes. We are seeing positive developments in pricing globally across all market segments in the first quarter. This varies by region; for instance, in China, we've noticed pricing increases toward the end of last year and into the first quarter. Pricing is also rising in Europe, the Middle East, Africa, APAC, and North America. While we have some long-term contracts that contribute to margin stability, we anticipate that the pace of pricing increases will not match the recovery seen after the last financial crisis in 2010. However, we do expect to see significant pricing movement as we move through the year.

And the next question comes from Frank Mitsch with Fermium Research, LLC.

Nice end to the year. I was struck by the comment on zircon volumes in the first quarter being expected to be a record. I've been accustomed to this business being a bit lumpy, with very strong performance in one quarter and not so strong in another. Obviously, you’re coming off a very strong fourth quarter. Could you discuss the end uses driving the strong volume you're anticipating in the first quarter? Also, could you share your thoughts on the sustainability of that volume?

Thanks, Frank. This is John again. So yes, we did have a very, I'd say, strong recovery in the fourth quarter and moving into the first quarter. China is a big driver of demand on zircon, and we've seen a significant uptick there. So it's not only in China, it's pretty much in every market that we're selling into. We reference a lot of things that are going on with stimulus, whether it's TiO2 or zircon. Stimulus has driven, I think, a lot of the uptick, but it's not the only thing that's driving it. There's an increase in demand. So it's clear that we have some inventory, and we're able to take advantage of that inventory and converting it into cash as the market is recovering. And like we said in the prepared comments, based on the trajectory of the demand we're looking at right now, we would expect Q1 to be a record zircon sales quarter.

Interesting. I would like to follow up on the Atlas project, which is set to replace the capacity from the mine that is nearing the end of its life. How does this affect your vertical integration? What should we consider regarding the cost structures that the Atlas project will have on Tronox?

Thanks, Frank, for this question. Look, like every mine, when they reach their end of life, the cost structure is always higher than when you start with a brand new mine because at the beginning of the operation of a mine, you're in the high-grade zone. So you have to see that our cost position from a mining point of view will improve as we start Atlas and we close the Ginkgo Snapper mine. We'll also benefit from more product coming out of the Atlas mine in the first 3 years of the Atlas operation because, look, a mine has a life of its own. And obviously, that investment is a long-term investment for the next 10 years. And the Atlas deposit is better than the Snapper Ginkgo, specifically in the first 3 years of operation; so I think that's going to be positive for us, but we obviously need to build the mine first.

And the next question comes from Hassan Ahmed with Alembic Global.

I'm curious about your Q1 guidance. When I first read the earnings release, I was surprised to see relatively flat EBITDA despite anticipated TiO2 volume increases of 11% to 15%. However, during the call, you mentioned several one-offs related to the CP slag and selling higher-cost TiO2 produced in Q4 and Q1, as well as the currency exchange effects. I would like to understand what the impact on EBITDA would be if these one-offs were not present in Q1. Can you provide an estimate of the lost EBITDA due to these one-offs, whether in absolute terms or in terms of margin compression?

Thanks for the question, Hassan, it's Tim. Regarding the three items we discussed; foreign exchange impact, no feedstock sales, and increased TiO2 costs, I'll go over each of them. The foreign exchange effect this quarter is estimated to be around $10 million as a headwind, based on current rates. The absence of feedstock sales in Q1, due to the conclusion of the FTC consent order, will benefit us in Q2, Q3, and Q4 as we utilize that feedstock internally. This will present a high single-digit EBITDA headwind in the quarter. Lastly, regarding the TiO2 cost structure, as we noted in our Q3 and Q4 calls, reducing our production to align with market demand has caused an increase in over-absorption per unit, resulting in a margin loss of about 1 to 2 points this quarter. We expect to see a reversal of this in Q2. Therefore, once these two items work through, we anticipate continued EBITDA improvement in Q2, Q3, and Q4, and depending on the foreign exchange outcome, we may experience either a headwind or a slight tailwind.

That's very helpful. Regarding pricing, it seems there were some price increases planned for January, which is not typically a strong season. As demand continues to be strong, there may be additional price increases ahead. I'm trying to understand how these price changes will be realized while considering your margin stability measures. Can you provide insights on the proportion of longer-term contracts within your overall portfolio? Is it around 10%, higher, or lower? Any clarity on this would be appreciated.

Yes, thanks, Hassan. This is John again. Regarding margin stability, we typically don't offer much guidance on the number of customers in that regard, as our program is somewhat unique. We've established win-win situations over time. As I mentioned previously, we have many opportunities for price adjustments moving into this quarter and the next, depending on the regions where we operate. Not everyone is used to or desires margin stability; for us, it was a choice based on creating unique arrangements with our customers. In Asia Pacific, for instance, margin stability is limited. Specifically in China, our pricing has been changing rapidly. We have a plant there, and we've been adjusting prices as costs have risen, notably since the fourth quarter and into the first quarter. Currently, pricing for our Chinese TiO2 and exports is nearing chloride pricing, suggesting there could still be further upside, which also affects our pricing strategies on the chloride side.

And the next question comes from Josh Spector with UBS.

Just on TiO2 volumes, based on your 1Q guide, I was wondering if you can give us a feel of where your capacity utilizations are expected to be in the next quarter? And kind of with that in mind, how are you thinking about potential growth from 1Q through the rest of the year and maybe even over the next couple of years?

Josh, it's JF. Look, obviously, as Tim mentioned, we had dreadful production in Q2 and Q4 last year. But when we saw this strong pickup in demand happening, we have restarted all of our assets and we are in the process of having all of our plants running at full capacity. I would say the exception is our Yanbu plant in the Middle East. And we're not as quick as bringing that plant to full capacity because of the COVID-19 situation. And I think you remember that at our Investor Day, we said that we would use the know-how of our Hamilton plant to help bring the volume out of that facility at the same level as Hamilton. The travel restrictions have kind of delayed a little bit our success in doing that. But it's certainly something that we're working on at the moment. And as the market continued to increase and we have more demand for our products, we'll ramp up the capacity of all our assets to meet that demand.

Okay. That's helpful. And just on the zircon side, I guess two quick things. I mean kind of a follow-up from Frank's question about the strength of volumes in 1Q. Where do you think zircon volumes could be for '21? I guess, I kind of think about the 40 to 50-ton range is kind of a more normalized quarterly basis. Do you get back to there in 2Q, 3Q? Or does that sustain higher? And then related with that, pricing has continued to kind of come down pretty modestly the past couple of quarters sequentially. What turns that around? Or does that turn around in your view over the next couple of quarters here?

Yes. From a volume standpoint, I don’t expect to see record sales each quarter, and as mentioned earlier, shipments have been somewhat unpredictable due to ongoing disruptions. I noted this during the call regarding certain shipping channels. However, I do anticipate that 2021 will outperform 2020 in all respects for zircon. Our volumes in the first quarter typically don’t peak, but there is some inventory rebuilding happening from our customers. Given the shipping challenges and that many of these shipments are bulk, we worked in the fourth quarter to reposition volume, ensuring it was available for purchase when the market rebounded rather than being stuck in South Africa. Based on current observations, I expect some of that increased volume to spill over from Q1 into Q2, and 2021 will definitely see better volume for us. Regarding pricing, as we look to the second quarter, I believe we will start to see potential for price increases on zircon moving into Q2.

And the next question comes from Roger Spitz with Bank of America.

Can you give an update on the Jazan smelter? I'm not sure I saw any mention of it in the press release.

Roger, it's JF. As we mentioned in our last quarter, we were anticipating that Jazan would begin operations in the second half of this year. However, there has been a slight delay due to logistical issues faced by the main contractor, Metso Outotec. We previously discussed significant modifications being made by the technology provider for the smelter. Additionally, some critical equipment shipments have been delayed because of COVID-19, coinciding with the Christmas holiday. We now expect to start commissioning in the third quarter of 2021, which is a 6-week delay from our original expectations, all related to COVID-19.

And related to that, I think if I remember correctly, you were looking for, when up and running, at least in the first phase, a $12 million a quarter EBITDA benefit. Is that still the case? And should we think about with this a modest delay that we really won't see that big, if any, EBITDA realized in 2021 from the Jazan smelter?

Roger, it's Tim. That is correct. Due to the delay, the realization of EBITDA will also be postponed. However, our overall expectations regarding the returns from that project remain the same once we achieve sustainable operations, which we anticipate will occur later in 2022.

That's right. We always said that when we start the commissioning, within a year after the start-up, we will know if the project is successful or not. And obviously, if successful, as part of the agreement that we have with TASNEE, we will acquire the facility. And if not successful, we'll reevaluate our options.

And the next question comes from Travis Edwards with Goldman Sachs.

Could you provide an update on Jazan and your overall vertical integration strategy? After the cancellation of the TTI acquisition, are you now comfortable with the current level of vertical integration? Are there any additional projects beyond what you've already mentioned that you're considering to achieve the higher levels of integration you previously aimed for, like 90% or 95%? Has your strategy changed following the decision to drop the recent acquisition?

Thank you for the question. Look, it's clear that we were disappointed not being able to realize this unique opportunity with TTI. It would have helped the chance of Jazan to be successful because of technology transfer, and it would have been in line with our vertical integration strategy. But as the regulator did not agree with our view of the industry, we had to turn around and change what to do. And it's clear that developing Atlas-Campaspe as a project is a solution for us that will give us natural rutile, that will give us zircon and keep us in line with our vertical integration strategy. So instead of doing it through acquisition, we're doing it with brownfield development of our own mining assets. At 85% vertically integrated, we think that this is the best position for the company because, obviously, our mine will run at full capacity in any market situation. And look, we don't have to buy a lot of feedstock on the market to run our assets at full capacity. So I hope that answers your question, Travis.

Yes, that's really helpful. And I guess just a quick follow-up with that. That 85% is pro forma for your current projects being completed, is that correct? Or is that where you sit today?

No. That's where we sit today. As we said, the Atlas-Campaspe will replace the Snapper Ginkgo mine. So we're producing from Snapper and Ginkgo at the moment. Look, I mentioned that Atlas will produce more, but we're also planning to increase our pigment capacity going forward. So that's why we will remain at about 85%, even with an increased production from the mine.

We mentioned in our prepared comments that the agreement with the FTC to continue selling CP slag has ended, so we will be internalizing that. This brings us to the 85%.

We're also working on debottlenecking our existing asset to grow the mining and upgrading side at the same rate that we're growing and debottlenecking our pigment plant.

Got it. Helpful color. Maybe 1 more quick one, if I may. You just touched on maybe some of the potential logistical constraints impacting your operations in the 1Q timeframe. I was just wondering if you could elaborate a little bit on that? And what's in your control, what's not? And do you expect it to be a concern sort of beyond the next couple of weeks? Or is this pretty temporary? The logistical challenges have been ongoing consistently throughout COVID. Specifically, we are experiencing a lot of issues with ocean freight, including rollovers. I wouldn't categorize this as a critical situation at this time, but it's certainly a concern. There are definitely issues present, but it's important to note that this is not a demand issue, which is why we adjusted our guidance range to 11% to 15%, depending on how we handle these challenges. We believe we will comfortably meet the ranges we've provided. However, I anticipate that the logistical issues related to ocean freight and port congestion will persist into Q2, but we are managing it.

And next question is a follow-up from John McNulty with BMO Capital Markets.

Just a question on project newTRON. I think you indicated that you could start seeing some of the returns actually even in 2021. Can you help us to understand how much of that might be coming in? And then how it phases into that $150 to $200 per ton by the end of 2023? Is there a way to think about the sequencing of that?

Yes, John. Look, I'll try to give you a bit of color around that. Look, newTRON is the automation of our plant and the automation of our process and system. And the first big initiative in newTRON is linked to supply chain. And when I said that we will get benefit, it's on the supply chain front in 2021. Look, it's obviously more toward the fourth quarter of the year that you will see those benefits. So there's none of those benefits in Q1 and Q2. It's a multitude of small project, newTRON, but the pipeline is very healthy, and we feel confident that it is significant the savings that we will see even in '21. And it's obviously raising significantly in '22 to reach about $150 to $200 per ton toward the end of '23. So you should see an evolution from Q4 this year and every quarter going on, all the way to the last quarter of '23. So that could help you color how to distribute the saving per ton going forward.

Got it. And that's in addition to the $60 million of incremental benefits that you think you're going to get this year and next year on the synergies and cost-saving initiatives from Cristal, is that right?

That's correct. The synergies we've achieved so far have resulted in real cost savings. Moving forward, the synergies we anticipate are more related to debottlenecking opportunities, as we discussed on Investor Day, and the transfer of best practices, which will take longer to implement. However, these will be added on top of newTRON, which involves a different technological approach.

And this concludes our question-and-answer session. I would like to turn the conference back over to Jean-François Turgeon, Co-Chief Executive Officer, for any closing remarks.

Thank you, Keith. In closing, I want to convey how extremely proud John and I are of how dedicated our entire Tronox team has remained throughout 2020. Prioritizing safety and looking out for the health and well-being of one another, while continuing to deliver safe, quality, low cost, sustainable ton for our customers. Thank you to our colleagues around the world. Our performance speaks to the resilience of our business and the dedication of our people. Tronox is very well positioned in the recovery. We are looking forward to the continued demonstration of the power of our vertically integrated portfolio. Thank you to everyone on the call for your questions and interest in Tronox. Have a good day.

Thank you. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.