Good morning, and welcome to the Tronox Holdings plc Second Quarter 2021 Earnings Conference Call. All participants will be in a listen-only mode. After today's presentation there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Jennifer Guenther, Vice President, Investor Relations. Please go ahead.

Thank you, and welcome to our second quarter 2021 conference call and webcast. On our call today are John Romano and Jean-François Turgeon, Co-Chief Executive Officers; 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. We'd like to start today's call by thanking all of our employees around the world for all the continued hard work and support, which allowed us to deliver these great results. Our second quarter results were very strong despite multiple supplier and logistics headwinds. This was another record quarter for Tronox on TiO2 sales volumes, revenue, earnings per share, adjusted EBITDA and free cash flow, all enabled by the continuation of the market recovery, the strength of our differentiated, vertically integrated business model and the support of our customers. Revenue in the second quarter increased 4% sequentially to $927 million, primarily driven by higher TiO2 and zircon average selling prices. This represented a 60% increase year-over-year. Net income for the quarter was $77 million and diluted earnings per share was $0.46, while adjusted earnings per share was $0.61. The difference between diluted EPS and adjusted EPS is due to debt redemption costs associated with our Q1 refinancing. Our adjusted EBITDA was $237 million, setting yet another record for Tronox. This figure came in at the top end of our guided range due to improved commercial performance, as expected, offset by higher inflationary pressures and operational disruptions. JF will review this in more detail in a few minutes. Adjusted EBITDA margins improved to 26% for the quarter. We generated $150 million in free cash flow after investing $60 million in capital expenditures. We repaid $135 million in debt in the second quarter and an additional $70 million in July for a total of $205 million. Our total debt balance as of today is $2.8 billion, and our trailing 12-month net leverage ratio is 3.2 times. We are $300 million away from our total debt target of $2.5 billion and 0.7 times from the midpoint of our targeted net leverage ratio, representing significant progress in light of the strength of the cycle, our positioning and cash flow generating capabilities. Moving to Slide 4. I'll now discuss our commercial performance in more detail. As I previously highlighted, the second quarter was a very strong quarter from a commercial perspective. TiO2 revenue was $740 million, an increase of 6% quarter-over-quarter and 59% year-over-year, driven by continued strength in customer demand. Sales volumes grew 1% quarter-over-quarter on the low end of our guided range, mainly due to supply chain challenges that limited vessel and container availability at a time when inventories were already below seasonal norms. The sequential growth was led by North America and Europe. TiO2 volumes increased 45% versus the second quarter of 2020, which was the quarter most greatly impacted by COVID-19. Volume growth in Europe and Asia-Pacific led the year-over-year recovery, though all regions saw double-digit growth. TiO2 price increase initiatives continued throughout the quarter, resulting in a 5% sequential increase. This equates to a 9% increase year-over-year on a U.S. dollar basis or 6% on a local currency basis. Revenue from zircon sales declined slightly due to lower zircon volumes in the quarter, as expected, partially offset by improved pricing. Demand continues to be very strong for zircon, and we've been able to serve this growth in demand with inventory, which will continue to benefit us throughout the end of the year. Due to the tightness in the market, coupled with the increase in demand, pricing increased 5% from Q1 levels or 1% over Q2 2020. Despite the higher pig iron selling prices, feedstock and other product revenue declined 8% sequentially as some pig iron volumes rolled into the third quarter due to timing impacted by logistics issues. On a year-over-year basis, revenues increased 50% due to significantly improved pig iron volumes and pricing driven by strong end market recovery. There were no external CP slag sales in Q2 of 2020, so the year-over-year comparison this quarter is on a like-for-like basis. Our global supply chain and logistics and order delivery employees navigated yet another quarter of disruptions to meet our commitments and serve our customers to the best of our ability. So I'd like to thank all of those employees again around the world for a job well done. We believe we are still in the early stages of the cycle. Regional price initiatives are continuing across both TiO2 and zircon. Demand remains very strong throughout the supply chain, driven by the recovery across all of our end markets, and we believe inventory levels throughout the supply chain continue to be well below seasonal norms. As we look ahead to the third quarter, we are balancing strong customer demand against our ability to deliver based on continued supplier and logistics constraints. Taking these factors into consideration, we expect TiO2 volumes to decline 5% to 10% sequentially, which would still represent the strongest third quarter volume on record. Zircon sales volumes are expected to remain elevated above 2019 and 2020 quarterly volumes, benefiting from sales from inventory, though volumes will be lower than the second quarter levels. Zircon pricing improvement in the third quarter is expected to more than offset the volume headwind. TiO2 and zircon prices are expected to continue to increase as we make progress with our regional price initiatives. I'll now turn the call over to JF for a review of our operating performance and profitability in the quarter. JF?

Thank you, John. Moving to Slide 5. As John mentioned, adjusted EBITDA of $237 million was another record for Tronox. The increased volume and pricing John outlined supports significant increase in EBITDA, which were offset by headwinds from unfavorable foreign exchange rates, inflationary pressure and operational disruption. These operational disruptions include the EBITDA headwinds we discussed on our first quarter earnings call, which were the $10 million impact from the planned 5-year maintenance shutdown of our synthetic rutile production facility and the $4 million impact from the longer-than-anticipated downtime at our Botlek pigment plant due to an unexpected supplier shutdown. Additionally, we had a $5 million EBITDA impact from unexpected downtime at our Stallingborough pigment plant due to a mechanical issue. All of these operational disruptions will roll off in the third quarter. Digging a bit further into the comparison, adjusted EBITDA increased 67% year-over-year, driven by improved volume and selling price across all products as well as improved production costs, including synergy, partially offset by unfavorable FX rates and the operational disruption. Production costs were favorable year-over-year due to the improved operating rate at the mining site following COVID-related impacts and the smelter reline cost in South Africa in 2020. Sequentially, adjusted EBITDA improved 5% due to the improved pricing and production costs, partially offset by operational disruption, unfavorable FX rates and lower co-product volume. Production costs were favorable, partially due to improvement at our Yanbu pigment facility, which continued to deliver above expectations. Inflationary pressure, including both external ore purchase and raw materials, such as energy and sulfur prices, as well as increased logistic costs, continue to impact our earnings. Additionally, you would have seen the news about the riot that occurred in South Africa. We want to assure you that our operations were not directly impacted. However, there were port disruptions at the Durban port, which at this point haven't materially affected us. However, there is some risk that some of our shipments could be delayed as the port continues to work through the backlog. One of the operational disruptions for the second quarter are not recurring. Pressure on the cost side of the business, coupled with chlorine availability issues, are expected to partially offset continued price increases in the third quarter. As a result, we anticipate third quarter adjusted EBITDA of $245 million to $260 million. Turning to Slide 6. This is a critical time for Tronox. While overcoming these various challenges, we remain focused on progressing project newTRON, our enterprise-wide cost reduction initiative that will transform our business and more than offset raw material and fixed cost inflation, enabling us to remain among the lowest cost TiO2 producers and enhance service to our customers. We will achieve this through an optimized global supply chain, reduced maintenance spend, enhanced operation, improved throughput and standardized processes. This project is especially important given the increasing costs we are facing. We expect newTRON to unlock cost reduction of $150 to $200 per ton by the end of 2023. We look forward to updating you on our progress. Our vertically integrated business model continued to differentiate us from our competitors, providing security of supply, a global footprint that we can leverage to our customers' advantage, and co-products that contribute significant value to our portfolio. We are on a journey of transformation and continue to deliver on our commitment to our stakeholders. We demand a lot of our organization, and our people continue to respond. We are grateful for the ongoing effort of our colleagues around the world to deliver safe, quality, low-cost, sustainable tons for our customers. Thank you. Turning to Slide 7. On this last point, producing safe, quality, low-cost, sustainable tons is a key part of our strategy and how we strive to differentiate ourselves. Though sustainability has long been a part of everything we do at Tronox, we are improving how we disclose our progress and efforts related to our ESG performance, as it becomes an increasingly critical focus area for our stakeholders. This week, we published our 2020 sustainability report that highlights our commitment to improvement for the future. It provides detail on how we will align ourselves with a global warming scenario below 2 degrees Celsius and achieve an aspirational goal of net-zero greenhouse gas emissions and zero waste to external dedicated landfills by 2050. The report also reinforced our journey to zero, to achieve zero injury, zero incident and zero harm. We invite all stakeholders to review this report on our website to learn about our accomplishments to date and the aggressive goals we have set for the future. I will now turn the call over to Tim Carlson. Tim?

Thank you, JF. On Slide 8, on the left-hand side, we have outlined our liquidity and capital resources at the end of the quarter. We have $767 million in total available liquidity, including $303 million of cash and cash equivalents, which is appropriately distributed across our global operations. Our current liquidity is more than sufficient to operate the business. Moving to the right-hand side of the page. Capital expenditures in the second quarter were $60 million. CapEx is expected to increase in Q3 and Q4, reflecting the pacing of expenditures related to newTRON and Atlas-Campaspe capital projects in the year as well as other maintenance spend; though we are bringing our outlook down to $300 million to $325 million, given our midyear reassessment of where we are in terms of capital deployment. Depreciation, depletion and amortization expense was $71 million in the quarter, and we expect DD&A to be approximately $300 million to $320 million for the year. Our free cash flow for the quarter was $150 million due to our strong cash earnings. We also returned $28 million to shareowners in the form of dividends year-to-date. Given the continued strength in our cash generation capabilities, our confidence in our business model and our view on the cycle, we are increasing our quarterly dividend by $0.02 per share to $0.10, bringing our annualized dividend to $0.40 per share. We expect to continue to generate significant cash flow and believe that we'll be able to soon achieve our debt target, and we'll continue to evaluate our capital return to shareowner policies moving forward. Turning to Slide 9. I'd like to share our outlook. As John mentioned, both TiO2 and zircon prices are expected to increase as we make progress with our regional pricing initiatives. TiO2 market demand remains very strong, though we are balancing our market outlook with the supplier and logistics constraints, including chlorine availability issues. We expect third quarter TiO2 volumes to decline 5% to 10% from record second quarter levels. Zircon sales volumes are expected to remain elevated above 2019 and 2020 quarterly volume levels, though lower than Q2 levels. We expect our Q3 2021 adjusted EBITDA to be in the range of $245 million to $260 million due to lower volumes, inflation, raw material price increases and chlorine availability issues, partially offsetting expected price improvements in the second quarter and operational disruptions rolling off. FX rates have come off of their recent lows, but will continue to be a headwind year-over-year. Recall that a one-cent move in the ZAR is equivalent to approximately $7 million to $8 million on a quarterly basis. An AUD $0.01 move in the Australian dollar is equivalent to approximately $1 million to $2 million on a quarterly basis. Take into account our current hedge position, which will benefit us through the second quarter of 2022. Beginning in the third quarter of 2022, it will increase to $2 million to $3 million per quarter, excluding the hedge. Moving on to our expectations for full year 2021. We anticipate the following uses of cash: net cash interest expense of $140 million to $150 million; $40 million to $50 million of cash taxes, an increase of $10 million, given our increased earnings expectations for the year; capital expenditures of $300 million to $325 million, which includes expenditures related to newTRON and Atlas-Campaspe; and pension contributions of less than $5 million. We continue to actively manage working capital to be a source for the year. Net-net, we expect strong free cash flow generation despite cost pressures on the business that will be used to continue to delever over the remainder of the year. These represent our estimates based upon our current market outlook. I'll now turn the call back over to John for closing remarks before opening the call up for questions.

Thanks, Tim. JF, Tim and I are very proud of the organization's accomplishments in the first half of this year. This is a critical time for Tronox. We remain confident that our portfolio of assets and market position mean we are prepared to continue to capitalize on the momentum and deliver on the commitments to our stakeholders. We have continued to operate with a future in mind and are diligently progressing on the previously identified key capital projects to reduce costs and ensure we sustain our advantaged position. That concludes our prepared comments. And with that, I'd like to turn the call over for questions. Operator?

The first question is from John McNulty of BMO Capital Markets. Please go ahead.

Maybe we can dig into the supply and freight issues a little bit more. Can you give us whatever clarity you might have as to the timing of when we might be able to start to see some of these issues get resolved? I know there's certainly kind of moving targets right now, but any color that you might be able to give us would be great.

So John, I'll start with that, and I'm sure John can add. Look, we see the issue lasting until the end of the year. At the beginning of the year, we thought that for the second half of 2021 that would improve. But the reality is everything is still very, very tight. And the visibility that we have at the moment brings us to the end of 2021, and it's still a challenge to get vessels, to get containers, to put the material in and to move things around.

Yes. John, I guess from the standpoint of it's kind of two things. It's the logistics which, again, to JF's point, we would hope by the end of the year that we'd start to see some relief from that. But it's really hard to say at this stage. It hasn't gotten any better. And then from our ability to continue to work with our suppliers, we've had other issues. Clearly, there was some disruption in the first quarter that had to do with Storm Uri. That has been exacerbated by other issues that we've talked about regarding chlorine, not only in the U.S., but also in our plant in Stallingborough.

And then assuming that these issues aren't just specific to Tronox, I guess can you speak to what all of this means for the ability for the industry to start catching up in terms of building inventory, kind of getting back on track? Because it does seem like things are pretty thin. And I would imagine this makes it thinner. But I guess I'd love some color from you guys on that.

Look, from the standpoint of the entire supply chain with regards to inventory is below what we refer to as seasonal norms. And our ability to build inventory between now and the end of the year and meet customer demand with all the challenges that are going on is going to be difficult. This has absolutely nothing to do with demand. So I would suspect, to directly answer what I expect you're hedging for, that is that demand will continue to be pent-up and will likely elongate this cycle. We have a lot of requests from customers for additional volume. I don't think Tronox is on an island with the transportation issues that are going on in the industry right now.

And then maybe just one last question. There was a lot of noise around ore supply throughout the quarter and a lot of data points picking up. Can you speak to your thoughts on global ore supplies? And what it could mean for TiO2 pricing as well as the ability for the industry to either add capacity, debottleneck, et cetera? Any thoughts would be great.

Yes. John, you're referring to some producers announcing that they will shut down their mines that produce natural rutile and reopen issues in Sierra Leone, shutting down their mines that feed their operations. So I think this plays into the strength of Tronox. We're vertically integrated. We have our own mine and our own concentrator and upgrading facility. We're 85% vertically integrated. And the 15% that we buy on the market, we have long-term contracts in place, and we're well equipped to deal with that tight market. You also know that we're going to start ramping up toward the end of the year. So I think we're in a very good position for facing that reality, which I think will play to our strength. We will see our competitors seeing their feedstock cost moving up at the time we're working hard on lowering the cost of producing out of our own operation.

The next question is from Josh Spector of UBS. Please go ahead.

Just when you talked about TiO2 volume sequentially in the quarter, you talked about improvements in North America and EMEA. Can you give us some color of what you're seeing in Asia-Pacific? And if any of the demand patterns changed, your customer order patterns changed through the quarter?

Yes, Josh. From the standpoint, we saw growth in every region. We noted more growth in Europe and in North America in the second quarter. But we have not seen demand weaken at all. The growth has moderated a bit in China, and I think that's where maybe there's some concern around what's happening. We don't see China weakening. We see that demand continuing to be significant. There's clearly some obstacles. We have an operation in China. Freight rates out of China and other regions of the world are very expensive right now, and it's not only the expense of the containers and the logistics, it's the port congestion. So all of what's happening in China right now from the standpoint of demand is still positive. There's some comments coming out with regards to what's happening that could be deemed as weakness, and we don't see that at this stage.

Okay. Appreciate that. And just in line with some of the comments around the volume constraints last quarter into third quarter, is there any region which you would say is seeing a bigger impact of some of those supply constraints and perhaps getting less of your ability to get pricing in that region?

I think it depends on the timing. We mentioned the U.K. having a problem; the core issue there was a power outage that created a problem for the chlorine provider in the U.K. So that was an issue. There's been a lot of discussion about chlorine availability in North America. The logistics issue plays into our ability to export out of Australia, and that's a very congested market for us. We ship a lot of material out of Australia and other regions of the world. So I'd say there's not really any one region that's more significantly impacted over the first half. I'd say in the second quarter, we may have seen a bit more in Europe and North America, although we had very strong numbers in North America.

The next question is from Frank Mitsch of Fermium Research. Please go ahead.

Nice results. I want to follow up on the feedstock supply issue and the ore supply issue. Certainly, there's going to be some inflation there. I'm just curious what your crystal ball is forecasting in terms of ore pricing over the next 6 to 12 months. What sort of order of magnitude would you anticipate ore prices moving up given the supply difficulties that we're seeing there?

So Frank, you know that we don't speculate on what price will do going forward. I think your guess is as good as ours. Look, we certainly see a tight market, but we feel that as Tronox we're in a good position with our own production. Because we don't sell any feedstock onto the market, we're not trying to speculate what will happen with price.

JF, with all due respect, your guess is way better than mine on the outlook there, but understood. And I believe you mentioned Yanbu. Sorry, I wanted to ask about the upgrade. What's your confidence level there? What's the progress there? Can you give us a more granular update?

Yes, sure. We're very confident that we're going to start. Mechanical completion is almost done. We're looking at the end of August to have Metso Outotec complete all of the changes that we wanted to the facility. And we have, in parallel, started cold commissioning of the equipment, the new equipment that were installed and the changes that we've put in place. We're looking at commissioning starting in October. This is in line with what I mentioned at the last earnings call. There was a bit of delay because of COVID-19 in getting some of the material to finalize the modification on site. But all of that material is now on site; we're at about 96% completion of the installation. We should see our first production in the last quarter of the year. So that's basically the update. Not a lot of change since last quarter, but we continue to make progress.

And then lastly, on Yanbu operating above expectations, can you provide a little more color there?

We broke a record of production at Yanbu in May. So we were very pleased with that. That's an all-time record for the plant. This is in line with us telling you that we would be able to deliver synergies by transferring the know-how of our Hamilton plant to the Yanbu plant in KSA. It looks good for 2022 as we continue to see strong demand; we'll be able to grow our production to meet our customer needs.

And Frank, just to add to that, that capability has also allowed us to transfer some of the legacy Tronox grades over to Yanbu, which is also helping us in these times where we need more production at a variety of different plants.

The next question is from Matthew DeYoe of Bank of America. Please go ahead.

So KZN Sands is fairly close to Richards Bay. And throughout the province, there was clearly an uptick in violence. And I know you had mentioned outside of the port, your operations were somewhat unimpacted. I'm just wondering how that's the case and how you've been able to stay open given the backdrop and what we've seen in operations a couple of miles down the road?

So Matthew, I'll try to give you some color. Our plant is inland from Richards Bay. It's true there was a riot; it was related to issues around former political leadership. What happened is people with extreme poverty and lots of unemployment vandalized shopping centers, grocery stores and fuel stations. You saw that on the news. But our people, we put a lot of effort into creating a special environment within Tronox, with our values, with our outward mindset, and our people are our ambassadors, and they knew that something could happen in the community. We stopped trucking material between the mine and the smelter, and we moved our trucks back to our site ahead of those events happening. We had our people taking care of our assets. When government took back control and police and the army came, we were able to restart right away with no damage and basically minimal impact to our operation and production. That shows the importance of working with your people, your employees. I would say that South Africa is probably better today than it was before that event because the community has taken control of what happened. The previous era under former leadership had been a difficult time for South Africa, and I think things are improving.

Okay. And it seems like, if I read your statements correctly, your commentary that there's some zircon inventory liquidation going on right now at Tronox, which is kind of boosting your numbers. If I were to think about next year in the type of volume metric headwind that could represent the business, what should we think about — how should we size that?

In 2022, our zircon revenues will migrate back to really 2019, 2018 levels, pre-pandemic levels. The inventory that we built in 2020 as a result of the pandemic were actually beneficial for us because we're able to meet all the market needs over the last couple of quarters. But with that being said, given how tight the market is, we have been able to offset some of that volume with price. In fact, more than offset that in the quarter. And we expect that to continue in Q3 and Q4. So we will have a volume headwind year-over-year in Q3 and Q4; price will more than offset that.

Okay. But you mentioned that revenues will be kind of consistent with 2019, 2018. Is that a volume comment? Or is this kind of consistent with what you'd expect price to do between now and then as well?

No, that was a volume comment.

To Tim's point, even in Q3, although we are expecting lower volumes, price would more than offset the downturn, actually helping our revenue. And to be very clear, the demand is very strong at this particular stage. And that's why we think moving into next year with less volume, Atlas-Campaspe becomes more and more important as we replace some of the mining assets that we have. So the money that we're spending to reinvest in the business throughout the cycle is going to help us, but it's going to take some time to get some of that capacity up and running.

The next question is from Hassan Ahmed of Alembic Global. Please go ahead.

Wanted to revisit a question around ore supply or supply-demand fundamentals over there. Understood on the near-term side effect, we've seen issues in Sierra Leone, we've seen some issues in South Africa as well. But if I take a look at the buyer side, obviously, it's been an industry which has been undersupplied, under-invested for a while, right? And now here we are with the issue in Sierra Leone, the issue in South Africa. How are you guys thinking about supply-demand fundamentals, call it, near- to medium-term in ore? And on a relative basis, in terms of availability, how are you guys thinking about the availability and supply-demand fundamentals of low-grade versus high-grade ore?

So Hassan, I'll give you some color. We feel that we're doing our part in the sense that we announced our Atlas-Campaspe mine almost a year ago, and we're going to start that operation next year. That will allow us to maintain our 85% vertically integrated position, even if we're increasing our pigment production in order to grow with our customers. That's our part. We have other projects in our pipeline that we're looking at to continue to maintain that position and even increase our vertical position if we need to. We kind of like to be slightly short because that allows us to be in the market and buy from suppliers and have a good understanding of what happened. That's what we have done to make sure that we would have the material that we need. That being said, you're right that the industry probably underinvested in recent years because the price didn't justify opening new mines and investing in complex upgrading facilities. Even if you talk about a mine for a chloride or a mine for sulfate, the costs are the same. The difference is really just the type of ore that you have in the ground. The chloride resource out of the ground is more scarce or rare. That's why you need upgrading facilities like a smelter, like what we have in South Africa or upgraders like we have in Australia or the future Jazan operation. Those assets allow you to take an ore that is not really compatible with the chloride process and make it compatible as a feed at an economical value for the chloride process. So that's what we're doing. I hope that gives some color. We see that as positive for the industry because in the coming year, what will limit pigment production is not building new pigment plants; it's going to be opening new mines to feed those pigment plants. I think that's where, when people panic about China overflooding the market, China cannot do that because they don't have the mine to feed their chloride expansion. That's where vertical integration will really play in our favor.

And just sticking to the theme of raw materials, again and again, on the call you guys talked about chlorine supply being an issue in the second quarter, maybe into the third quarter as well. But it seems that as I hear some of the commentary coming out of one of the bigger chlorine producers in North America, in particular, that that's going to be an issue that's going to be here for a while, right? How are you guys going to react or deal with the reduced availability of chlorine, particularly in the North American market? How do you think the industry deals with that? Is it fair to assume that maybe you guys or the industry start thinking about building some of your own chlorine capacity? Is that something you guys are thinking about?

Yes. We do have purpose-built chlorine plants outside of North America. That's something we continue to evaluate. It's not just chlorine, although that's been kind of the focal point here recently; there have been other issues with nitrogen and oxygen and other utilities. With regards to chlorine, coupled with looking at opportunities where we might actually evaluate building our own chlorine facility, we're also looking at our ability to continue to work with other suppliers. Our supply chain team has a good plan in place as we move into 2022 that will continue to support our growth, not only in the U.S. but globally.

And Hassan, just to link it with the feedstock. Tronox having nine pigment plants and full control of its feedstock, we're obviously sending lower-grade ore to places in the world where we have extra chlorine, and we try to keep the high-grade feedstock for our Hamilton plant in the U.S. because we're facing that reality of chlorine availability. We have rearranged our feedstock to deal with that.

And if you think, we referenced a 5% to 10% decrease in Q3 to Q2. A lot of that has to do with what JF just said: we have been able to manage the chlorine issue by moving higher-grade feedstock to other facilities to have a higher head grade, therefore, needing less chlorine. Some of the issues that happened recently are now being a bit exacerbated by transportation issues and getting that ore there quickly. So it's not a long-term issue for us; it's more of a short-term one. Nonetheless, it's an issue we're addressing.

Next question is from Jackie Fisher of Barclays. Please go ahead.

Question just around the theoretical volume increase for next year. So if we assume that demand stays very strong, and we assume that a lot of these logistical issues go away and your operations run as you would plan. How much more TiO2 would you be able to produce and sell next year versus what the plan looks like midpoint for this year?

We assume that TiO2 will grow roughly in line with GDP. We are aligning ourselves with customers that are growing slightly faster than the market. We don't expect the type of growth that we have experienced from Q1 to Q2 to continue; we expect more modest growth going forward. We don't have plans for double-digit growth; we expect mid-single-digit growth for next year.

Yes. How we're going to support that growth with production, we've talked about the synergies there. Those will continue into 2022. We continue to work with our operational excellence programs. Our vertical integration will allow us to continue to support growth at our plants. We're not looking at any specific expansions, but continuing to debottleneck our plants, and we believe we'll be able to capture growth at least at our percentage share and probably more.

Maybe I missed — I wasn't talking about structural increases or long-term. I was talking about physical operations this year versus next year. If operations run as planned and supply issues improve, on a like-for-like basis, how many more tons could you sell next year than this year? For example, is it around 40,000, 75,000, 125,000 tons?

One color I want to give is we are increasing our production, so from 2021 to 2022 we will improve significantly the amount of tons we produce, but you have to realize that we started 2021 with inventory and currently we have very low inventory below seasonal norms. So we need to rebuild that inventory.

Generically, we try to run at about a 95% utilization rate. You can't get to 100% on a regular basis. We have nine plants; there will be issues. That said, we would hope that we could probably get another maybe 40,000 to 50,000 tons out next year. But to JF's point, some of that will go to rebuilding inventory because we're not at a sustainable level at this stage.

We don't see that negatively because we're not the only one facing that reality. It would just keep the market from building huge inventories and then creating another cycle. Instead, it will stabilize the situation, which is positive.

With things being so tight and with you guys kind of having the broadest plant footprint globally, have customers been asking to move into longer-term arrangements with you to reduce volatility?

Yes, we have seen interest in margin stability as the market recovers. We don't typically provide contract split details, but we have a balance of agreements that allows us to continue to capture price as we move into the second half, along with longer-term commitments. We have picked up some longer-term agreements moving into the balance of this year and into next.

Next question is from Vincent Andrews of Morgan Stanley. Please go ahead.

Just a question on pricing and your contracts. It may not be the case for you, but I believe it's the case for one of your competitors that value stabilization contracts have a linkage on price to PPI. With PPI inflation, should we assume that your contracts will see positive price movement in line with something close to where PPI is going?

To be clear, our value stability agreements are not tied to PPI. There are individual agreements that have the capability for price to move up. Our price moved up 5% in the quarter. As we noted, we expect price strength moving into the third quarter. We have the ability to adjust contracts as needed for non-stability agreements. We still feel we've got a good balance between margin stability and regular long-term agreements, which will allow us to continue to capture price.

As a follow-up on the volume and shipment situation, you're going to be down 5% to 10% sequentially. We've heard from some of your customers that they've had issues getting other raw materials, which caused them to produce less themselves. Are those customers still taking all the TiO2 they want because they'll make up production later, or are those customers part of the 5% to 10% reduction? Who is not getting your product?

The 5% to 10% reduction will be spread based on where we're having the issues. Depending upon where we have a shortage, we look at contracts and allocate accordingly. Those decreases will be split across regions. We do not believe there's any development of raw material accumulation in the chain. Not only is our inventory low, but our customers' inventories of TiO2 are also low.

The next question is from Jeff Secaucus of JPMorgan. Please go ahead.

I think the currency translation to your EBITDA was $83 million in the first half. If currencies don't change, what would be the currency penalty to EBITDA for 2021? And when your hedges come off next year, what's the currency penalty to EBITDA in 2022 in rough terms?

Jeff, the hedge change year-on-year is worth about $30 million to $35 million of decline next year, which is the headwind next year.

And what's the penalty for this year if currencies stay where they are roughly?

If currencies stay where they are for the rest of the year, there is no penalty on our hedges because our hedges were locked in at $0.59 back in 2020.

What I meant to ask was, what's the negative currency translation effect in the second half if volumes and prices are more or less the same? Is there a change in Q3 and Q4?

It will still be a headwind given the Q3 to Q4 changes. I believe it's around $50 million in the back half.

Your prices went up 5% sequentially. If you think about the U.S. and Europe, I think they were smaller in the U.S. and larger in Europe to get to that 5%. Is that correct?

Our price increases in the quarter were evenly split across the regions — in the same ballpark across the U.S. and Europe.

Have you fully committed to buying the Jazan slagger? And can you remind us what the net cost of buying that would be?

The smelter was out of the original deal. But at the time, we said if the slagger can demonstrate that it operates and makes the level of production that was guaranteed by the supplier, Metso Outotec, we would acquire it. Basically, the arrangement is that we, as Tronox, had some doubt about the technology, and we wanted to make sure that if we get the asset, it would be value-accretive for the business. So that's why we say we have the advantage: if successful, we would acquire a successful smelter to add to the Tronox portfolio. But if it doesn't work, we're not obligated to acquire the smelter. While the slagger is being tested and producing material, we will handle that material. We will buy the slag and buy the pig iron from Tasnee and use it in our plants. But it needs to reach a certain level of operation and success for us to acquire the asset.

But how much would you pay for the asset? I think you might have loaned them some money in the past. How do you net that out in terms of the cash outflow inclusive of debt if you purchased it? What would that price be?

If the slagger achieves sustainable operations, we assume the $322 million of debt plus the $125 million that we've already committed, so approximately $447 million.

And all things being equal, that would happen next year?

No, that happens upon sustainable operations, which is probably about a year out from startup.

The next question is from Roger Spitz of Bank of America. Please go ahead.

Did you say that you could consider building a chlor-alkali plant to address supply issues should traditional suppliers not be available? And did you say you are actually producing chlorine somewhere outside the U.S.?

We are always evaluating whether building chloride/chlor-alkali facilities at any of our sites is sensible. We have purpose-built chlorine facilities at some of our locations and we buy merchant chlorine at others. It's something we've evaluated over time on a business-case basis.

Yanbu, for example, which is a copy of Hamilton, has its own chlorine facility. We own that facility and produce our own chlorine in KSA. It wasn't a facility in the U.S., but depending on the market, we will look at it. If it's a good business case, we can do it. It's not a current decision but something on our radar.

Are you selling caustic soda into the market?

We do.

And just one last one, what was the $135 million of debt repayment in Q2 2021 and the $70 million repaid in July 2021? Was that the term loan?

Yes, Roger, primarily the term loan and some standard bank facilities.

The next question is from Travis Edwards of Goldman Sachs. Please go ahead.

A little different direction. On sustainability, you've highlighted various targets for emissions and waste reduction. Have you outlined what the cost is to achieve those targets? Are those investments material enough that we should expect them to show up in cash flow items in the coming years? If so, how much of that?

Good question, Travis. As part of our 5-year plan, we project capital needs and where they will be invested, and ESG investments are included in that public number. We talked about $300 million to $325 million for this year, and obviously sustainability and waste reduction are part of that capital investment. In prior commentary we've talked about $350 million of capital for a future period; ESG is a component of that year-on-year capital deployment.

Getting to our 2030 and 2050 goals, there's more work to be done to determine the detailed capital plan. Right now, we're working on and have finalized a 5-year plan, but getting out to 2030 and beyond still requires more detailed planning. There are clear projects identified to reach our 2030 targets.

I'd add that some of those projects are value-creating. They reduce greenhouse gas and also improve business economics, which will reduce cost over time.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Turgeon for closing remarks.

Thank you, everyone. This completes what we had prepared for you. I just want to reinforce a big thank you to all of our employees and all the people who make these results possible. Thank you for your support and interest in Tronox.

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