Ladies and gentlemen, thank you for standing by, and welcome to the Tronox Holdings plc First Quarter Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Jennifer Gunther. Please go ahead..

Thank you, and welcome to our first quarter 2020 conference call and webcast. On our call today are Jeff Quinn, Chairman and Chief Executive Officer; Jean-François Turgeon, Chief Operating Officer; John Romano, Chief Commercial and Strategy Officer; and Tim Carlson, Chief Financial Officer. We will be using slides as we move through today's call.

Those of you listening by Internet broadcast through our Web site should already have them. For those listening by telephone, if you haven't done so already, you can access them on our Web site at tronox.com.

Moving to slide two, 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 by 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 will 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.

As you saw in our earnings release, we provided our results on both a reported basis and a pro forma basis to assist in our discussion of first quarter 2020 performance compared to the first quarter of 2019 performance.

Our primary focus on this call will be on the comparison of pro forma results to enhance your understanding of the underlying trends in our business performance and our markets.

In the appendix of our earnings release and the accompanying presentation are a statement of operations and adjusted EPS and adjusted EBITDA reconciliations, including on a pro forma basis for the first quarter of 2019. Moving to slide three, it is now my pleasure to turn the call over to Jeff Quinn.

Jeff?.

first and foremost, the safety, health and well-being of our employees and their families; secondly, preserving our ability to operate safely and run our business; and finally, our role as an essential enterprise.

With our plant in China impacted early on, we were well-prepared as the pandemic spread across the globe and were able to rapidly respond to the dynamic conditions. All sites around the world are currently operating.

We've implemented increased safety protocols and facility access protocols at the sites, limiting nonessential visitors and effectively eliminating business travel. We've also established additional cleaning, PPE and disinfection protocols at all locations.

Our operations have been designated as essential, given the applications of TiO2, zircon and other co-products in the continued manufacturing of critical products such as food and medical packaging, medical equipment, pharmaceuticals and personal protective gear.

We continue to work diligently to ensure business continuity in order to meet our customers' needs. Thanks to the efforts of my colleagues around the world, we've managed to limit the spread of the virus at our facilities.

I am extremely grateful for the swift action and dedication of my nearly 7,000 global colleagues who have shown continued determination and resilience throughout the pandemic, adapting to significant change virtually overnight, allowing our operations to quickly meet the new challenges in which we find ourselves on almost a daily basis.

The efforts and results have been extraordinary. I have never been more proud of our organization.

I would now like to turn the call over to John Romano, our Chief Commercial Officer, who will report on our commercial performance and the trends we are seeing in the global markets, including an update on the near-term view for the remainder of the second quarter.

John?.

Thanks, Jeff. Moving to slide five, first I'll take you to the year-on-year comparison, which Jennifer said focuses on pro forma numbers for the year-ago quarter for comparison purposes. Revenue of $722 million was in line with sales of $720 million for the year-ago quarter. TiO2 pigment sales of $580 million were 2% higher.

TiO2 sales volumes increased 6%, while selling prices were 3% lower on a local currency basis, and lower by only 1% when adjusted for currency.

The sales volume increase reflected continued strength in North America and strong demand in Europe prior to the onset of COVID-19, partially offset by slight demand reductions in South America and Asia Pacific.

The reason for the lower year-on-year TiO2 average selling price, as we stated previously, is primarily a prior year issue due to the Cristal commercial approach in 2018 and Q1 of 2019. This is the final quarter in which we will see this effect, as price harmonization was achieved in Q2 shortly after we closed the acquisition.

You will see in the sequential comparison our global average selling prices once again have remained stable, as they did in each sequential comparison in 2019. Moving to zircon, sales of $65 million were 21% lower than a year ago.

Zircon sales volumes were 7% lower when compared to Q1 of 2019, driven largely by softer market conditions, primarily in China early in the quarter, and Southern Europe later in the quarter. Selling prices were 16% lower due to the roll forward of the trend from the fourth quarter carrying into the early part of the first quarter before stabilizing.

Our sales of standard grade zircon products versus premium grade continue to run at a higher rate in Q1, which had a negative impact on our average selling price, and in feedstock and other products, sales of $77 million increased 13%, largely due to higher titanium tetrachloride sales out of Yanbu and the addition of the mandated CP slag sales associated with the remedy for the Cristal transaction.

Moving to the sequential comparison versus the fourth quarter of 2019, revenue of $722 million was up 4% from the prior quarter on higher TiO2 sales, partially offset by lower zircon volumes and impacts from revenue exchange rates, primarily the euro. TiO2 pigment sales of $580 million were 7% compared to $544 million.

Sales volumes were 7% higher and selling prices were level on a local currency basis and a U.S. dollar basis. Moving to zircon, sales of $65 million decreased 8% from the previous quarter.

Sales volumes were level with volumes from the previous quarter, while selling prices declined 8%, which was influenced by an increase in standard grade versus premium grade zircon. And finally, feedstock and other product sales of $77 million were relatively in line with Q4 of 2019.

While this completes the review of the previous quarter's results for commercial perspective, we know that the focus is going to be on what we're currently seeing and anticipate for the second quarter. We've released two updates to the market since the onset of the global pandemic.

In an effort to continue to communicate early and transparently, what we're seeing as conditions changed based on information available to us at the time and our read-through on our end markets. We continue to monitor the changing market conditions, which indeed evolve every day.

As we've stated previously and as we've seen in our results, we benefit from our balanced geographic sales, our vertical integration and our favorable end market exposure. Approximately three-fourth of our TiO2 sales volumes are sold into paints and coatings, and a majority of those sales are in architectural markets.

The resilience in the DIY market, coupled with our minimal automotive and aerospace exposure, has benefited us to this point. We've also benefited from the 20% or so of our volumes that are typically sold into plastic applications, and those end markets have been strong, driven by food, medical and other packaging applications.

Our sales are essentially balanced across the major regions of the world, which has meant we've seen changing geographic demand profile since the onset of COVID-19. China was the first region to see a slowdown in February, whereas since March we've seen improving demand in that region. North America has proven to be the most resilient.

The region has not been immune to the impacts of the pandemic, but has seen the least impact relative to our expectations. Europe has remained mixed, with Southern Europe seeing the most severe impacts, while other regions less so.

Brazil and India are currently facing challenging conditions and are the 2 areas where we recently have seen the most demand reduction relative to our expectations. From the onset of the global pandemic, we developed economic scenarios to evaluate the potential impact on demand, which included a mild case, a medium case and a more extreme case.

On a daily basis, we're evaluating and adjusting our perspectives as to what is the most likely case by region, which then rolls into a global forecast and our integrated business planning model that also takes into consideration potential operational and supply chain constraints.

The mild impact case assumed an approximate 10% decline in TiO2 volumes sequentially, while the worst-case scenario assumed as much as 30% sequential decline.

Based upon the evolving status of social restrictions, the uncertain plans for reopening economies around the world and our most recent conversations with and public statements from our customers, our current expectation is for second quarter TiO2 volumes to decline in the high-teens to low 20s percent range versus the first quarter of 2020.

This reflects a change from our previous outlook and is largely due to recent reductions in demand outlook by our customers due to slower than anticipated reopening of certain geographies such as Italy, Spain and France; and extended shutdowns in countries such as India and Brazil; and the recent reduction of feeder availability out of Australia and into the Asia Pacific region.

We do not anticipate any significant movement in our global TiO2 selling price in the quarter, given our commercial approach and our margin stability initiatives. Zircon volumes are expected to remain largely in line with the first quarter volumes, as we continue to see improving demand in China, offset by lower demand in Southern Europe and India.

Selling prices are anticipated to remain relatively stable from the first quarter. These estimates remain subject to change, due to a number of factors, but represent our best views at this time.

While the macroeconomic conditions remain uncertain, we firmly believe that with our global network of assets and our vertically integrated business model, we will remain well-positioned to respond to the changing market conditions as they develop.

And with that, I thank you and I'll now turn the call over to JF for a review of our operating performance and profitability in the quarter.

JF?.

Thanks, John, and good morning, everyone. Moving to slide six, let's first review the year-on-year adjusted EBITDA comparison. Adjusted EBITDA of $174 million was 23% higher than pro forma adjusted EBITDA of the year-ago quarter.

As John discussed, increased TiO2 demand, largely offset by lower zircon volume and selling price, were the primary commercial drivers.

We benefit this quarter versus the year-ago quarter from favorable foreign exchange rates, primarily the South African rand and the Australian dollar; the absence of the deferred margin build which occurred in Q1 2019 and $38 million of synergy; all of which were partly offset by higher production costs and lower ore grade in our Australian mines, which has resulted in increased manufacturing cost per ton.

I will further discuss our strong synergy achievements on the next slide in a moment. Looking at the sequential comparison, adjusted EBITDA of $174 million increased 12% from $156 million, driven primarily by increased TiO2 sales volume and incremental synergy of $9 million achieved in Q1 versus Q4 2019.

Favorable foreign exchange rate, again primarily the South African rand and the Australian dollar given their significant move in the quarter, also contributed to the gain. These factors were slightly offset by lower zircon pricing, as expected.

Turning to slide seven, as I mentioned on the previous slide, we achieved $38 million of synergies reflected in EBITDA. We also achieved $7 million from tax and other synergies not reflected in EBITDA, for a total of $45 million in synergies achieved in the first quarter.

The increased target for 2020 set during our fourth quarter earnings call was $190 million in total synergies, and we remain on track to achieve this target. My team has done a good job finding additional value-creating opportunities in the new Tronox, and delivering on the targeted synergies each quarter.

As we've mentioned before, a majority of the targeted synergies are coming from true cost savings, including opportunities to reduce spending across our supply chain, the sharing of best practices across our various sites and what we call value-in-use or the opportunity to use our feedstock across our nine pigment plants to generate real cost savings.

So, our synergies are not significantly tied to the anticipated volume. We therefore remain confident in our ability to achieve the previously communicated target, despite the softer demand conditions due to the pandemic. However, as I said before, the synergies are only one part of our Operational Excellence program.

We had identified other cost-reduction opportunities of up to $100 million, which can be implemented based on how the situation develops. Additionally, our global team continued to deliver on our target of producing safe, quality, low-cost ton for our customers.

We remain committed to improving our safety performance on our Journey to Zero initiative, which is our goal of achieving an injury-free workplace, the highest priority of our operations. In fact, recently the new Tronox achieved the best safety performance record in the history of both legacy companies.

As Jeff mentioned, all our operations are running, due to the effort of our employees and their commitment to our organization, customers and communities. Even in South Africa, our smelter continued to run throughout the 21 days lockdown.

Our vertical integration gave us the flexibility to reorganize the use of feedstocks in our global portfolio to deliver the best value-in-use which demonstrates the strength of our business model.

I want to take a moment to state how extremely proud I am of our employees and their ability to seamlessly adapt our operations to the demand of our customers, and manage through the ongoing COVID-19 pandemic.

As an example, we made the decision to slow down the Yanbu plant in April to adjust production to be in line with our customer demand, but the increased costs due to unabsorbed fixed costs will be partly offset by reduced maintenance costs and lower energy usage. This is only one example of the benefit our asset base.

Thank you to my team and everyone at Tronox for your continued commitment. Before concluding, I'd like to provide the latest update on the Jazan smelter, which remained a key step in furthering our vertical integrated strategy.

As Jazan continued to advance towards its next milestone, Tronox has increased the amount of technical and managerial resource that it will devote to the project through an amendment to the existing technical service agreement.

Under the amended agreement, we will provide comprehensive consulting and advisory service to act as the project manager through the next four phases of the Jazan smelter project, those phases being construction and mechanical completion of the agreed modification to the furnace, coal commissioning, pot commissioning and ramping up to sustainable operations.

Based on our latest expectation which accommodate the delay due to COVID-19, we anticipate the startup of Jazan to take place in the first quarter of 2021. We will complete our funding obligation of $36 million, which will occur in 3 tranches of $12 million over the next 3 quarters.

As a reminder, the earliest date Tronox would acquire the asset would be when the Jazan smelter achieves sustainable operations, as defined in our option agreement which we anticipate would be no sooner than mid-2021, but more likely in early 2022.

I look forward to reporting on our synergies and operational excellence progress on the next quarter call. I will now turn the call over to Tim Carlson for a review of our financial position.

Tim?.

Thanks, JF.

On slide eight, we've outlined our liquidity and capital resources as of March 31, 2020 on a pro forma basis to include the $500 million net proceeds from the senior secured note offering that we closed last week, as well as the repayment of the $200 million draw on our ABL credit facility at the end of March, using proceeds from the recent offering.

We have over a billion in total available liquidity, including $720 million of cash and cash equivalents. We have no trapped cash and our cash is appropriately distributed across our global operations.

Our cash and liquidity balances remain relatively unchanged as of today, and we remain very comfortable with our current liquidity which provides enhanced optionality for our business. Turning to the next slide, on slide nine, we highlight the strength of our balance sheet.

Our recent senior secured note offering, which we successfully upsized to $500 million, provides additional flexibility at an interest rate only slightly above our weighted-average cost of debt, while leaving ample additional secured debt capacity.

Including the offering and the repayment of the amounts drawn on our ABL and credit facilities, our current total debt is $3.5 billion and our net debt is $2.8 billion. Our current trailing 12-month net leverage is 3.9x on a pro forma basis. We have no near-term maturities on our term loans or bonds until 2024.

We also have no financial covenants on our term loan bonds. We only have one springing financial covenant on our ABL facility, which we do not expect to trigger under any scenario, especially since there are no current funds drawn against this facility. Our capital allocation policy remains unchanged.

We continue to prioritize disciplined capital spending on high-return projects and deleveraging, with a targeted net leverage of 2 to 3x and a gross debt level of $2.5 billion. We've announced a $0.07 quarterly dividend per share and we remain committed to maintaining our dividend.

Capital expenditures in the first quarter were $38 million and our depreciation, depletion and amortization expense was $71 million. Our free cash flow for the quarter was a cash use of $66 million, driven by a very strong month of revenue in March and a reduction in payables, given the timing and mix of four capital expenditure payments.

We are monitoring our accounts receivable balances weekly. We currently do not see any impact on our aging that causes us concern. We've identified only $16 million of receivable where payments are delayed because of bank closures in India, Malaysia, Vietnam and Tunisia.

We anticipate making up the $66 million free cash flow burn in Q1 during Q2, despite lower sales volumes, through the continued management of accounts receivable, accounts payable and inventory. Turning to the next slide, I'll discuss our outlook.

As John mentioned, we anticipate second quarter TiO2 volumes to decline in the high-teens to low 20s percent range versus first quarter 2020. Zircon volumes are anticipated to remain largely in line with Q1 2020.

As JF mentioned, we remain committed to our previously issued synergy targets, including $190 million targeted this year in total synergies and $140 million of that to be reflected in EBITDA.

Before moving to anticipated cash uses for the year, I wanted to provide an update on our foreign exchange exposures, given the significant movement in rates that we've seen this year.

In the third quarter of last year, we took out positions to hedge approximately 50% of our 2020 cash flows in South Africa and Australia, hedged at 16.1 and 0.68, respectively. Given the positions taken over the next 3 quarters, we'll only see 50% of the benefit of the FX sensitivities previously communicated.

In other words, a 1 movement in the ZAR will result in approximately $4 million in quarterly impact to EBITDA and a .01 movement in the Australian dollar results in approximately a $1 million quarterly impact on EBITDA. Moving on, while global macroeconomic conditions remain uncertain, we remain confident in our ability to manage our cash flow.

For the full year 2020, we expect our uses of cash to be net interest expense of $165 million to $170 million, cash taxes of $20 million to $30 million, working capital of $40 million to $50 million reduced from $75 million to $100 million, and capital expenditures of $225 million reduced from $275 million and lastly, pension expense at $15 million to $20 million.

These represent our estimates based upon our current market outlook. We have ample levers to maintain flexibility and manage cash generation, including the cost reduction measures JF mentioned and the additional management of our working capital and capital expenditures, should we see the need.

We remain confident in our ability to generate free cash flow across all economic scenarios we are evaluating. With that, I'd like to turn the call back to Jeff to add additional color to our outlook and provide a few closing remarks before we turn the call over to Q&A.

Jeff?.

Thanks, Tim. The numbers that Tim just walked you through represent our current outlook incorporating the global macroeconomic uncertainty, with our current understanding of our end market demand and customer outlook.

We continue to go as we monitor the situations, though it is a bit like trying to track a hurricane and precisely predicting where it will make landfall.

We have a range of economic scenarios we continue to evaluate, much like the potential paths for a hurricane, but the ultimate path of the storm is determined by a number of factors, including how long it hovers and how it builds and strengthens.

In this case, while we are using a bottoms-up analysis, deep dives on trends in our end markets and conversations with our customers to inform our latest views, the outcome will ultimately depend on a variety of factors, including how long the lockdown remains in place and impacts on the supply chain, to name only a couple of examples which continue to change every day.

That being said and to reiterate what we stated before, we believe we are differentiated in our market through our global network of assets and vertically integrated business model, which positions us to respond quickly and as needed to changing market conditions as they develop. We remain committed to what we've said at the beginning of the year.

We believe we will deliver industry-leading financial performance. We are prudently managing the present situation, but we are not turning a blind eye to the future. We continue to focus on our vertical integration strategy and a multitude of ways to better serve our customer base, all while remaining committed to safety and sustainable development.

While the current environment presents an unanticipated and unprecedented challenge, I have confidence in my colleagues around the world and know that we will persevere, not only surviving the present but thriving in the future. That concludes our prepared remarks. And with that, we'll open it up for Q&A. And I do apologize.

I believe that we have some echo and feedback on the line. So, hopefully you can bear with us and I apologize for the distraction.

Operator, can you open it up for questions, please?.

[Operator Instructions] Your first question comes from the line of John McNulty with BMO Capital Markets..

Thanks for taking my questions.

The first one would be on the $100 million of I guess recession-related cost saves that JF had spoken to, are you targeting all of those at this point, or are those options for if things get worse, and if it's the latter, how much should we be thinking you're actually targeting right now?.

Those are potential cost savings that we would execute upon as we read the economic situation and as it develops. There are a number of things in addition to things we're already currently doing. So I would view those as additional, above and beyond cost reduction items that we've already taken..

Got it. And then, the second question would be, with all the supply disruptions that we saw in the first quarter around COVID in China, there seemed to have been a little bit of a scramble from some customers in the industry.

Is that changing their appetite for partnering with someone like Tronox with significant number of assets geographically, and I guess how should we think about how that may have ticked up throughout the quarter in terms of desire for longer-term contracts?.

Yes, I think certainly we believe that our global asset base is a differentiator in a number of scenarios, both in times of lesser demand or global supply disruptions, or even times of strong demand, the ability to deliver from multiple sources.

John Romano, do you want to make a comment on that as well?.

Yes, no. Thanks, Jeff. I would agree with the comments that you just made, and it depends on the region that we're supplying, but the ones that typically have had significant imports from China, I would say that we are getting some feedback in that area.

It's a bit early to have locked down any contracts, but there's no question that when something like this happens, it does have a little bit of an impact with regards to reliance on that channel for raw materials..

Great. Thanks a lot..

Your next question comes from the line Frank Mitsch with Fermium Research. [Technical difficulty].

Frank, are you there? Operator, could you go to next question please? We are having trouble hearing Mr. Mitsch..

One moment..

Operator, could you please go to next question?.

Yes, one moment. One moment for the next question..

Operator, we are not getting any feedback. Maybe it's the alternative line that we can go to..

Yes, one moment. [Operator Instructions].

We apologize for the technical difficulty. It's our own conference provider that's having major issues on their end, so we do apologize, and they continue to try to correct the situation..

If those of you who were in the queue to ask a question could please send your question to myself, Jennifer Gunther, please do so, and I will roll through the questions while they work through this. Jeff, I have another question -- go ahead, Operator..

We have a question from the line of Frank Mitsch with Fermium Research. Frank, your line is open..

Good morning.

Can you hear me now?.

Yes, Frank, thank you..

All right, all right. I was going to say you guys sound well, and I'm glad you do. I thought it was really interesting looking at the year-over-year price progression for the TiO2 industry among the four major Western players.

Three are showing steady improvement in the year-over-year price over the past several quarters, but one has been blowing out in the other direction. So I was wondering if you could comment on the competitive landscape in terms of price on TiO2.

And what can you tell us with respect to what you're seeing in April and May on that front?.

John, would you like to take that?.

Yes. Hey, Frank. This is John Romano. So you know, as we've communicated on the last call, we were working through price initiatives as we were -- the first quarter actually was recovering as we anticipated it.

And as COVID-19 started to, I guess, impact the second quarter more significantly, the progress we were having on raising pricing slowed a bit, but when I mentioned that we didn't expect any significant move in price in Q2, it was largely due to the fact that we have seen some improvement.

It's not to the extent that we would have forecast previously due to some of the movement in COVID-19 volumes. And we're also seeing a bit of competitive activity in China, where we are seeing a little bit of price reduction there. So on average globally, prices have been stable for us. They've been stable for basically the last 5 quarters.

And we're projecting stability moving through the balance of Q2. So I don't know if that answers your question completely there. We can't speak too much to what our competitors are doing. We believe we're maintaining our share globally.

There's a variety of initiatives that we have in place now to make sure we're shoring up volume in a very difficult situation that's COVID-19-related, but we're doing that in line with our customer approach and our margin stability initiatives..

Very helpful, John, and perhaps if you can offer a comment or two with respect to what -- obviously you guys are more vertically integrated, but what are you seeing in terms of feedstock ore pricing as we progress here in the second quarter, and what the outlook is for the balance of the year on the feedstock ore side of things?.

Maybe JF, do you want to respond to that one?.

Look, as you know, we started Q1 with a very tight high-grade feedstock market. Being vertically integrated obviously gave us the advantage of having flexibility to feed our plant with the different options that we have.

As I mentioned in my comments, even during the 21-day lockdown in South Africa, we were able to operate our smelter and it had no significant impact on us. Look obviously, with the supply-demand situation going forward, I expect that the feedstock market will remain balanced, but that's as far as we see as the moment.

What I can say is we are in a good position ourselves to meet all our needs..

Very helpful, thank you so much..

Yes Frank, as you know, we are not a participant in the commercial feedstock market. We don't sell feedstock into the market. We buy a bit, but we run our feedstock assets to serve our pigment plants, which has provided we think a source of flexibility and advantage in situations like the current one..

Got it, thanks..

Operator, next question please. [Technical difficulty].

Jeff, I don't hear the Operator. So let me move to some questions that I have via email. Roger Spitz from Bank of America has a question. What do you see Q2 2020 working capital inflow or outflow? And also I have a follow-up.

What is driving the working capital outflow of $40 million to $50 million in this environment?.

Tim, would you like to take that, please?.

Yes, I would be happy to. Our significant working capital burn in Q1, as I mentioned, was primarily a result of a very strong revenue month in March. We've seen significant collections in the month of April, so we actually see some positive impact from working capital in Q2, despite the lower volumes.

We also continue to manage our payables and inventory levels appropriately. We do see somewhat of a burn for the remainder of the year, probably more of a conservative assumption and we can further manage that down should the market continue to deteriorate..

Thanks, Tim.

Jennifer, next question?.

Thanks, Tim. Another question from him was on the Jazan [slagger] [Ph], the $12 million per quarter payment.

That's above the outflows shown on the outlook on slide 10?.

Tim, do you want to address that as well?.

Yes. The $36 million of the $12 million a quarter for the next three quarters is in addition to what we have summarized in slide 10, correct..

And how much debt do you now expect will you assume on the balance sheet when you acquire Jazan?.

The amount of debt as it relates to Jazan is unchanged, a total of $325 million to $340 million, but that's only assuming that we assume ownership, and as JF mentioned, that would be mid-to-late 2021..

And in terms of the EBITDA we expect from the furnace, does that remain in line with what we communicated at Investor Day, which was around $50 million to $80 million per furnace?.

Correct..

Josh Spector from UBS, in your EBITDA bridge comments, you talk about a negative impact of lower ore grades at your Australian operations.

Can you just expand on that in terms of what's going on there, and is that an ongoing headwind that we should consider?.

JF?.

Can you hear me now?.

Yes..

Yes..

So, our mine in South Africa, especially the legacy Cristal Mine, we are toward the end of the life of some of those assets and as expected, the grade is going slightly down, but we have planned and it is built in our working capital to expand or replace those mines with other assets that are obviously better.

So you'll see a couple of years where we'll maintain what we have delivered now, and then you'll see a benefit from a new area of the mine where we'll be. So like any mine, you have periods where the grade is higher and periods where the grade is lower. So we're going to run for the next two to three years similar to what we have had in Q1..

Thank you, JF.

In past cycles, how quickly has zircon demand shifted back towards the more premium product grade? John, do you want to take that?.

Yes. So, the shift from I'd say lower grades or standard grades to premium grades has been driven by a variety of factors. And I would say we have the capability to adjust our production to meet that demand. In prior cycles, it depends on how quickly it recovers, but I would say anywhere from two to three quarters.

And a lot of that will depend on the inventory and the supply-demand situation. As we noted in our remarks, the volume in Q1 was basically flat with Q2. A significant amount of our sales do go into China. And that's the majority of where the markets are, at least as far as consumption of zircon.

At the beginning of the quarter we were a bit softer in China, and at the back end, it strengthened. So over the last three quarters, our sales have been relatively stable into the region and previously we were expecting demand to start to recover in the second half of the year.

That will be determined now largely on what COVID-19 and how that impacts the second half, and we're not at this particular stage prepared to really comment on second-half..

Okay, and another one from Josh; in terms of the free cash flow bridge, what are you expecting in 2020 in terms of restructuring cash spend?.

Tim?.

Very minimal, no different than we've talked about in the last quarter, there are a few actions that we'll be taking, but low single-digit millions..

Okay, and final one from him; in terms of synergy targets, other companies have reported challenges in achieving the pace of plant synergies, given travel restrictions and other limitations in the near term.

What are you doing to keep those time lines on track?.

Yes. As JF said in his remarks, we believe that even with the current situation, we still are on track. Many of those synergies were actions that have already been taken and just a blow-through impact of those actions. So we are fortunate that this has occurred a year into this.

If this had occurred in the early stages of our integration and in our synergy capture, we may have had a more difficult problem, but we're very confident of our ability to continue to deliver the synergies at the targeted rate..

Okay, great. I've received questions from SunTrust.

So in an environment where TiO2 volumes are falling sharply, what factors can you point to that would support pricing stability in 2Q, and do you have any visibility on if you will be able to hold prices stable beyond this quarter?.

With regards to Q2, Jeff, unless you want to, I'll take that one. What we're seeing at this particular stage is we've already negotiated price for the quarter. So a lot of what we're seeing in Q2 is already based on negotiated agreements.

Clearly with where the market is right now and as volumes have reduced, price isn't really what's going to drive recovery at this particular stage.

So based on what we're seeing in the market right now and as I mentioned with the exception of some movement in price in China, we continue to see stable pricing moving into Q2 and we're not really prepared to provide any guidance beyond what we've provided as far as the second-half of the year..

Okay, and maybe a follow-up; can you walk through the major regions and give us an idea of approximately where your operating rates have been during Q2?.

JF, do you want to maybe address the operating rate question first, and then John, maybe you could comment on the market perspective by region..

Yes, sure. Look, it's clear that with the combination of legacy Cristal and legacy Tronox together we have more capacity than the demand of our customer. I mean we always said that we did that deal so we could grow with our customer and we would grow with what I call the hidden factory. So to give you a feel, we were running at about 85% in Q1.

I mean if we were to run all our assets at nameplate capacity, we would produce way more than the demand of our customers, and it's always been our strategy to adjust our operating rate to meet our customer demand..

And as far as where we're seeing some adjustments from the market, as I mentioned in the prepared comments, certain geographies such as Italy and Spain and France, the downturn there has been extended.

When you think about when those three regions specifically locked down and was back in mid-March, Italy and Spain and France are opening between starting this week up until May the 11th, and the pull-through from the customer base is a bit slower than what we would have projected.

We get into Asia, speaking specifically to India, that's been a significant change with regards to our expectations. The lockdown there has been, I would say, much more significant not only from the standpoint of being able to get product to customers from a transportation perspective, but the extended downtime in that area as well.

And again in the U.S., that is the one region that I would say is not immune to the pandemic, but it has been more in line with the expectations that we had outlined previously..

Thanks, for those of you still on the phone, we appreciate you hanging on. We're going to go a couple minutes over to accommodate some of the technology issues we've had. So I'm going to continue with another question here that I have, but follow-up with me if you need to hop off and I'm happy to take additional questions later today or tomorrow.

On your CapEx reduction, what projects are you delaying or canceling? What do you estimate that your current maintenance level of CapEx is, should you decide to look at additional cuts?.

Yes. The projects, the reduction really comes from a slight delay in a couple of the really long-term projects that we have, mine development projects and the technology-related projects. Our maintenance and sort of ES&H type capital is about $100 million to $125 million.

Obviously being first quarter already passed, we wouldn't be able to get down to that level, but certainly with the $225 million level, there is some potential room if we needed to readjust once again, as we get later in the year, but the delay of those long-term projects will not have a significant impact on achieving our synergies or our cost structure.

They are truly longer-term projects of which we would reap the benefit for a number of years to come..

Okay, great. I have a question from Morgan Stanley from Steven Haynes.

Can you give us an understanding of where customer inventories were entering the second quarter?.

Yes. John, do you want to address that, because certainly the inventory levels were in a good place at the beginning of the quarter.

Do you want to address that kind of compared to historic context?.

Yes. Thanks, Jeff. So look, the destocking we've talking about for the last 2 to 3 quarters, again by the end of the year it happened, and our customers' inventories and our inventories I think as -- at least Tronox' were at or below what we would deem to be seasonal norms. And as the first quarter kicked in, we started to see demand pull forward.

Our sales in the first quarter were higher than our expectations.

So from our perspective, to plan, we actually were lower in inventory than we planned as far as our budgeting process, because the first quarter was stronger than we expected, and we do believe that our customers' inventory probably towards the end of March may have picked up a bit, but again, we don't feel through the quarter that there was any significant build on inventory for some of the reasons that we outlined earlier..

Thanks. Another question from him; so companies have talked about social distancing measures preventing them from getting into factories, working with consultants, et cetera.

Does COVID or social distancing measures change the make-up of the synergy bucket?.

No, they really don't. Again, we're fortunate in that many of the actions that would derive the synergies have already occurred. The things like best sharing of practices and the value-in-use of feedstocks and all of that continue. We've had to change how we interact, obviously.

We've had to change how we interact amongst our colleagues within the company and outside providers, but the really nice important thing about the transfer of best practices and a lot of that; that's internal within the company. It's not like we were bringing in hoards of outside consultants to necessarily help us there.

That's our internal expertise being able to take those things and really move forward with it. So we feel good about that, and we've adapted and we'll continue to move forward..

Thanks, and I think managing the email inbox here, so I think a final question that I have is from Hassan at Alembic.

He said he'd love to hear about industry feedstock availability, keeping in mind some mine disruptions in South Africa and how to think about the $700 million to $800 million earlier guide in light of the mild, medium and extreme scenarios we have run..

Yes. I think I'll address the latter part first and then I'll maybe ask Jean-François to address the feedstock availability. Obviously the guidance that we gave at the beginning of the year was under different circumstances and a different place. We no longer believe that that is relevant to looking at sort of full year performance.

We do believe though that we will continue to play the cards that are dealt very well, and as I've said in my prepared remarks, we believe that we will have industry-leading financial performance as we go through the year under any circumstances.

We're going to try to be very open and transparent and communicate early and often as to what we're seeing in the markets, but at this point, there is not tremendous visibility into the back-half of the year.

So, with that, and Jennifer, thank you for moderating the Q&A; I want to just say thank you to all of my colleagues around the world for their continued dedication to delivering safe, quality, low-cost tons for our customers during this period of great uncertainty.

We remain focused on execution, operating excellence, delivering the synergies and enhancing our vertical integration strategy, which has created and will continue to create a company that has greater stability in financial performance and cash generation. I want to thank everyone joining us on the phone today.

We look forward to continuing a dialogue with you about the changing landscape, including probably the very likely change in conference call provider, and we really apologize for the technical difficulties, but as Jennifer said, if you have questions that you didn't get to ask because of the snafu on the technology, please reach out to Jennifer today, tomorrow and we'll make sure we try to provide the best answers to your questions that we can.

Thanks very, very much, and have a great day..

Ladies and gentlemen, this does conclude today's conference call. You may now disconnect..