Tronox Inc. (TROX)

[uhlmant]

All Tronoxers (just made that up)

Today is the moment of truth. Based on what all other Ti2Ox producers are saying I expect some impressive past results and VERY favorable going-forward results.

Recall earlier this year from Barrons
http://online.barrons.com/article/SB50001424052970204331604576104252848553210.html#articleTabs_panel_article%3D1

Tronox [TROXV] also manufactures titanium dioxide. It is expected to emerge from bankruptcy protection soon and is trading on a when-issued basis at 94. Tronox succumbed to the bankruptcy process because of legacy environmental liabilities with which it was saddled during its spinoff from Kerr-McGee [KMG] in 2006. These liabilities were from other businesses and should have stayed with Kerr-McGee, which also saddled Tronox with too much debt. Bankruptcy really is a cleansing process. The bankruptcy plan set up a trust for the environmental liabilities.

How big were the liabilities?

Witmer: They put about $270 million into the trust. A lot of Tronox debt has been converted into common stock. Once the bankruptcy plan is affirmed, there will be 15 million shares trading, for an equity capitalization of $1.4 billion. The company will have about $400 million of net debt.

Tronox's plants are valuable because they produce titanium dioxide using a proprietary chloride method, which is lower-cost and produces a grade required by certain end users. Only five companies have this technology. Tronox's joint venture in Australia also mines the key raw materials needed for production. It protects the supply source, and partially insulates the company from increasing costs.

What could Tronox earn post-bankruptcy?

Witmer: Earnings power in the next year is between $8.50 and $10 a share, rising to $11 or $12 as titanium-dioxide pricing reaches a level commensurate with the capital investment required. This squares with our estimate of replacement value of $100 to $125 a share. Our target for Tronox is 120 to 140 a share. (MY COMMENT: This assumes about P/E of 14 based only on REPLACEMENT value..not necessarily earnings power and the increasing difficulty and capital required to 'replace' an asset. KRO trades at PE of 24. Assuming a PE of say 20 puts TROX shares in the range of 170-200 this year. Perhaps 220-240 in out years.)

Black: How many years of rutile reserves do they have?

Witmer: They are in a good spot for as much as seven years.


Best of luck.