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COMPANY PROFILE

2013

TRONOX

Growth is the priority for Tronox


COMPANY REPORT

Growth is the priority for Tronox Editorial – Christian Jordan Production – Phil Bird The second phase of construction at the Tronox Fairbreeze mine is imminent and when the new mine is up and running both the company and the local community look set to benefit. The current success of the company is down, in part, to the vertically integrated business model so we take a look at this model to find out more.

Tronox, one of the world’s leading chemical companies involved in the titanium products industry, was celebrating last year after the deal which saw it acquire Exxaro’s mineral sands business was closed. The deal has reinforced the position of Tronox at the top of the industry and the company is now recognised as the largest fully integrated producer of titanium ore and titanium dioxide. Over the past 18 months, Tronox has been embracing new challenges and targets which have been laid down to achieve growth. There has been much activity in Southern Africa, from the announcement of a new mine to on-going community projects and the continued success of the vertically integrated business model, and this activity looks set to benefit the communities surrounding the Tronox operations as new jobs are created. Tronox’s Mineral Sands division mines, processes and upgrades titanium ore at its three global operating locations, which include KZN Sands and Namakwa Sands in South Africa as well as its Northern Operations in Western Australia. PAGE 2 SEP 13

“The mineral sands side of the business works together with our Pigment division to capitalize on the many strategic advantages of having an integrated model,” says David Silverman, Communications Manager for Tronox. “What makes us unique is that we are not just a mineral sands company or a pigment company. We’re a value-creating company that’s able to harness strength wherever it surfaces along the value chain and mitigate some of the risk stemming from cyclical factors.” “The Namakawa mine is still running and is not near the end of its life however, the Hillendale mine (KZN), which has produced the ilmenite that feeds the smelters at KZN, is currently reaching the end of its life. “Meanwhile, we have a new mine called Fairbreeze which is going to be replacing it. We anticipate that Fairbreeze will be up and running by the end of 2015. “We already have two of the three major permits required here. The third one is the water-use permit which we have been expecting for the last few quarters. It’s a two-part license that includes both water use and the associated pipeline.” The water use license is vital for the project and


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covers construction of infrastructure, such as the fines residue dams, and the actual operation of the mine. Trevor Arran, President of Mineral Sands at Tronox says of the new mine: “The idea is to bring it on-stream as a replacement mine. It has been a long process simply because legislation and regulation has changed in South Africa, both mining and environmental.”

NEW TRONOX One of the key elements to the success of Tronox in recent times has been the vertically integrated model by which it now operates. Since combining mineral sands operations with Exxaro in 2012, creating an integrated mine-toprocessing-to-pigment producer, Tronox has seen multiple benefits in terms of costs and operations. “Our operation in Western Australia represents the largest fully integrated titanium dioxide (Ti02) and mineral sands site in the world,” says Silverman. “Prior to Tronox taking full control last year in the EMS acquisition, it was a joint venture that we shared with Exxaro. Through this arrangement we built a strong relationship with our partner and gained a first-hand perspective of the strategic benefits of vertical integration. The desire to implement that model

and on a global scale was the driving force behind the acquisition in 2012. Exxaro is our largest shareholder and we maintain a great relationship.” Arran says that since the deal concluded time has been spent building relationships. “We’ve spent a lot of time embedding a one culture, one value system and that has been successful but it is always on-going.” The transaction entailed the combination of Exxaro’s mineral sands operations with the operations of Tronox under a new Australian holding company, New Tronox, in exchange for about 38.5% of the shares in the new company. The establishment of New Tronox would also see Exxaro disposing of its Namakwa Sands and KZN Sands mines and smelters, as well as its 50% stake in the Tiwest joint venture, in Australia. Arran says that not a great deal has changed since the deal closed and that focus has remained on strong performance in weaker markets. “We had a very good business model in place,” he says, “we have well trained and respected staff and we have retained all of those people. The challenge was to keep

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COMPANY REPORT the momentum after the deal when markets in places like China were coming off their highs.” The new Fairbreeze mine, which will be located near Mtunzini in KZN, was being planned long before the deal between Exxaro and Tronox came to the fore. In fact, Fairbreeze was being discussed as early as 1998 but was put off as a result of economic considerations. Activity almost commenced in 2008 but the global economic crash intervened and Fairbreeze was again put on hold. After recover in 2010, Exxaro decided the project was again feasible and activity began. “We have completed first phase civil construction work at Fairbreeze. We’ve done some work with piling and civils and we’re just waiting for the water use license. When that license is granted, that will trigger phase two of construction and the full scale construction,” says Arran. Obviously Tronox is keen to have Fairbreeze up and running as soon as possible but with KZN Sands coming to the end of its life this year and the new mine not active until the end of 2015 the company reiterates that there will be no slowdown in production. “We are often asked how we are going to feed the smelters if the new mine isn’t online until the end of 2015. The answer is we have a large stock pile of ilmenite at

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Namakawa Sands that we will use. We also have ilmenite from our mine in Australia so that’s not going to be a problem,” says Silverman. However, moving bulk quantities of minerals from one site to another presents logistical challenges but the people at Tronox have managed the situations without any problems as Arran explains: “This has been a new challenge for us and I must say, the team has done an excellent job bearing in mind you’re bringing between 20,000 and 40,000 tons at a time. That in itself provides a number of logistic and transport related challenges.”

RESPONSIBLE OPERATIONS Tronox has approximately 3500 employees across operations in many countries including South Africa, Australia, USA and the Netherlands. Naturally, with such a vast workforce, the company places a large emphasis on acting as a responsible corporate citizen. “We believe that a strong corporate sustainability platform and achieving excellent daily operating results are two sides of the same coin. We are investing in initiatives all over the world that make us more efficient while reducing our environmental footprint,” explains Silverman, citing as an example the recirculation of


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www.thompsonwelding.com carbon monoxide gas at KZN Sands, which Tronox projects will cut methane gas consumption at the site by 50%. “Essentially, if you want to remain competitive and have a license to operate for several years into the future, one of the best ways to do that is to become a force for positive change and a catalyst for good in the community. That is a strategy we are embarking on.” The Fairbreeze mine will be a driver of employment in the region and Tronox hope that this will drive economic growth throughout the area. “It will create jobs in an area where more employment is particularly needed,” says Silverman. “They are good jobs and it’s not just the direct mining, it’s the follow on. When people take a job there they spend money in the local community and it creates a wealth effect that is shared broadly.” Arran reiterates this point stating that unemployment in the area is a longstanding problem, sometimes reaching figures as high as 45%. “This can mean four out of ten people are unemployed and with the multiplier effect, which can be between eight and ten, meaning every job supports another eight to ten people, the 1000 direct jobs and 1000 indirect jobs that we create become extremely important. “The on-going sustainability of this project is

tremendously important for the local community,” says Arran. As for the Hillendale mine, Arran says that a number of people will stay on to assist with the rehabilitation which could go on until 2018 and then staff will move over to Fairbreeze. “The remaining employees will be reassigned and redeployed in the construction teams and then redeployed when the new mine is up and running. “At this stage, no one will lose their job. We are very keen to retain the expertise that we have built up over the last 13 years,” explains Arran. To ensure that the activities of the business remain transparent, Tronox is now reporting on its corporate social investment (CSI) and proudly displays results from its practices as Silverman explains: “We want all of our stakeholders – from our customers to our communities to our investors – to see the commitment we have made to sustainability. This is the first year we have come into compliance with GRI (Global Reporting Initiative) so there are a number of different issues on which we have reported. We are showing what we’ve done to combat greenhouse gas and waste, to conserve water and energy and to create economic value throughout our communities.” One of the major issues which has faced the mining

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COMPANY REPORT industry in South Africa in recent times has been the unrest and strikes arising from poor conditions and pay. This is something that Tronox has managed to avoid and new agreements with the relevant unions mean that the company can expect stability from its human resources. “Our team in South Africa has worked diligently to cultivate warm relations with the unions, and we recently renewed our labour agreements. We are vigilant of some of the issues arising elsewhere in the country while always trying to make sure relations are good,” says Silverman.

PRODUCTS Tronox is a global leader in the production and marketing of mineral sands, titanium dioxide pigment and electrolytic products. Using the vertically integrated model, the company produces materials for its own production. Right now, Tronox is long of titanium ore meaning that they are mining more than their pigment production requires. This is advantageous as the surplus can be sold on for profit. “We’re in the titanium dioxide business and we are the largest vertically integrated company in that industry,” explains Silverman. “What that means is, we sell titanium dioxide (Ti0₂) pigment around the world, that is the downstream business, but we also produce titanium ore which is the feedstock for titanium dioxide. “The bulk of the titanium ore that we sell” he explains “goes toward pigments but there are also other industries that we sell into. For the most part, we are selling to pigment producers and a lot of the time we sell to ourselves. “During the second quarter, our pigment business bought 100% of its titanium ore from our mineral sands business. We are long of ore by over 225,000 tons so that is an idea of how much we can theoretically sell on to third parties.” Of course, Tronox has more than one product and the sale of minerals such as Zircon results in a welcome contribution to business. “We produce nearly 200,000 metric tons of zircon in South Africa and also a lot of pig iron and both of these are saleable products. Zircon has had a nice little recovery in the last couple of quarters. That has been a nice tailwind for us as it’s really high-margin. “The zircon and pig iron is all being sold to third parties,” says Silverman. The company also has a strategic advantage thanks to the ability to produce and sell both titanium slag and synthetic rutile. Even the other top names in the industry do not currently deal in both markets. “This gives us real flexibility,” says Silverman. PAGE 6 SEP 13

The combined product streams allow for some protection from fluctuating markets. In the last year, the market for synthetic rutile has been slow so Tronox has used it internally and focussed on the sale of titanium slag where the market has been stronger.

THE FUTURE In the coming years, the aim for Tronox is further growth. With ambitious targets in place and healthy predictions for the titanium ore market, Silverman concludes that the company will be a leading producer in the industry. “One of our priorities is growth. We have set a target to double our profit by 2017 and we will go about that through a mix of organic growth, acquisitions and operational excellence. On the inorganic side, for example, we believe our long position in ore combined with our existing stock pile of ilmenite holds tremendous strategic value as the feedstock market is expected to remain tight over the medium and longer-term. With our own competitively priced source of feedstock, we think we can improve the economics of a potential pigmentproducing acquisition while increasing our scale.” Arran states that the company is looking at numerous other sites during its push for continued growth including areas around the Fairbreeze mine such as Port Durnford. He also suggests that the immediate focus is with Fairbreeze and getting that mine up and running. “We firmly believe that this is a long life mine that we have been so desirous of for a long time. We believe it has a life of at least 20 years so the focus will be to spend time understanding the geology. “Mineral sands mining is different to that of coal or other resources. With those you get an understanding of the geology fairly quickly with drilling etc. “Mineral sands can often be spread apart and the only opportunity you get to confirm what you think you know is when you mine it and reconcile your understanding of the reserves and the resources.” With the hot prospects of Fairbreeze now starting to become a reality, times are exciting for Tronox and it seems as though nothing will stop the growth of this industry leader.

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“One of our priorities is growth. We have set a target to double our profit by 2017 and we will go about that through a mix of organic growth, acquisitions and operational excellence”


Tronox Work being done at Hillendale as part of land rehabilitation to harvest sugar cane on top of what was formerly being mined. After Tronox mines an area, they work to restore the land to its natural form.

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