Tronox Ltd. Class A Aktie

Good morning, and welcome to the Tronox Holdings Second Quarter 2026 Earnings Call. [Operator Instructions]

I would now like to turn the call over to Jennifer Guenther, Chief Sustainability Officer, Head of Investor Relations and External Affairs. Jennifer, please go ahead.

Thank you, and welcome to our Second Quarter 2026 Conference Call and Webcast.

Turning to Slide 2. On our call today are John Romano, Chief Executive Officer; and John Srivisal, Senior Vice President, Chief Financial Officer. We will be using slides as we move through today's call. You can access the presentation on our website at investor.tronox.com.

Moving to Slide 3. A friendly 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 what we know today. 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. Additionally, please note that all financial comparisons made during the call are on a year-over-year basis unless otherwise noted.

It is now my pleasure to turn the call over to John Romano. John?

Thanks, Jennifer, and good morning, everyone. We'll begin this morning on Slide 4. In the second quarter, we continued to build on the commercial momentum we saw in the first quarter. TiO2 volumes came in at the high end of our guidance and at the highest level since Q2 of 2022. Zircon volumes exceeded our expectations and surpassed the strong levels achieved in Q1 as supply remained constrained across the industry. This performance reflects disciplined commercial execution, strong customer engagement and the value of our global footprint, which continues to allow us to reliably serve customers as supply dynamics shift across our markets.

We also continue to see meaningful structural benefits from antidumping measures. In addition, customer shifts in certain markets, including India, where customers are increasingly prioritizing reliable supply and long-term supplier relationships are driving strong volumes in the region. And as it relates to India, on August 3, the Indian Trade Defense Agency issued a recommendation that duties on Chinese made TiO2 be reinstated. The level of the duties recommended is unchanged from the original duties imposed in May of 2025. The recommendation now goes to the Minister of Finance, which has 90 days to approve. We believe this represents another important step towards reestablishing a more level and competitive environment.

Given the long lead times associated with global shipments, the impact is unlikely to be immediate. But over time, we would expect these measures to impact Chinese exports into India and further support the structural changes already underway in the market.

We also remain encouraged by the progress of the antidumping investigations in Australia and the United Kingdom, and we'll continue to evaluate additional appropriate actions such as anti-absorption in markets where duties have already been imposed to support fair competition. Additionally, broader supply dynamics continue to evolve. Capacity curtailments, logistics challenges and trade defense measures are impacting supply and trade flows across a number of regions.

On pricing, we previously announced increase took effect as planned during the second quarter, driving sequential pricing improvement of 5% for both TiO2 and zircon. The improvement in Q2 was driven primarily by higher base pricing rather than temporary surcharge mechanisms. We also announced additional pricing actions for both products that have gone into effect in the third quarter. While we continue to use targeted surcharges where appropriate, our focus has shifted towards more sustainable pricing actions that reflect the current market conditions, higher input costs, the value of our reliable supply. We will discuss our outlook in more detail later in the call, but the continued realization of these pricing actions remains an important driver of our expected margin improvement in the third quarter.

From a cost perspective, we continue to realize the benefits from our cost improvement program, which remains on track to deliver at the higher end of our $125 million to $175 million run rate target at the end of 2026. These efforts contributed to sales of lower cost inventory during the quarter and helped offset a number of headwinds. As expected, our second quarter cost profile reflected the impact of the planned outages. We successfully completed both the regulatory outage in Stallingborough and our extended SR kiln outage. These were significant planned events for the year, and I want to recognize our teams for executing both safely and efficiently.

Importantly, those outages are now behind us and position us for improved operating performance moving forward. While we see elevated costs stemming from the conflict in the Middle East and unfavorable foreign exchange movement, we delivered adjusted EBITDA within our expected range for the quarter. We also made strong progress on cash generation and working capital. Free cash flow was a positive in the second quarter, and we reduced inventory by approximately $120 million from the first quarter level, bringing inventory to its lowest level since June of 2024. We remain focused on strengthening liquidity, improving working capital efficiency and continuing to optimize our capital structure to enhance financial flexibility.

At the same time, we're making targeted operational decisions to support demand and product availability. This includes the restart of a furnace and advancing plans to bring production back online at our West Mine, both at Namakwa to support inventory levels, including zircon to meet demand as we continue to ramp up East OFS to full production.

While the situation in the Middle East remains dynamic, our approach remains focused on factors we can control and influence. We are actively evaluating market conditions, customer demand, supply chain impacts and input costs and taking targeted commercial and operational actions where appropriate. As conditions evolve, we'll remain disciplined and adaptable, focused on maintaining reliable supply to our customers while protecting earnings and cash flow. I'll speak to our expectations for the third quarter and the full year in more detail later in the call.

But for now, I'll turn the call over to John to review our financials from the second quarter in more detail. John?

Thank you, John. Turning to Slide 5. We generated revenue of $868 million, an increase of 19% versus the second quarter of 2025, driven by higher TiO2 and zircon volumes, partly offset by lower average selling prices of zircon, including mix. Loss from operations was $21 million. Net loss attributable to Tronox is $171 million, including a $103 million valuation allowance on certain state deferred tax assets in the U.S. Adjusted diluted earnings per share was a loss of $0.51. Adjusted EBITDA was $73 million, and our adjusted EBITDA margin was 8.4%. Capital expenditures were $45 million and free cash flow was a source of $60 million for the quarter.

Now let's move to the next slide for a review of our commercial performance. As John mentioned, TiO2 volumes came in at the high end of our range and zircon came in better than expected. Pricing for both TiO2 and zircon were in line with our expectations. Sequentially, TiO2 revenues increased 14%, driven by a 9% increase in volumes and a 5% increase in average selling prices, including mix. Volumes came in as expected, driven by stronger demand on the back of the structural shifts that John mentioned earlier. Zircon revenues increased 9% sequentially, driven by a 4% increase in volumes and a 5% increase in average selling prices, including mix. Volume remained strong following a solid first quarter, reflecting continued customer realignment in the capacity-constrained environment. Zircon pricing reflected increases that were announced in the first quarter and took effect in the second quarter as we referenced on our last earnings call. And revenue from other products decreased 7% compared to the prior year, which represented a 29% increase sequentially, driven by pig iron volumes.

Turning to the next slide. I will now review our operating performance for the quarter. Our adjusted EBITDA of $73 million represented a 22% decline year-on-year as a result of exchange rate headwinds, unfavorable pricing, including mix and higher production costs, freight and other expenses. This was partially offset by the increase in sales volume that I discussed on the previous slide. The year-over-year production cost increase of $10 million included the impact of the planned regulatory-driven outages as well as the continued effect of actions taken over the last year to enhance cash generation by slowing select mining operating rates. Partially offsetting these impacts were sales of lower-cost inventory and savings associated with our cost improvement program and plant closures.

Sequentially, adjusted EBITDA increased 18%. Favorable pricing, including mix and higher sales volume were partially offset by higher production costs, exchange rate headwinds and higher freight and other costs.

Turning to the next slide. We ended the quarter with total debt of $3.2 billion and net debt of $3 billion. Our weighted average interest rate in Q2 was approximately 6%, and we maintain swaps such that approximately 75% of our interest rates are fixed through 2028. Importantly, our next significant debt maturity is not until 2029. We do not have any financial covenants on our term loans or bonds. Liquidity as of June 30 was $527 million, including $194 million in cash and cash equivalents. Over the last year, we've demonstrated the numerous levers at our disposal to proactively manage our balance sheet and enhance our liquidity position.

Towards that end, in the second quarter, we replaced the expired short-term Emirates Revolver with a new $75 million long-term financing arrangement that provides us with greater financial flexibility. Working capital was a source of approximately $101 million in the second quarter, excluding $10 million of restructuring payments. This was driven by better-than-planned inventory reductions from targeted working capital initiatives, partially offset by higher AR and lower AP. Capital expenditures of $45 million in the quarter were primarily related to maintenance and safety, and we returned $8 million to shareholders in the form of dividends during the quarter.

And with that, I'll hand it back to John to review our capital allocation priorities. John?

Thank you, John. Turning to Slide 9. Our capital allocation priorities remain unchanged. We continue investing to maintain our assets, preserve our vertical integration advantage and advance projects that support our long-term strategy, including rare earths. As earning and cash generation recover, we'll resume debt paydown, targeting a long-term net leverage of less than 3x.

With that, I'd like to turn to our outlook and walk through some of the assumptions that will drive our performance in the third quarter. So turning to Slide 10. Following a strong first half of the year, we expect TiO2 volumes to be down moderately in the third quarter in the mid-single-digit percentage range, consistent with normal seasonal patterns. We expect zircon volumes to moderate slightly following a very strong first half, primarily due to inventory availability. On pricing for both TiO2 and zircon, the announced increases during the second quarter have taken effect and are positively impacting our margins in the third quarter. As a result, we expect TiO2 pricing to increase sequentially in the mid-single-digit percentage range and zircon pricing to increase in the mid- to high single-digit percentage range. It's worth noting that we are transitioning away from some of the temporary surcharge mechanisms and focusing more on base price improvements. We continue to utilize targeted surcharges where appropriate, now largely limited to sulfur-related costs in Brazil and Thann.

From an operational perspective, the planned and extended outage activity that impacted the second quarter is now behind us. In the third quarter, we anticipate improved performance driven by higher operating rates and the continued sale of lower cost inventory. These benefits are expected to be partially offset by an elevated sulfuric acid, diesel, utilities and other inputs such as tungsten, resulting from the ongoing volatility in the Middle East. We remain focused on recovering these higher costs through pricing and other commercial initiatives over time.

As a result, we expect third quarter adjusted EBITDA to be in the range of $95 million to $115 million and expect margins to improve sequentially in the third quarter. We expect free cash flow to be relatively neutral in the third quarter as it includes the semiannual interest payments. We made significant progress on pricing, inventory reduction and liquidity during the first half, ensuring a position of strength as we move into the second half.

Based on our outlook today, we continue to expect meaningful positive free cash flow for the full year 2026. Incorporated into our guide are the following assumptions on cash for the year. Net cash interest of approximately $190 million, net cash taxes of less than $10 million, capital expenditures of less than $260 million, and we expect working capital to be a source of cash well in excess of $100 million.

Turning to Slide 11. As we discussed throughout the call, the operating environment continues to evolve, particularly as the ongoing conflict in the Middle East impacts supply chains, trade flows and input costs. Against that backdrop, we've taken deliberate actions within our control to strengthen the business and position ourselves for the opportunities ahead. Commercially, we continue to execute on pricing, maintaining disciplined customer engagement and leverage the strength of our global footprint and reliable supply position. Trade defense remains an important component of that strategy. We continue to see the benefits of measures already in place and remain focused on supporting a fair and competitive market environment. We also continue to closely monitor global trade flows and support additional actions where appropriate.

Operationally, our focus remains on strengthening the advantage of our vertically integrated business model, improving our cost profile and enhancing operational efficiencies. We continue to evaluate production plans across our asset base to ensure we're balancing customer demand, inventory levels, cash generation and operating efficiency. As a result, we're beginning to see an improvement in a number of factors that weighed on earnings during the first half. Operating rates are improving, utilization levels are increasing and the impact of unfavorable absorption should continue to moderate as we move through the balance of the year.

That said, not every factor is within our control. Input and logistics costs remain elevated, broader inflationary pressures persist and economic conditions remain volatile. We cannot control the macro environment, but we can control how we run the business. The actions we've taken over the last several quarters have strengthened our cost structure, improved our financial flexibility and enhanced the long-term earnings potential of the business. As pricing actions continue to build, operating rates improve and the benefits of our vertically integrated business model become more pronounced, we believe Tronox is increasingly well positioned to capitalize on the structural changes taking place across our markets. Combined with the improving market conditions over time, those factors have the potential to drive a meaningful step change in earnings and free cash flow.

Turning to Slide 12. I'd like to touch on our rare earths initiative before we turn the call over to questions. We continue to advance our rare earth strategy while remaining prudent around capital. We're engaging broadly with stakeholders, including potential customers, strategic partners and funding sources to identify the most viable and responsible way forward for the project. The definitive feasibility study for the cracking and leaching facility in Australia to produce mixed rare earth carbonate or MREC is expected to conclude in the third quarter of 2027. The expected capacity of that facility is 10,000 tons per year on a total rare earth oxide basis with a start-up expected in late 2029, assuming we continue on the current trajectory.

Simultaneously, we continue to evaluate the potential to move further downstream through the build-out of a rare earth refinery to produce separated rare earth oxides from the MREC produced in Australia, and we are currently scoping possible sites, including our Hamilton, Mississippi site, which is highly advantaged for rare earth refining due to low-cost power and reagents used in solvent extraction. These ongoing discussions are instrumental in shaping our approach and ensuring that we pursue opportunities that align both with our strategic vision and our values. Our approach remains steadfast in its dedication to generating long-term shareholder value. We are carefully balancing strategic opportunities with prudent financial management. We believe that rare earths represents a compelling growth platform for Tronox, leveraging our vertical integration, our existing mining footprint and our expertise in hydrometallurgical and chemical operations to create new avenues for sustainable growth.

So that will conclude our prepared remarks. We'll now turn the call back over to the operator for Q&A. Operator?

[Operator Instructions] Your first question comes from the line of David Begleiter with Deutsche Bank.

John, just on your potential U.S. rare earth refinery, would you pursue without U.S. government pricing support? And do you still think you need a technology and/or financial partner for that potential refinery?

Yes. Thanks. So look, I guess 2 things. One, the first -- we're looking at this in phases. So the first phase is the MREC plant in Australia. Second phase would be to go to a separated oxide facility and possibly in Hamilton, Mississippi. So we're still looking at all possible avenues for financing. And from the MREC facility, we don't need a technology partner. But ultimately, for making mix or going to separated oxides, we're still exploring what that right avenue would be and if, in fact, we needed a strategic partner.

So we're still making progress. First phase of our approach, although simultaneously, we're looking at what we might do with a separated oxide facility in Hamilton, where our primary focus right now is getting that definitive feasibility study done for the MREC plant in Australia.

Very good. And just on India, are these reinstated tariffs potentially high enough to preclude all Chinese imports? Can you remind us what those imports have been in the last few years into India?

I wouldn't expect that all the exports are going to go away. I mean the reality is China is going to be a competitor of ours for a long period of time, and we have to be competitive with them and these trade measures are a bridge for us to continue to improve our cost profile and be able to compete fairly.

That being said, we do think that the duties that have been announced and were stayed and now there's been a motion by the Trade Defense Agency in India to reinstate those. Those numbers range from on the low end of $460 to the high end of $681, and we believe that those are going to be enough to help us manage that business in a better way. And when you think about our volumes in India, even though those duties have been stayed, our volumes are still growing in India. Even though the exports from China into India in the last month were higher, our volumes from Q2 to -- from Q1 to Q2 continue to increase.

Your next question comes from the line of Josh Spector with UBS.

I wanted to ask just on your comments around the surcharge to structural pricing kind of transition here. So how much pricing in 2Q would you say was from surcharges? And what's kind of left within the mix today?

Yes. So thanks for your question, Josh. So what's left in the mix today is a small portion that's largely tied to sulfur. And again, the majority of it is tied to sulfur. There's still a few that are lagging out there.

In the second quarter, I think we had some color on that in the first call was about 60% to 70% of the price that we increased in the first quarter was strictly pricing and the balance was surcharges. And so when you think about that transition into Q3, where we're still talking mid-single-digit price increases, we converted some of what was surcharges into longer-term pricing because that longer-term pricing is stickier than surcharges.

Okay. No, that makes sense. And if I could ask more broadly just about kind of the industry from here. I mean it's nice to see Western players starting to get more price. But I guess when we look around, some of the industry was tight because of Western outages from some of your competitors that are now ramping up supply. There's potentially more supply in Europe. China supply seems like it's just not going away from the export market for whatever reason. I guess if we don't have a good coating season next year, does this create a headwind that means that it's going to be harder to keep price and potentially get back price? Or if not, like why do you think that would trend the other way?

Yes. Look, it's a great question. And -- what I can say is that the market will recover, but I can't be specific on when it is going to recover. I think the important part is what we're seeing right now is all on the back of what you just described, which is a structural shift in the supply base. And when pricing was moving down over the course of the last several years, what you saw was customers weren't really buying much inventory because there was always an assumption that price might be lower in the next quarter or the next month. So as pricing starts to move up, what we saw is that customers started to rebuild some inventory. And very quickly, we got to the point where we talked a little bit about having constraints around what we can even take on the order pattern because we're selling everything that we're making now, we drew down inventory.

So what that says is that any kind of a flex on demand, whether it's structural or true demand drivers, the industry is having a tough time even with China, filling that on a short-term basis because there's -- you have to remember, even with the capacity coming back in Spain, the capacity coming back in Italy and the announcement that Lohmann is starting their facility in the U.K. in August, and they'll start to ramp that up. And to be clear, we don't know any more than what's been reported. There's still more than 1 million tons of capacity that's come offline net. And that's why I still think what's happening right now, not on the back of demand, there's more upside when the market does recover. And I don't -- I can't say there won't be any downside on pricing. But right now, we're in a comfortable place, and we think we're on the right trajectory with 2 quarters of price improvement under our belt in a market that has not been supported by demand improvement.

[Operator Instructions] Your next question comes from the line of Duffy Fischer with Goldman Sachs.

First question is just on the midpoint of your guide, you're up sequentially about $32 million in EBITDA. Could you do just kind of a quick bridge like you did on Slide 7, how much of that $32 million improvement comes from price? Obviously, volume probably is a little bit of a negative because you called that as down. And then how much is getting better on cost?

Yes. Thanks, Duffy. We don't want to give specific numbers there. Obviously, we've given a guide around what we expect high-level volumes and pricing to drive. But pricing is driving the majority of the improvement quarter-over-quarter. We are seeing declines. It's more seasonal related on TiO2 and zircon. But we're also seeing a benefit on the cost. If you recall, we did have a couple of significant outages in Q2 that will be added back to Q3 as well as better costs from our sustainable cost improvement program as well as shutdowns of our Botlek and Fuzhou facilities. So we are seeing that net-net be a slight benefit.

However, obviously, there's a lot going on with the war that we can't control. We're seeing costs escalate. We're going to try to cover as much as we can, but that potentially could be a headwind. And as you've already seen on the Q1 and Q2 year-over-year graphs, bridges that we provided. FX is a huge headwind year-over-year. So we're needing to overcome that. But again, the biggest item driving our earnings improvement is pricing.

And then just a clarification. The comment you guys were making around zircon where inventory is going to limit sales in Q3, is that because you've drawn down your inventory, so you don't have as much excess inventory to sell above production or that inventory at your customer level where they've kind of built back some inventory and maybe their demand pull isn't as strong?

No, that's our inventory and our ability to meet that. And it's really more towards the end of the quarter, so there could be some volume slipping out as far as rolling. But we have pulled back our inventory significantly with the last 3 quarters of high sales. So that's our inventory being lower. And again, it's not so much having it, but having it at the right time and making sure we get those shipments out. That's that's why we made that comment moderating slightly due to inventory.

And that's the reason why we are bringing the West Mine up because that will give us a significant amount of zircon inventory later in the year.

Your next question comes from the line of Jeff Zekauskas with JPMorgan.

I think Chinese imports into Europe year-to-date are up 25%. And there are obviously high tariffs in Europe. What do you make of the increase in Chinese imports if you see it the same way?

Yes, Jeff, look, again, we get the question on the Chinese imports a lot, and they were up. And when you think about a lot of those exports was a big increase in India. There was also a significant increase in chloride exports, which I'd say wasn't abnormal for the first -- for the last couple of months, but it's just noteworthy. And I think that's coming from the fact that sulfur prices have gone up so much that some of the chloride producers over there. And if you think about nameplate or actual production that we're forecasting out of China in 2026 is about just under 5 million tons and about just under 1 million of that is chloride. They're starting to export some of that material.

And China is not very strong right now. So we still sell in China. China is a weak market even though we don't have an asset there any longer. So there is an element of continuing to push exports out because the market in China is weak. And then you've also got the issue where we've got it on pretty good authority that there are a number of producers over there that are curtailing production, and they've got inventory, but they need to generate cash. So I can't be specific as to exactly why they're doing it, but exports are up. The big swing was in India, and I'll restate what I made earlier, even though their exports were up, there was some repositioning in India where some suppliers aren't supplying as much there. So our volumes from Q1 to Q2 went up in India as well.

And I think there could be also one last element of -- I made reference that the trade agency in India has now recommended the duties come back online. There was an assumption that, that could happen. Those duties won't be retroactive. So there could be some movement of inventory over into China. I mean, into India, knowing that those duties are going to come back. So they're building a bit of inventory over there. And that's why I made the comment that it could take some time before we see that benefit because there's going to be some inventory build in India from some of those Chinese exports.

I will say as well, we have seen chloride volumes go up pretty significantly. It's almost doubled in the EU but you have to keep in mind, as you know, the majority of the Chinese producers are sulfate. So you will be more capped on the exports in -- from China on chloride. Obviously, they're exporting chloride because sulfur price has gone up significantly. So it is more economical for them on a chloride basis.

And then maybe a financial question. Two parts, your gross profits are down year-over-year in the quarter and for the 6 months. Should we read that as whatever the price and volume increases have been, they've not been large enough to outstrip your cost inflation? Is that a fair appraisal?

And second, do you expect your inventories at the end of the year to be lower than they are today? And maybe if you can tell us how you've brought down your inventories.

Sure. No, good questions there. I would say on your first question, from a gross margin perspective, obviously, costs have been inflated significantly year-over-year, in particular, following the war, prices have skyrocketed in sulfur, which we do consume some of it as well as some other costs.

I think you need to keep in mind that we had 2 major outages in Q2. So all that cost with no production does go and expense in that quarter versus if you had some production above a certain level, you would spread it out. It would go to inventory. So I think that's part of what's missing. We have seen pricing increasing and provide more gap versus cost increases generally in the first half of the year.

Yes. And just maybe on those 2 outages, remember, the outage on the SR kiln was north of 50 days. And the Stallingborough outage was scheduled for 24 and it went to 29. So all of the costs that we had that could have been into a small amount of inventory based on Stallingborough, we absorbed all those in the month of June, and that's why we're going to have better costs going into the third quarter because we took that hit in the form of an idle facility charge in the third quarter in the month of June. I mean second quarter in the month of June.

On your second on inventory, obviously, you've seen Q2. We took a big change in our operating method to purposely slow down our production in order to unlock cash through inventory. So you saw $120 million roughly of cash being released from inventory. This was primarily finished goods, so primarily pigment and zircon, a lesser extent, feedstock. As you -- we look towards the rest of the year, as we've mentioned, we are ramping up our facilities running the pigment plants unconstrained. As John mentioned, we do have more orders than we've been able to fill. So we will ramp up those facilities, but we will be able to sell them, we believe.

And so we do still see inventory lowering in the second half of the year. It's just not going to be the extent of what we brought down in Q1 and Q2. If you want to finish the working capital side of it, we do see obviously more cash generating in Q3 and Q4 from AR. And just as we expect volumes to be down a bit. So we do expect to collect more in AR.

And in that range of EBITDA that we talked about in the third quarter, we're still expecting to draw more finished goods inventory down because we've got more sales than we're producing. But in the fourth quarter, again, you're going to see seasonal shift. And typically, we would build some inventory in the third -- in the fourth quarter, but that will largely be TiO2 inventory. We don't believe we'll build any zircon inventory.

Maybe if I can squeeze in a last one. Why should your free cash flow in the fourth quarter be much better than the other quarters? What's going on in the fourth quarter? What are the levers?

Yes. I mean the biggest driver is what I mentioned is working capital, primarily AR. So as you know, it's seasonally down. So you should collect from that. And secondly, if you look at, for example, our profile quarterly, we have 2 big interest payments in first quarter and second quarter, each $50 million. So you have to add that back to Q4. So that gives us confidence that we're going to generate a significant amount of free cash flow in Q4.

Your next question comes from the line of Hassan Ahmed with Alembic Global.

John, a question around cost curves. Obviously, sulfur availability remains an issue. Sulfuric acid prices have gone up a fair bit. And obviously, China is curbing the exports of sulfuric acid as well. So I mean, as you look at the cost curves, what percentage of the industry do you think is in the red right now? And part and parcel with that, I mean, historically, over the last couple of quarters, you guys would give an update on the rationalization side of things. So where do we stand on that front as well?

Thanks, Hassan. So look, it's really hard to get a super accurate read on exactly what's going on in China. But I'll give you anecdotally what we've heard recently is there are as many as 19 to 20 producers in China that are curtailing for the very reason that you just identified. Sulfur prices, I think on our last call, we were talking about pricing being up 300%. Sulfur prices are up 400% now. And on a sulfur basis, that's like a 1:1 -- sulfur goes up, you got to raise the price for TiO2 accordingly. We've also made that correlation to sulfuric acid. As it goes up $100, you have to raise the price $300.

So pricing has started to move. You've got this dynamic where we talked a little bit about China's increase in exports of chloride versus sulfate. Chloride becomes -- pricing for chloride TiO2 hasn't gone up as much as the costs have gone up for sulfur. So I guess short answer, I would say the majority of producers are now not able to pass through all the sulfur charges. Again, we're using surcharges for sulfur, both in Thann and Brazil, but there's a limit to what we can do to make sure we continue to maintain competitive activity, and we maintain our share.

So I would say the majority of them are and one of the reasons are losing money. But one of the reasons exports are still increasing. And again, it's hard for me to gauge that month-to-month. One is I think there is a belief understanding that duties are going to come back in India. So that's why you saw that channel get filled up a bit. But there were exports increased in a lot of other countries. And I think the Chinese are continuing to push volumes out because they need to generate cash. It's not so much for making money.

Fair enough. And one of the points that you raised, which I think is kind of interesting, now that there's more clarity around the antidumping measures in India in particular. I mean, obviously, I think there was some concern around elevated exports coming out of China. So do you really think that ahead of potentially these antidumping measures, the Chinese may have elevated their exports to India in particular? And could that be an opportunity for you, call it, post the 90-day period that you guys spoke about of garnering more market share out in India in particular?

I agree with that 100%. And one of the reasons they're doing it is because although they have said they're going to reinstate the duties, there isn't going to be any retroactive duty on that. So customers are, I would say, the issue is there's not a lot of opportunity for them to store material over in India based on -- there's not -- those Chinese companies don't have a lot of wholly owned subsidiaries over there. So I do think there is a bit of customers buying more of the Chinese on the assumption that those duties are going to go away. And I would agree with both your timing and the definition of how you describe what the Chinese are doing at this particular stage on the assumption that those duties are coming back.

Your next question comes from the line of John Roberts with Mizuho.

You mentioned LB planning to ramp in the U.K. here. Is your understanding that, that will only be finishing? Or do you think they're attempting to refire the furnaces? And do you expect that product to make its way to the EU as well?

So I can only tell you what I've read, which is public, is that they're talking about starting up one chlorinator. So when you think about that facility, they've got multiple chlorinators. One of them apparently is in a position where they're going to restart it. They've got one oxidation line. So they're going to be running that asset. They've talked about recommissioning and starting in August. So we'll have to wait and see what that is. It's at a very low rate of production run. They've only got one oxidation line. So you're going to be putting very little titanium tetrachloride to that oxidation line. It doesn't feel to me like it's going to run super efficiently.

The question -- and that's if, in fact, they do. So I don't have any more information that's public -- than what's public right now. And as we get more information and can share, we will.

With regards to if they produce it in the U.K., they could sell it into Europe. I can't tell you if they're going to be bringing raw pigment in and trying to finish it there. That wouldn't be an alignment with the trade barriers that are put in place. But I'm not going to speculate on what they're doing, and we'll continue to evaluate that as we monitor trade flows. And to the extent we can provide an update before they update you, we will.

And just a reminder, that facility was high cost, which is obviously why it got shut down. And obviously, running that without all the lines up would imply that the cost would be even higher.

You go back to the points we made when we were -- back when we were slowing our production down. One thing that we found is that one oxidation line facility is running below 70% capacity don't run very well.

Got it. And then on rare earths, what would be the gross capital requirements for Phase 1 and then Phase 2?

So look, at this particular stage, we haven't provided a lot of color on exactly how much capital. We are looking at the definitive feasibility study on what that acid leaching and cracking facility will look like. That will be done, like I mentioned on the prepared comments in the third quarter of 2027. And although we've got some ideas, a lot of that is going to depend on the feed rate, who we're working with because, again, it's just a little bit too early to be giving you actual capital numbers. The fact of the matter is it's public that both EFA and EXIM Bank have given us a nonbinding indication of about $600 million, but we're looking at lots of funding sources at this stage.

Your next question comes from the line of Frank Mitsch with Fermium Research.

I want to come back to India. Obviously, you mentioned how the Trade Defense Agency has recommended putting the duties back on, but the Ministry of Finance has 90 days to act on that. What are your government affairs people saying about the history of the Ministry of Finance accepting these recommendations? I mean is it a rubber stamp? Do they go along with it 50% of the time? I mean any color here because this is really the first time that we're dealing with the situation. So any help there in terms of the probabilities of this being accepted by the Ministry of Finance would be very helpful.

Great question, Frank. And look, it is considering these went into effect in May, and here we are in August of 2026, and we're still kind of working through what those ultimate duties are going to be. They do have 90 days to approve it. I would expect that there's going to be some complaints from the Indian trade -- the Indian Paint Association on that. I do think that, that recommendation is, in fact, I won't call it a rubber stamp, but they've got 90 days to approve that, and there'll be some back and forth around what that is. But I think at this particular stage, we feel pretty confident, and we're very engaged in India. I'll be there in 2 months, not to meet with them, but we -- I mean, 2 weeks.

So we're spending a lot of time over there. It is a very important market for us. Our margins and our volumes have continued to grow in that area, and we have a very vested interest in trying to make sure that there's fair trade over there because it's a significant market for us. So it's hard for me to give you a definitive answer, but I'll say I'm a bit more confident that this decision was made and there's a 90-day window, and hopefully, that answer will come sooner than that.

Well, you mentioned that the Indian Paint Association will lobby the Ministry of Finance to try not to have these duties put on. But I would assume that they have been lobbying pretty hard the Indian Trade Defense Agency. Has that not been the case?

It has. So again, it's not say they won't continue to do it. I guess you -- the reason I said that is I don't have a real clear definitive answer on exactly when it's going to happen. There's 90 days there, and I'm sure they're going to continue to lobby. But they -- to your point, they did lobby against it and the trade authorities agreed that they were going to reinstate them. And that's just a 90-day period that they've got to continue to evaluate it. So it's a bit opaque to use the TiO2 word, but hopefully, will be done prior to 90 days.

Okay. So I mean, so the way that realistically, if it gets implemented, et cetera, the Chinese are going to be building inventory for the next couple of months over there. It will take time for the Indian paint companies to work through that inventory. So we're really talking about a benefit in 2027 realistically potentially.

For -- I would say maybe for additional volume, that's true. It depends on how much they do between now -- they export between now and the end of the quarter. The numbers that they exported in the month of June were really high. So that's why I'm kind of leaning towards this idea that they're building some inventory on there on the assumption that they're going to go down.

But I'll make the point, our volumes in Q1 were higher than they were in Q4. Our volumes in Q2 are higher than they were in Q1. So we're continuing to align with customers over there that are looking for strategic partners knowing that some of these things are going to happen. So our volumes have not gone down. Our volumes Q1 to Q2 have actually increased in India, and we don't expect that we're going to lose share over there right now.

Your next question comes from the line of John McNulty with BMO Capital Markets.

And maybe somewhat tied to your last answer. I think, John, earlier, I guess, at the beginning of the presentation, you spoke to how there were customers that were looking for stability around long-term supply and you were looking to capitalize on that. I guess, can you speak to the levers you can pull to kind of lock in some of that longer-term volume so it doesn't just become temporary and kind of tied to sulfur pricing and what's going on in the street right now?

Yes. I was speaking more specifically to India on that one. So again, not knowing what China is going to do, and I think this all comes back down to the antidumping duties, we believe, and I think some of our customers believe, ultimately, they're going to be put in place. We see customers shifting towards longer-term commitments, and that's helped us secure volume for longer periods of time where typically we'd be negotiating quarterly. We're getting agreements for longer periods of time because they value us as a supplier, having reliable supply and knowing that we're going to be predictable long term and not in and out of the market.

I think the fact of the matter is China moves in and out of the market. We've been in that market. It's the second largest market that we sell into globally -- second largest country we sell into globally. It's strategic for us. And I think you could say that for lots of regions that are impacted by duties. I mean the fact of the matter is there's duties in Brazil, there's duties in Saudi Arabia, there's duties in Europe. We believe duties in India are going to come back. We're actively working on duties in Australia. We're actively working on duties in the U.K.

The only other place that TiO2 is produced is Canada and Mexico. So you've got a lot of free trade efforts in place. And I can't tell you where things are in Canada and in Mexico at this stage because they don't produce there.

Got it. Okay. No, that's fair. Makes sense. And then I guess the only other question I had was you mentioned early on a lot of antidumping measures have been taken and the next step in your mind is some anti or at least potential anti-absorption steps. I guess, can you help us to think about how that process starts and where we might -- where you might be able to take that or the industry in various regions might be able to take that over time?

What I can tell you now is that we're looking at that in areas where duties have already been implemented. I can't get into specifics, but anti-absorption basically means companies that continue to absorb the duties and don't move the price accordingly. So we're actively involved and looking at those in areas where duties are already in place. And at this particular stage, I can't provide you any more color on what we're doing. But let's just say that there's a significant body of work that's going on around maintaining and optimizing fair trade.

Your next question comes from the line of Ed Brucker with Barclays.

My first question, it seems like volumes were pretty strong to start the year. Would you attribute any of that to some prebuying maybe ahead of potential price increases either customers were expecting or even uncertainty within the market? And do you think that could potentially lead to destocking in the year?

That's a great question. I do believe as pricing starts to move up in any cycle, whether that's driven by structural supply shifts or demand as pricing starts to move up -- when pricing is moving down, people draw inventories down. As it starts to move up, there's an assumption that it's going to continue to move up, so people do start buying. So there was a little bit of that in the first quarter.

What's going to prevent that from happening in the second and third quarter is that I won't speak for the entire industry, but our inventory very quickly got depleted. As we mentioned, we drew down north of $100 million of inventory from Q1 to Q2. I would believe our competitors are in a similar position. So there's not a lot of opportunity for a lot of inventory to be built. And I'll go back to the industry doesn't have the same capability to flex production because there's 1 million less tons of production out there to respond to that demand. So I can't say that it won't happen. I'd say there's limited capability for a lot of prebuying going on in the markets that we serve other than what I talked about in India and some of the markets where antidumping may be coming back.

Got it. And my next one, I noticed on the slide deck that you expect current CapEx levels to be around -- or excuse me, the next couple of years CapEx levels to be around 2026 levels. How should we view that in the context of any sort of growth CapEx? Or are we staying close to maintenance? And would you view that as kind of an underinvestment over time over the next couple of years?

Yes. We're less than $260 million is our guide for this year. And historically, we've been operating at much higher levels just due to a lot of the mining investments that we've done. But as we've mentioned previously, those are mostly behind us. So expect to be at these levels in the next 5 to 8 years.

I'll say within that bucket, we do still have some discretionary and growth capital in there. Maintenance and safety is usually around $150 million to $175 million, roughly up and down here and there throughout the years. So we do have a significant amount that we would describe as discretionary. It does exclude, however, anything related to the rare earth project at this point in time other than some normal expenses that we're incurring for the DFS and just setting up that business.

Your next question comes from the line of Peter Osterland with Truist.

So first, just wanted to follow up on the earlier point on how you've been managing operating rates across your TiO2 footprint. Could you approximate how much your average utilization rates changed as of midyear versus where you were at the end of last year? And where are you planning to go in the second half?

So we have actually -- obviously, in the first half of the year, we did bring down our operating rates just to unlock more inventory. But as we've seen a big pickup in our sales volumes, we are not constraining any of our assets. The only one that we have more potential would be in Yanbu, where we have one line that is -- has a potential to go online later this year.

Actually, we're in the process of rebuilding that line. It's a line that's been down. So remember, that facility has 5 oxidation -- 6 oxidation lines, 6 chlorination lines. So to the extent we need to bring that back up, it will be ready to be brought back up. But at this particular stage, we're running unconstrained at our TiO2 facilities other than that.

Very helpful. And then just as a follow-up, looking into the fourth quarter, I understand there's some negative seasonality around TiO2 volumes there. But just given the dynamics around costs and pricing that you described, would you expect your margins in the fourth quarter to be your highest for the year and potentially even meaningfully step up from third quarter?

And we -- obviously, we haven't guided for Q4, but obviously, the pricing momentum that we've had will create some tailwinds for us.

Your next question comes from the line of Aaron Rosenthal with JPMorgan.

Just circling back to the decision to re-ramp the assets. I guess what gives you confidence in there being incremental market demand for zircon in 2027? Is it a specific call on, let's say, China housing recovery? Or are you seeing any indications of the competitors that are maybe idle today not having an ability to re-ramp as well? Just trying to think about balancing the earnings uplift potential against the potential liquidity needs on the working capital front.

Yes, great question. I'll just make the comment that we need that for the inventory. I mean, right now, we will be selling more than we're producing in 2026 and drawing down that inventory. So starting that lineup is going to allow us to continue running at the rates that we need to run at to meet customer demand. So I don't expect at this stage, based on what we know, there's going to be a significant change in our demand for that product.

Specifically, there's a lot of things going on. I mean, when you think about -- there have been some capacity constraints out there, which I think from the individual producers you know. In Indonesia, largely, there's a lot of that production that's not there that's not being produced at this particular time. That's about 65,000 to 70,000 tons per year.

And then I think more importantly, in China, there's a lot of heavy mineral concentrate that gets converted to natural rutile, monazite and zircon. And at this particular stage, it's not very economic for them to convert that for 2 reasons. One, there's not a home for the ilmenite because volumes in China are down and there's no home for the ilmenite. And the zircon that they're producing is not a premium grade there. And in China, the ceramics industry is not doing well. Where you're getting the big pull from a demand perspective, and we -- I think we didn't talk about this on the last call, but China is improving a little bit, but it's more driven towards investment casting, zirconium chemicals, fused zirconia and refractory applications, not ceramics.

And the majority of our sales in China, Tronox is actually migrate to those other products. Only 16% of our sales in China go to ceramics. And globally, that's only 8%. So I hope that answers the question maybe a bit longer than you wanted, but this is to meet current demand, bringing on the West Mine and it's also why we're ramping us up East OFS to full capacity, and we would expect that, that will help us support sales into the end of the year and into 2027.

That's great. More detail, I think, is always very much appreciated. And then maybe one more on India. I know there's been a lot of Q&A already. I may have missed this, but does your second half volume metric guidance explicitly take into account incremental exports from China flowing into India ahead of the ADDs potentially going into place? Or is there some room for the outlook to evolve based on how actual trade flows may play out?

I'm not. Could you repeat it one more time, just to make sure I get the answer right.

Yes. So once again, I guess with respect to your second half volumetric guidance on TiO2, wondering if it takes new accounts and sort of market share considerations with respect to more Chinese products flowing into India ahead of ADDs potentially going back into place? If not, maybe how the outlook could evolve based on how actual trade flows play out?

It definitely is factored into our third quarter guide. When I think about the fourth quarter guide, which is a bit early to kind of get a good read on our order book, we have a 90-day kind of window on our order book, but I would expect that we'll see similar volumes. And as I mentioned, we're not losing share to China right now. The volumes that we're selling into India, it's not to say there won't be any seasonal adjustments there. But I would -- short answer to your question, it is taking it into account, but I can't predict what they're going to do month-to-month.

That concludes our question-and-answer session. Ladies and gentlemen, this will conclude today's call. Thank you all for joining. You may now disconnect.

Good morning, and welcome to the Tronox Holdings First Quarter 2026 Earnings Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Jennifer Guenther, Chief Sustainability Officer, Head of Investor Relations and External Affairs. Thank you. Please go ahead.

Thank you, and welcome to our first quarter 2026 conference call and webcast. Turning to Slide 2. On our call today are John Romano, Chief Executive Officer; and John Srivisal, Senior Vice President and Chief Financial Officer. We will be using slides as we move through today's call. You can access the presentation on our website at investor.tronox.com.

Moving to Slide 3. A friendly 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 what we know today. 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. Additionally, please note that all financial comparisons made during the call are on a year-over-year basis unless otherwise noted.

It is now my pleasure to turn the call over to John Romano. John?

Thanks, Jennifer, and good morning, everyone. We'll begin this morning on Slide 4.

But before turning to our first quarter highlights, I want to address the situation in the Middle East. First and foremost, we offer our thoughts to those affected. Since the conflict began, the safety of our employees has been our top priority. With respect to our operations in Saudi Arabia, our teams continue to operate safely and responsibly throughout the quarter, and I want to recognize their focus and professionalism during this challenging period.

While the situation remains fluid, we're seeing significant impacts across the chemical sector and specifically the TiO2 industry. While various costs such as natural gas, diesel, freight and insurance are rising, one of the most meaningful cost increases has been sulfur and sulfuric acid. I mentioned on our Q4 earnings call that sulfur prices in China had increased approximately 160% since the end of 2024 due to supply tightening and demand increases. Now that figure is almost 300% as the conflict has exacerbated impacts to the industry.

This is having significant impacts on TiO2 producers that produce sulfate TiO2 predominantly in China, where approximately 80% of the production capacity is sulfate technology. This challenge is not only increasing costs, but also availability, which we believe will have a negative impact on Chinese producers' ability to produce and ship TiO2, the extent of which will depend on how long the conflict lasts. While many TiO2 producers are challenged by various aspects of the recent conflict with our broad geographic footprint and more than 90% of our capacity being chloride technology, Tronox is well positioned to reliably supply our customers despite the challenging geopolitical backdrop. We'll review this in more detail throughout the call.

Turning to the quarter. We delivered a strong and better-than-expected top line performance and achieved EBITDA above the midpoint of our guidance. Volumes exceeded our expectations across both TiO2 and zircon with TiO2 reaching its highest Q1 level since 2022 and zircon delivering its strongest performance since Q4 of 2021. This is the result of disciplined commercial execution, enhanced customer engagement and the strategic positioning of our products in key markets supported by our global presence.

We continue to see meaningful structural benefits from antidumping measures in protected markets, particularly in Europe, Brazil and Saudi Arabia. With the announcement of antidumping investigations against Chinese TiO2 in the U.K. and Australia, we hope to build on the gains we are seeing in countries that have already acted to strengthen their domestic producers. These measures are having a significant impact on trade flows and positive volume trends for Tronox. Combined with our global footprint and reliable supply, this allowed us not only to serve our customers effectively, but also capture the upside as the supply dynamic shifted.

While Asia Pacific volumes were impacted by the temporary stay on duties in India, performance in the region was more resilient than we expected, reflecting the value customers place on Tronox as a key supplier to the region. On pricing, we saw a clear inflection during the first quarter. TiO2 price actions took effect as planned, and we announced additional pricing actions and targeted surcharges that are beginning to roll through in the second quarter.

Zircon pricing was stable in Q1, and the announced price increases for Q2 are being implemented as communicated on our last earnings call. Planed and unplanned production curtailments in the industry have led to tighter supply dynamics, supporting price momentum, which we expect will continue throughout the year. From a cost perspective, we continue to see the benefits from actions underway, including our cost improvement program, which remains on track to deliver $125 million to $175 million of run rate savings at the end of 2026.

These benefits helped to offset a portion of the headwinds we faced during the quarter, including higher sales volumes pulling forward sales of higher cost inventory. That was the direct result of deliberate actions we took late last year to preserve cash and manage inventory, some of which continued into this year, including lowering operating rates and idling 2 mines in one of our furnaces in South Africa.

In Q1, we ramped up operating rates at our pigment plants to meet the increased demand for our products, which we will touch on a bit later in the call. In addition, we saw higher cost inflation late in the quarter as the conflict in the Middle East impacted raw material prices. Our commercial team has implemented increases through surcharges, though there will be a lag between when these take effect versus the more immediate impact to our operations. We will continue to assess cost headwinds and take the necessary targeted actions as needed to avoid margin erosion.

We continue to prioritize free cash flow and working capital efficiency, reducing inventory by approximately $75 million in the quarter. Due to our strong commercial performance, we upsized our AR securitization facility by $25 million in the quarter and added an additional $20 million earlier this week. We expect free cash flow to improve in the second quarter, largely offsetting the seasonal cash used in Q1, and we expect to deliver meaningful positive cash flow for the full year 2026.

I'll speak to our expectations for the second quarter and the full year in more detail in the call. But for now, I'm going to turn the call over to John to review our financials for the first quarter in more detail. John?

Thank you, John. Turning to Slide 5. We generated revenue of $760 million, an increase of 3% versus the first quarter of 2025, driven by higher TiO2 and zircon volumes. Loss from operations was $41 million. Net loss attributable to Tronox is $103 million. These results include $15 million of restructuring and other charges, net of taxes, primarily related to the closures of Botlek and Fuzhou.

Adjusted diluted earnings per share was a loss of $0.55. Adjusted EBITDA was $62 million, and our adjusted EBITDA margin was 8.2%. As is typical for the first quarter, free cash flow was a use of $135 million. Capital expenditures were $67 million.

Now let's move to the next slide for a review of our commercial performance. As John mentioned, volumes were stronger than anticipated across both TiO2 and zircon and pricing increased in line with our expectations. Sequentially, TiO2 revenues increased 7%, driven by a 4% increase in volumes and a 3% increase in average selling prices, including mix. Volumes exceeded our expectations, driven by stronger demand on the back of the structural shifts that John mentioned earlier.

Zircon revenues increased 14% sequentially, driven by higher volumes predominantly driven by customers realigning suppliers in a capacity-constrained environment. Zircon pricing remained stable during the quarter, in line with expectations and price increases were announced in the first quarter that will take effect in the second quarter as we referenced on our last earnings call. Revenue from other products decreased 27% sequentially and 35% compared to the prior year, mainly driven by timing of pig iron bonds, which we will recover in Q2.

Turning to the next slide, I will now review our operating performance for the quarter. Our adjusted EBITDA of $62 million represented a 45% decline year-on-year as a result of unfavorable pricing, including mix, exchange rate headwinds, higher production costs and higher freight costs. This was partially offset by the increase in sales volumes and SG&A savings. Year-over-year production costs increased $7 million, driven by deliberate actions taken over the last year to improve cash generation, along with a higher mix of higher cost tons released from inventory as sales volumes increased.

Sequentially, adjusted EBITDA increased 9%. Favorable pricing, including mix, higher sales volume and improved production costs were partially offset by exchange rate headwinds, higher freight and SG&A costs.

Turning to the next slide. We ended the quarter with total debt of $3.3 billion and net debt of $3.2 billion. Our weighted average interest rate in Q1 was 5.95%, and we maintained swaps such that approximately 74% of our interest rates are fixed through 2028. Importantly, our next significant debt maturity is not until 2029. We do not have any financial covenants on our term loans or bonds. We do have one spring financial covenant on our U.S. revolver that we do not expect to trigger.

Liquidity as of March 31 was $406 million, including $126 million in cash and cash equivalents. This amount excludes the GBP 50 million Emirates Revolver, which is undrawn and not expected to be renewed following its expiration in June. We also repaid our $40 million Saudi EXIM facility in the first quarter. We have been in discussions with Saudi EXIM and are confident in getting a renewal. It just has taken a bit more time given the conflict in the Middle East. This amount has not yet been included in our liquidity figures.

Additionally, as we have said in the past, we will continue to be proactive with our capital structure. And towards that end, as John mentioned, we upsized our AR securitization facility by $25 million in the first quarter by an additional $20 million earlier this week.

Working capital was a use of approximately $59 million in the first quarter, excluding $19 million of restructuring payments related to the closures of Botlek and Fuzhou. First quarter working capital was better than expected, driven by stronger-than-anticipated sales lines and better-than-planned inventory reductions from targeted working capital initiatives. Capital expenditures of the $67 million in the quarter were primarily related to maintenance and safety, and we returned $8 million to shareholders in the form of dividends during the quarter.

And with that, I'll hand it back to John to review our capital allocation priorities. John?

Thank you, John. Turning to Slide 9. Our capital allocation priorities remain unchanged and focused on cash generation. We continue investing to maintain our assets, our vertical integration and projects critical to furthering our strategy, including rare earths. As the market recovers, we'll resume debt paydown, targeting long-term net leverage of less than 3x. We'll do that the same way we navigated this downturn, by staying focused on what we can control and influence, reinforcing the business through cost reduction and cash improvement actions.

While prioritizing cash has meant a near-term trade-off to EBITDA, these actions strengthen the foundation of the company. With that, I'd like to turn to 2026 guidance and walk through some of the assumptions that will drive our performance for the year. So turning to Slide 10.

For the second quarter of 2026, we expect TiO2 volumes to increase sequentially in the high single-digit range. The volume momentum we're seeing is primarily driven by the structural shift in supply dynamics in addition to seasonal demand improvement. This is supported by our ability to reliably serve customers across our global operational footprint. On pricing for TiO2, we saw an improvement in the first quarter, and we expect that momentum to build through the second quarter. We're now gaining significant traction on announced increases in every region. We expect TiO2 pricing to increase in the mid-single-digit range in the second quarter compared to the first quarter, and we will continue to evaluate additional price actions and targeted surcharges depending upon the supply-demand dynamics and the evolving situation in the Middle East.

We expect zircon volumes levels to moderate slightly due to inventory availability following a very strong first quarter. On zircon pricing, our previously announced increases have been implemented in the second quarter. And as John mentioned earlier, the zircon market has seen increasing capacity constraints, which we do not expect to abate in the near term. As a result, we expect the pricing momentum to carry through into the third quarter.

From an operational standpoint, as planned, our west mine and 1 furnace in Namakwa as well as our Wonnerup in Australia remained idled. We also had 2 meaningful planned outages in the second quarter, one on the pigment side and one on the feedstock side to conduct statutorily required and routine maintenance. These actions will carry a near-term cost impact to EBITDA. This will be partially offset as we start selling through lower cost tons in Q2 that were produced in Q1. The net effect of these changes will be a $10 million to $15 million cost headwind in Q2 versus Q1. As a result, we expect second quarter adjusted EBITDA to be in the range of $65 million to $85 million.

We expect free cash flow to be positive in the second quarter, clawing back a large majority of the cash used from the first quarter. With our pricing momentum, combined with our inventory reductions and continued operating discipline, we are well positioned as we move into the second half of the year. Based on what we know today, we are confident that we will generate meaningful positive free cash flow for the full year 2026.

Incorporated into our positive cash flow guide for the year are the following assumptions on cash. Net cash interest of approximately $190 million, net cash taxes of less than $10 million, capital expenditures of approximately $260 million, and we expect working capital to be a source of cash well in excess of $100 million.

Turning to Slide 11. From a broader perspective, we're operating in a volatile environment. In that context, our focus remains firmly on the things we can control and influence. Over the last several quarters, we've taken deliberate steps to strengthen the business, improving our cost structure, optimizing mix and reinforcing pricing discipline while maintaining flexibility in how we run our operations. These actions are already positively impacting volumes and pricing even as external conditions remain dynamic. Global supply chains have been affected by the conflict in the Middle East, resulting in shortages across certain regions.

As a result, customers are turning to dependable suppliers contributing to the growth in our order book. At the same time, overall supply remains tighter, though uneven across regions and products, which reinforces the need to continually assess how the supply picture develops.

Trade defense remains an important part of the equation. Antidumping measures are in place across several key markets. And as I noted earlier, trade defense agencies in the U.K. and Australia have also opened investigations on Chinese dumping, including the possibility of provisional duties. We are also taking definitive actions on pricing. As I mentioned earlier, we are implementing price increases in all regions in addition to select surcharges in markets impacted by cost escalation from the conflict in the Middle East. Against that backdrop, we are managing inventory while maintaining flexibility.

While we are not bringing all idle mining assets back online, we are evaluating selective ramp-ups where it makes sense, particularly for products where inventory levels are low, such as zircon. Our disciplined and adaptable approach positions Tronox to manage through the current environment and capture meaningful step-up in earnings momentum.

Turning to the next slide, I'll provide a brief update on the rare earth initiatives we have. During the quarter, we continue to make significant advancements in our rare earth strategy. Our primary objective remains to move further downstream into the production of separated rare earth oxides, all while maintaining a disciplined approach to capital management. Meaningful progress has been achieved in advancing towards our definitive feasibility study, and we are actively evaluating various development pathways.

These pathways are being considered with a clear focus on prioritizing returns and limiting any incremental leverage on our balance sheet. At the same time, we're engaging broadly with stakeholders, including potential customers, strategic partners and funding sources to identify the most viable and responsible way forward for the project. These ongoing discussions are instrumental in shaping our approach and ensuring that we pursue opportunities that align with both our strategic vision and our values.

Earlier in the week, the Australian government awarded us federal major project status, which was posted on the Australian government site this morning, and this was a significant acknowledgment of the viability of our project. Our approach remains steadfast in its dedication to generating long-term shareholder value. We are carefully balancing strategic opportunities with prudent financial management. We believe that the rare earths represents a compelling growth platform for Tronox, leveraging our existing mining footprint and our expertise in hydrometallurgical and chemical operations to create new avenues for sustainable growth.

So that concludes our prepared remarks. We'll now move to the Q&A portion of the call. So I'll hand the call back over to the operator to facilitate. Operator?

[Operator Instructions] Our first question comes from David Begleiter from Deutsche Bank.

John, on your Q2 EBITDA guidance, even taking into account the cost headwinds you laid out there, how is the low end of that guidance range play out for you? What would you need to see to get there sitting here today?

Well, maybe I'll speak more towards how I get to the high end of the range as opposed to the low end of the range. A lot of that's going to depend on volume. So we've got that -- I made the reference that our order books -- maybe I'll just back up. When we entered the year, if you think about supply-demand globally, there was a deficit with all the capacity that had been pulled out. So when I say that deficit, there was less supply than there was demand.

So we were already expecting, as I mentioned in the last call, that we were starting to see volume improvements. We had a 9% increase in volume in the fourth quarter, 5% increase -- improvement in the second quarter -- I mean in the first quarter, and I've just given you an idea of what our volume increase looks like for the third quarter -- I mean, the second quarter. That number that I referenced, high single digit, could be in the teens if we have the inventory to actually fill those orders.

We preposition inventory globally to make sure we can meet our customers' demand, and we've done a very good job. Our commercial team has done an excellent job of doing that. There has been -- with the conflict in the Middle East, a little bit of delays in shipping. That's not the bigger issue. The bigger issue is that we depleted a lot of our inventory, and we've got more orders on our order book than we can fill. So to the extent we can fill those orders, we'll be closer to the top end of that range.

There's other elements that will kind of fill into that range that we provided on EBITDA. I mentioned we had 2 major outages, one on the pigment side and one on the mining side of the business. Both of those -- one of those is a statutorily required maintenance project that is done every 10 years. To the extent we come out of that outage on track or earlier, that could have a positive impact on the EBITDA and the same thing with the SR kiln, which is on the mining side. So we have a reline of our SR kiln. That happens about every 4 years.

Again, those were planned. Those weren't unplanned outages. The SR kiln is about halfway through the process. We're making good progress. And we have a very good plan for our outage at our pigment plant to work through that as well. So lots of puts and takes on where we are on that guide. Hopefully, that answers your question.

Obviously, as you know, this is a very volatile market. And so raw material costs have escalated significantly and are very volatile in the quarter. So while generally our guide range is informed more heavily by our commercial side of it, as John mentioned, we do see some volatility on the raw material side. And as you know, we are implementing surcharges as well. So we expect over the fullness of time to recover that and be margin neutral around it, but there is some delay, particularly in Q2.

And specifically, that delay. So again, when we think about when the conflict started, we got more cost improvement or increases and we had inventory that we had to work through with our customers. So not all of our inventory was impacted by that conflict immediately. But when we made reference on the prepared comments that the surcharges that we're implementing, which are largely driven by sulfur, so the biggest surcharge that we're actually implementing is for our Bahia facility that went into effect May 1. So that's kind of the delay. We had all of April where we didn't actually get the benefit of that. And then in May and June, we will get the benefit of that surcharge.

No, very helpful. And John, just on European capacity situation with Lomon buying Greatham and announcing a restart of production. Why do you think these former Venator assets are largely still running or up and running in this weakened demand environment?

Yes. Great question. Thanks. So Scarlino and Palva, I think those assets will come back up. It will take time to do that. It's hard to say if we were starting a brand-new or starting a plant that had been down for a period of time. Those are 2 separate buyers. I do believe one of them was a previous sulfuric acid producer. So there was kind of a strategic reason why they brought that plant back up. Both of those plants were a nameplate capacity of 80,000 tons. So 80,000 tons, that's 160,000. On the announced closure, I guess, with Lomon buying the facility at Greatham, I believe that's going to take longer.

The reality is that plant has been down since September. They made an announcement that they had hired back 132 people. We've got a plant not far from there that's equivalent size, 132 people is not going to run the full breadth of that production. So there's lots of assumptions on what Loman may do.

As I mentioned in the prepared comments, the U.K. has now officially launched an antidumping initiative for the U.K. and we have good confidence that we're going to get good results and possibly get provisional duties in place maybe sometime in the third quarter. The reality is that's not only on finished pigment, that's on products for TiO2 that are as low as 80%. So rumors out there that they may bring in finished pigment or unfinished pigment and finish it at the plant. If antidumping is effective, that would prohibit them from doing that as well.

So hard to say. That is a chloride facility. Chloride facilities that have been down for extended period of time are harder to bring back up. And that is very unique technology. It's plasma arc chloride technology on the oxidation side, which Huntsman created that technology. It took about 8 years to develop it, and it's the only technology of its kind. So not to say they won't, but it's not without its challenges.

Our next question comes from John McNulty from BMO Capital Markets.

So just because of past, I guess, changes in the mine, operations getting shut down like at Botlek as an example, there's a lot of kind of volatility on the cost of product, cost of inventory kind of working through your P&L. I guess, can you help us with some kind of a benchmark on how to think about how those costs improve as we go through the year, whether it's on like a cost per ton basis? Or I guess, can you help us to kind of get a little peek behind the curtain in terms of how to think about how the cost side flows through because I think you were pretty clear on the price and how you're thinking about volumes. But admittedly, the cost side seems to be a big part of the equation that's a little bit opaque right now.

Yes. So maybe I'll start and John, and then I'll let you add to it. So for a lot of reasons in the fourth quarter of last year, we were slowing down production. We weren't running assets as hard. We made reference to Stallingborough going down for extended maintenance. That had an impact on our cost. And in the first quarter, we sold more of that high-cost inventory than we expected, which had an impact on our earnings. We do believe that, as I mentioned on the call, that as we get into Q2, we'll start to sell more of the inventory that we made in Q1, which was, in fact, lower cost than what we made in the second quarter.

So look, there's lots of reasons why our costs have gone up. You've got escalations most recently around the war. We don't think those are going to last forever. But if the war ends tomorrow, there will be collateral damage from that for a period afterwards. So I'm not going to speculate on when the war ends. But we do believe that we are making good progress on cost. The cost improvement program is moving in the right direction. So 2026 forecast for costs for lots of reasons. One, we're going to be running our assets at much higher rates. And we've done a lot of work to mitigate some of the costs. And in areas where we're getting escalations on cost, we're also putting in surcharges to cover it. So it's a little bit, I'd say, mix. But John, if you want to add.

Yes, I think John mentioned that the impact of shutting down and idling some of those facilities for planned maintenance and otherwise was a $10 million to $15 million net of higher cost inventory being sold in the Q2. So you can imagine that the Q2, if you just isolate those operating impacts, it is going to be probably in the $20 million to $25 million. So we obviously expect as you roll through the second half of the year to have a pretty meaningful earnings uplift in the second half of the year, each Q3 and Q4. So we don't have any significant unplanned outages in the second half of the year. So you would expect that type of adjustment back in Q3 and Q4.

Got it. Okay. No, that's helpful to kind of fill in some of the color there. And I guess the second question is just on cash flow. So you had $135 million use of funds in 1Q, and you think you get the bulk of that back in 2Q. So you've got -- EBITDA is up whatever, $10 million, give or take. I guess, help us to bridge the rest of that. What are the kind of the bigger puts and takes there? Presumably, it's going to be in the working capital area, but can you help us to kind of unpack that a little bit?

Yes. So for Q2, we do have some structural things in Q2 and Q4 that are different because primarily related to our interest upon interest payments of $50 million. So Q1 -- Q2 and Q4 are $50 million, just lower based on that. But yes, the rest of that really relates to our inventory conversion and then cash. We obviously set out on this strategy to operate more for cash proven itself out, $75 million reduction of inventory in Q1, and we do expect a significant amount in Q2 and then a little bit less throughout the year, but still generating a huge cash inflow for the full year. And inventory is the biggest driver of getting to our full year comments that we will have meaningful positive free cash flow.

Our next question comes from Duffy Fisher from Goldman Sachs.

First question just on zircon. Zircon for 3 years in a row in Q1 has been down on price/mix. And collectively, that's down 56% on your published numbers over that period. But yet you sold 57% more volume at that level. So if your commentary that things feel like they're tightening, why wouldn't you hold back supply and try to push for more price? It feels like you're selling a lot of volume to your customers at kind of rock bottom prices that allow them to build some inventory that may make prices harder later in the year. But just the strategy there, why not take a value over volume strategy in zircon similar to TiO2?

Yes. Thanks for the question. And what I would say is we had opportunities to sell more in the first quarter than we actually acted on. So there is a balance. We've got customer requirements. We've got pricing that we've announced and have already implemented. So there, in Q2, as I mentioned, we've got a price increase that was announced and implemented. I signaled that on the prior call that we were announcing increases. So if we could always get it perfect where we could hold the inventory until the highest price, that would be a perfect situation. So we're trying to balance that. The reality is we have got customer requirements. We are seeing some lift in the market.

I mentioned that there were some outages, and we don't expect those outages to abate anytime soon. So you've got about 131,000 tons of zircon production that are roughly offline right now. That's why we believe there will be price upward movement beyond the second quarter. So it wasn't perfectly balanced in a perfect world, I could have waited and sold all of it when the price was higher, but we don't live in a perfect world. We're trying to manage our customer requirements and commitments at the same time, pushing price.

Fair. And then to jump to TiO2, you talked about the Chinese potentially getting impaired in some markets or boxed out with ADD and things like that. Their sulfur price is up, but yet the export number from March was extremely high. So one, do you think that month was an aberration and you'll see the export numbers come down meaningfully? Or I guess, how do you triangulate those numbers where their exports are growing in what should be a more difficult market for them to export into?

Great question. And we'll know that probably May 28 when the numbers come out. But I do believe the war started 1:15 in the morning on February 28. So a lot of those shipments were already on water. So again, India stay on duties, you saw a bump up in India. You saw a bump up in Europe and all those things are right. I would expect, based on what we're seeing in the market today that those numbers will move down not only in April, but they're going to move down in May as well.

So I mean let's just talk a little bit about sulfur. Sulfur prices, and we've got some anecdotal questions even before the call around, are there -- the price increases that China announcing, is that covering cost and giving them additional margin? And the answer is with what they've announced and implemented, it's barely covering the additional cost of sulfur. So we have a plant in Brazil that consume sulfuric acid. So we know well what you need to do to cover the cost of the sulfur increase.

And sulfur prices, as I mentioned, there's been a structural shift in sulfur over the last 2 years with pricing going up since the end of 2024 by 160%. And there's just not as much sulfur. There's more demand for it. 78% of sulfur goes into fertilizer. So where are you going to push the sulfur? You're going to feed people? Are you going to make products like TiO2. So it's not only price, it's availability.

Second and third-tier producers are curtailing production, not because of price because they can't get it. They can't get the sulfur to produce the TiO2. And we're seeing that inflection in our order book. So right now, I mentioned previously, there are certain regions of the world where we're not able to fill orders. If we're able to fill those orders, we'll be able to be closer to the top end of that range. So things are very dynamic.

We talked about on an inflection point when the market is going to turn, you'll see a bump up in demand. I'll go back to the point I made earlier or the point that was referenced earlier. So let's just assume Scarlino, Cueva and Greatham come back online. You've still got 800,000 to 900,000 tons of capacity that's left the system.

And when the market inflects, which it has, and as I mentioned earlier in the call, we walked into 2026 with a supply deficit to demand. There's a very quick movement. Pricing is moving up at a rate that was much higher than what we expected, and we're very well advanced into negotiations for pricing into the third quarter and have a high level of confidence we're going to make progress on that as well.

Our next question comes from Jeff Zekauskas from JPMorgan.

In thinking through the Chinese export data, for the first 3 months of the year, sulfate exports were flat to down. The growth in exports was in chloride in that their chloride exports went from, I don't know, 100,000 tons to about 135,000, 138,000 tons. So where is that chloride going? Or what are the markets where Chinese exporters seem to be more aggressive in chloride-based tons?

Thanks, Jeff. It's a great question. And I think right now it's going where most companies that are buying sulfate TiO2 are wanting to flip to chloride. So at this particular stage, companies like Lomon Billions are selling everything that they're making. So chloride production, I'd say, is a bit more reliable.

At the end of the day, chloride production on the Chinese side is only 20% of what is produced in China. 80% of it is sulfate, and that's heavily impacted by what I've been referencing, and that's the sulfur move. So there was a clip up in the last month on exports. I do believe when we see the exports coming in the next couple of months, it's going to reverse the other direction.

Okay. When you talked about a mid-single-digit price increase for the second quarter in TiO2, what part of that is surcharge? And what part of that is price? And all things being equal, do you expect your prices to cover your costs in the second quarter, cost inflation or not to cover the costs?

Yes. Great question. So when we think about surcharges versus price increases, we're getting price increases in every region. And the large percentage of our surcharges are in Brazil to cover sulfur. So the sulfur -- that's where we're seeing the majority of the increase on sulfur. That's where the majority of the surcharges are. And from a proportional standpoint, less than 1/3 of what we're doing is surcharges and everything else is price increases.

And as we start thinking about moving into the third quarter, we haven't announced any additional surcharges yet. And the price momentum that we're announcing for the third quarter is all price increases, not related to surcharge, not to say that we won't have surcharges if the raw material prices continue to fluctuate, and we'll do that to prevent margin erosion.

Just quickly on India. There has been a stay on the duties, and we're still confident that that's going to come back. But we saw a significant lift in exports out of Asia into India when that stay happened. And now based on what we're seeing from our customer order book, our engagement with customers in India is that, that's going to flip the other direction. Interestingly enough, even with the stay on those duties, our volumes in India did not go down where we expected them to be. And I think a lot of that has to do with our position in the market, our relationship with the market.

We had another question that came up later in the quarter from another investor about what -- we talk a lot about this structural shift in supply/demand, what gives you confidence that your volumes are going to stick around if duties don't stick -- if duties were not to come back, which we do believe they'll come back in India. And a lot of that is because we're not just moving volumes to spot buyers. We're moving our volumes to customers that we have strategic relationships and doing that through contractual discussions. And this has a lot to do with customers not wanting to have some of that variability and pulling some of the variability of buying back and forth from China.

So not to say that there won't be any risk there, but our commercial team is doing a good job of making sure they're securing volumes not on a spot basis, but on a long-term basis.

Our next question comes from Hassan Ahmed from Alembic Global.

John, just curious about, you guys obviously made a fair number of comments around the rise in sulfuric acid prices, what that's done to the cost curves and the like. So just kind of curious that if we go to the pre-conflict time, right, I mean, there was a large chunk of capacity on the cost curve that was sort of in the red, right? And as you guys rightly pointed out, some of the price hikes that we've seen in China, in particular, are barely just covering the incremental cost. So I'd like to imagine that on a cost curve basis, still that chunk of capacity is in the red, right? So what are you guys seeing in terms of the rationalization side of things?

Again, in prior calls, you guys would throw a certain number out in terms of how much capacity rationalization you think is going to happen. So just help me sort of put that together in light of where we are on the cost curves, where we are with obviously now sulfur being sort of tricky to attain and also with some of the goings on with Venator's assets.

Thanks, Hassan. So it's always hard to estimate when Chinese companies are actually going to take TiO2 production offline permanently. But Tier 2 and Tier 3 have already pulled back on production, and a lot of that has to do with just availability of sulfur, not necessarily the price.

I would agree with you that the price increases that have been announced by the Chinese are barely covering the cost of the sulfur prices that have gone up. When you think about sulfuric acid as price for sulfur goes up or acid goes up $100, it's like a 3:1 add on TiO2. So you all know how much has been announced. It's barely covering the cost. I would expect they'll continue to move that cost of that price up.

That being said, we have seen some smaller plants idle capacity in the last 6 months. We idled up -- we permanently closed our plant. So I think it's going to happen. You've still got subsidies that are happening in China. At the end of the day, it's hard for me to actually give you a good answer on when all this capacity is going to come offline and if it will.

But I do think that this is going to create more stress. And not only on sulfur, but TiO2 prices are moving up. Raw material prices are moving up. And the high tide floats all boats. So what prices are starting to move up now, ilmenite. We've seen that as recently in the last 3 weeks, ilmenite prices are starting to go up.

So there are a lot of headwinds, and it's typically what happens, TiO2 pricing will kind of lead into it, and then you'll start to see feedstock move up as well. It's another reason why our vertical integration in an inflationary environment will be beneficial for Tronox.

Understood. And then again, you made some comments around Q2 volumes and how they could actually be higher depending on regional inventory availability. So in which regions are you guys seeing the leanest inventory levels? And are you guys prioritizing volume growth or price protection in those regions?

Yes. So I would say in Asia Pacific right now, predominantly in India because we're seeing a significant inflow of orders there, along with a lot of price improvement. Less inventory there. We're having obviously, in Brazil, we've got inventory limitations. In Europe to a certain extent. North America, you're running into an uplift in demand, which is seasonally driven. So I would say that we've got a shortage of inventory across the entire portfolio of assets, probably a little bit more focused on Asia.

And when we start thinking about how we're going to prioritize that, we don't have a lot of spot volume. And I mentioned earlier, as we start to get into these discussions with the structural shift in TiO2 and customers coming to us to offset some of what Chinese produced -- or we used to be supplied by the Chinese. We're looking at strategic customers that want to align with us for the long term. So it's not like we're moving out of regions that are strategic. We're maintaining strategic volumes in every region.

But every region on pricing is moving up. So to the extent there is volume available, that may shift to a region that's generating higher margin. So problem at this particular stage, it's repositioning that inventory is taking a little bit more time than it would have historically due to the conflict in the Middle East, which is also playing favorably for us.

I mentioned our operation in Saudi Arabia, which is kind of right in the hot bed of all of those -- the conflict in the Middle East. And that plant has operated unbelievably well. It's running at higher rates than it's run in, I'd say, the last 1.5 years. Costs are in a very good place.

And with the Strait of Hormuz being closed, there's a lot of volume that Chinese suppliers typically were selling in the Middle East, and they're not able to do that anymore. So our volumes, not only in the Middle East, but out of the Middle Eastern plant moving into Europe is being supported by that plant. So lots of great work going on there in a very difficult environment.

Our next question comes from Josh Spector from UBS.

I actually wanted to ask a similar question. It's just really when you're talking about that extra demand that may not be filled, I'd just be curious what region is that coming from? And not thinking about where you're prioritizing your tons, understanding you're doing that for profitability, but where are you kind of maybe upside surprised on where volumes coming in? And is that more orders from existing customers or new customers?

Thanks, Josh. So yes, we're getting a lot of inquiries from new customers, most of which we're not filling because, again, I make that reference, we don't have a lot of spot volume. So we're looking at strategic customers. So is there some shift around where we may be going where customers, quite frankly, don't want the price increase, then yes, we may shift volume around.

But again, Asia is very impacted by the conflict in the Middle East because a lot of what they're getting is coming from the Middle East. So I would say that's the area where we're seeing, I think, maybe the most inbound on orders, and it's where we're seeing the highest increase in prices as well.

But it's not just Asia. We're seeing increased demand in lots of different markets. I mentioned them earlier. But I'd say, from Q1 to Q2, that volume increase is probably more focused on Asia and where we're limiting volume because we're just getting a lot of inquiries into India, that may be the area where we're having the hardest filling orders. Not that we're not filling existing orders, but customers wanting more than we can provide.

That's helpful. And if I could follow up on pricing. I'm just wondering with some of the contract structures you have now, do you have any lagged pricing implementation so that you've already had conversations with customers, perhaps you know pricing is going up in 3Q or 4Q because of that lag. And I mean, is that any different than what we may have seen prior cycles? I think some of the reactions this earnings season have been, investors expected kind of some faster pricing implementation. And I wonder if this dynamic is impacting this in any way.

Great question, and you're right. So we still have margin stability agreements largely in the Americas. So when we think about the price increases that we've announced. We do have agreements that there's a bit of a lag on when those actually will be implemented, which is impacting our price increase in the second quarter and will play favorably to what we do in the third quarter.

So that's exactly right. It hasn't changed significantly. I would say we have less margin stability agreements than maybe we did in APAC. Majority of them are in the Americas, and they're -- I can't -- you stated it exactly correct.

Our next question comes from Frank Mitsch from Fermium Research.

As I think about last year, it was obviously a difficult year for Tronox. I look back and it was the lowest earnings level since 2016. And it does seem that things are set up a bit better in 2026. However, using the midpoint of your 2Q guide, you're starting at the first half down $68 million year-over-year, again from a difficult overall year. I mean, how realistic is it to expect that '26 would be up over 2025?

Yes. Thanks, Frank. Great question. Again, I'll make reference to the planned outages we have in the absence of -- and again, I say those are planned, those were planned for a long period of time, specifically the statutorily required ones. So if you pull out that $10 million to $15 million, that midrange of $75 million gets to $90 million. When we think about what happens in the third quarter moving into the fourth quarter, very confident that we'll start to get into triple-digit numbers. And again, pricing is going to play into that. Our cost improvement program is going to play into that.

John made reference that we've made progress on our costs, so we'll start selling lower-cost tons in the second half of the year. Our mining projects are going to start gaining traction. And again, I won't keep stressing price, but the fact that prices are moving up, price moved up in the first quarter, it's moving up in the second quarter. We're well advanced in negotiations into the third quarter. And every time pricing goes up, call our capacity 800,000 tons with the 2 outages. $80 million every time it goes up $100, then we've got a lot of run room above $100 a ton for pricing to move.

And that doesn't include zircon. Zircon 220,000 tons a year of sales. We've got a lot of run room on zircon as well. So it's not all on the back of price, but price has been something that's kind of been missing in the discussions we've had on calls for the last 3 or 4 years, and it's happening now.

And by the way, I don't mind you at all putting a stress on price. Speaking of stress, however, Mr. Srivisal, if I think about your cash level, where you ended the first quarter, it's relatively low compared to your historic. So how do you -- what sort of cash levels do you feel comfortable maintaining in terms of running the company?

Yes. I mean I think we look at it from a liquidity perspective. We do have a lot of different facilities around the world and cash accounts everywhere that we can move around pretty significantly. But we've said we can operate in the $75 million to $100 million of cash over the long term, but we can move it pretty easily over the quarter.

But we are in the $406 million in Q1. That's pretty much what I've mentioned is more than what we feel comfortable operating in. We have operated in that in the past Q1, past couple of years. So we feel confident about our ability to manage our cash flow and cash balances.

And as John mentioned, we do expect a pretty significant Q2 and rest of the year cash flow. Q1 is always a big use. And so we will be generating a lot of cash, as I mentioned earlier, primarily through bringing down our inventory. We took a concerted effort late last year to operate for cash. We've proven that we can turn it into cash with $75 million from inventory in Q1. And so we feel like we're in a very good position as we move forward in the year.

Our next question comes from Roger Spitz from Bank of America.

Your 2026 working capital guide of well in excess of $100 million inflow. My question is, is that on a reported basis? For instance, you increased your off-balance sheet AR securitization by $45 million. Presumably, you're going to fill that up and get $45 million of inflow, but that's just financing your receivables. Is that net of that? Or is that $45 million helping on your way to getting to greater than $100 million?

So we haven't greater than $100 million. So there's a wide range of it. When we look at it, we do include the AR securitization in our working capital number. But obviously, if it's $100 million versus $200 million, it could be in around of that number.

Got it. And then in terms of sulfate prices -- sulfur prices going up so much, you can't -- I understand for decent paint, you can't just swap chloride versus -- process versus sulfide process because of the different paint colors. But do you think your customers will push more on their formulations that are based on chloride formulations because of the price increase on sulfate? Or how much can that shift? Or in certain regions, people like, this is the color we like at how much you make your sulfate and we'll paint less because it's more expensive.

Yes, that's a great question. And look, they're already doing that, right? So one of the reasons that people buy from Chinese -- or companies buy from Chinese producers because the majority of the sulfate production comes from China because there's been a significant price gap. So when you think about the announced price increases that have happened on the sulfate side of the equation, that gap has narrowed. So it does push them to look at more chloride capacity.

Chloride capacity is constrained as well, constrained from the standpoint that there is not enough supply to meet the demand. So we're talking about a structural shift in supply base, which started at the beginning of the year where we had less supply than we had demand. This has only exacerbated the situation. So yes, customers -- again, the majority of our capacity is chloride. We do have less than 10% of it sulfate out of Brazil. And we have customers wanting to move to more chloride. The problem is we don't have more chloride to ship them.

And I don't think we're on an island. So not to say that there won't be a shift, but 2 things are happening. One, prices are going up to your point, the gap that's narrowed, which gave them the incentive to buy from the Chinese producers is disappearing. It's not disappearing that much because we're moving our price up as well. But that sulfur price has moved up a lot. Those price increases that they've announced are to try to cover that cost. And I think there's going to continue to be an imbalance. But I think the short answer to your question is, yes, customers are trying to do that, but there's not enough supply to do that because there's not enough supply to fill that demand.

And sorry, Roger, going back to your first question, I just wanted to clarify that even though we -- when we report, we include AR securitization in our free cash flow and working capital numbers. Our increase in our guide for working capital was not driven by our AR securitization activities. It's primarily inventory.

Our next question comes from John Roberts from Mizuho.

On the mid-single-digit Q-over-Q improvement in TiO2 prices for the June quarter, how much of that is surcharge versus base prices going up? And is that mid-single digits a blend of low single digits in the U.S. and mid- to high single digits outside the U.S.

Yes. Thanks for the question. I'm not going to give a lot of breakdown on regional pricing. It's going up everywhere. What I -- I think I'll reiterate what I said a few minutes ago, and that is pricing is the majority of that mid-single-digit increase. There is an element of surcharges, the majority of which are sulfur-based out of Brazil.

So less than 1/3 of what we're implementing is surcharges. The majority of it is pure price increases globally. And to the point that Josh made earlier, there is some margin stability agreements that will temper how much we get in the second quarter, which will come in the third quarter. So when we start thinking about Q3 pricing, Q3 pricing will likely be moving up at a step rate that's higher than what we're doing in Q2.

And then why is zircon volume moderating a little bit here in the June quarter?

Because our inventories are lower than what they should be and repositioning inventory, remember, everything we produce, zircon is a bit different, right? We're on the TiO2 side, we've got plants that are located kind of where our customers are. Our zircon inventories are a bit different. They're in South Africa and Australia, and we have to ship that material. So some of the inventory that we had in the inventory warehouses has been depleted in the first quarter. Some of the consignment inventory was higher than we expected. So it's only a function of having less inventory to fill the orders. It's not an order book thing. So...

It's still a very strong quarter if you take a look at the tonnage. And it is more than what our average production quarterly for the year is. So it is a very strong quarter still.

Yes, moderate. I said slightly moderate. We're not talking about a significant step down. It's just going to be a bit lower than the fourth quarter -- the first quarter, and pricing will be up.

Our next question comes from Vincent Andrews from Morgan Stanley.

This is Justin Pellegrino on for Vincent. I have 2 quick questions on sulfur. First being, have you had any difficulty procuring sulfur in Brazil? And then second, in the event of a conflict resolution, how quickly do you think the Chinese production ramps back up? And do you think there would be any sort of a risk premium remaining in the pricing for sulfate?

Thank you. So I do believe there'll be a risk premium that's going to go up. I mean, at the end of the day, the Chinese weren't making money to begin with. It's not to say that there won't be an adjustment on sulfur pricing as sulfur goes down. I can't really tell you when the war is going to end. But what I can say is that there's going to be a longer-term impact on sulfur.

What this war has done is just really shot -- I talked about a structural shift in supply of sulfur and demand for sulfur. Sulfur was up 160% from the end of 2024 to the end of 2026. It's gone up almost -- that's almost 300% now. So it's having a meaningful impact on anybody that's making sulfate TiO2 if you're not pressing the price.

You asked the question about our plant in Brazil. We are not having trouble getting sulfuric acid. It's all of the negotiation of the price. So when we start thinking about every time that price moves up, we have to make sure customers understand where it's moving so that we can move that price accordingly. So for us, it's not an availability issue. It's getting it.

In China, basically there are no more exports of sulfuric acid going out to China any longer. There's limitations on where that sulfur can be sent. And we are seeing limitations of sulfur, not just pricing in China. How long that's going to impact -- 8% of the sulfur is produced in Qatar. Qatar has been down since the war started. When is that going to start back up? When is heavier crude going to become available, so when they refine it more sulfur is available? These are all the structural changes that over time have taken sulfur production down and demand has continued to move up.

So my personal opinion is the war impact depends on when the war ends. There's an awareness around sulfur that I think is going to be highlighted moving forward, which will tend to drive sulfur prices and TiO2 prices higher than they would have been historically even before the war.

And our last question comes from Pete Osterland from Truist.

First, just across your TiO2 production footprint, are there any mismatches regionally between where you have pricing power and where the cost inflation is being most strongly felt? And how has that impacted your strategy on operating rates in the current environment?

Thanks for the question. So look, at this particular stage, we're ramping, we've ramped up all of our assets. The only plant that we're continuing to ramp up, which has been running very well, as I mentioned, was our facility in Saudi Arabia, and that's adding one more line to the 5 that we're currently running. That's a sixth-line operation. We'll be bringing the sixth line on.

As I mentioned, from a pricing perspective, surcharges predominantly have been around sulfur, and that's in Brazil. So we're getting pricing in every region. It was a little bit lower in some areas, as I mentioned earlier, based off one of the other questions around some of the margin stability agreements. And so we'll start to get that inflection more in the Americas region, specifically North America as we move into the third quarter, which will only add to the additional pricing that we'll see in Q3 over Q2.

Okay. Great. And then just as a follow-up, just given how diversified you are, I mean, are there any regions where you're seeing elevated risk of demand destruction that could impact your volumes as you implement pricing surcharges if we stay in an inflationary environment?

Yes, it's a great question. I think that's the part that's really hard to understand. I think a lot of that's going to depend on the war. I don't think TiO2 price going up is going to create demand destruction. It's been down well longer than it should have been, which has been an advantage to everybody that's buying it. So pricing going up on TiO2, I do not believe is going to have an impact on demand destruction.

But could the war and extended engagement in the Middle East create some kind of demand destruction because there's inflation in all the other raw materials out there, that's possible, and we're continuing to monitor that. That's why we've got to be agile in how we look at our production and operating units moving forward. But that's a question that will continue to be evaluated depending upon how long the war lasts.

We have no further questions. This will conclude today's conference call. Thank you for your participation. You may now disconnect.

Good morning, ladies and gentlemen, and welcome to Tronox Holdings Q4 2025 Earnings Call. [Operator Instructions]. Also note that this call is being recorded on Thursday, February 19, 2026. Now I would like to turn the conference over to Jennifer Guenther, Chief Sustainability Officer, Head of Investor Relations and External Affairs. Please go ahead.

Thank you, and welcome to our fourth quarter and full year 2025 Conference Call and Webcast. Turning to Slide 2. On our call today are John Romano, Chief Executive Officer; and John Srivisal, Senior Vice President and Chief Financial Officer. We will be using slides as we move through today's call. You can access the presentation on our website at investor.tronox.com.

Moving to Slide 3. A friendly 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 what we know today. 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. Additionally, please note that all financial comparisons made during the call are on a year-over-year basis unless otherwise noted. It is now my pleasure to turn the call over to John Romano. John?

Thanks, Jennifer, and good morning, everyone. We'll begin this morning on Slide 4 with some key messages from the quarter and the full year.

Tronox delivered a stronger finish to 2025 than anticipated by remaining focused on the things we can control and influence. Safety continues to be one of our core values and remains our #1 priority across the company and earmarked by challenges, volatility and inevitable distractions, maintaining that focus has never been more important. Despite that environment, I'm pleased to report that in 2025, we delivered our best safety performance in more than a decade, achieving our lowest injury overall injury rate for the period.

This is a reflection of our team's disciplined diligence and unwavering commitment to keeping one another safe. From a financial perspective, we concluded the year with stronger volumes than anticipated and executed on actions to drive cash flow and improve our long-term cost position. TiO2 volumes in the fourth quarter reached their highest point of the year, a pattern that was previously only observed during the COVID period in 2020. This notable trend underscores how anti-dumping duties have positively influenced the relative markets.

Our gains in India and other protected regions show increased market share and suggests a structural change in the global TiO2 trade flows. As anticipated, TiO2 prices were lower in the quarter and mix was an incremental headwind due to higher sales in Asia. However, we are now implementing price increases that are beginning to show results in the first quarter. Early indications show positive momentum. And with a shift toward higher-priced regions, market dynamics are gradually moving in a favorable direction.

Zircon volumes concluded the year positively supported by customers restocking and resuming normal buying patterns. Zircon pricing was a headwind in the quarter, compounded by unfavorable mix. That being said, we've announced price increases and are optimistic that they will be implemented in the second quarter.

From an operational standpoint, we maintained a disciplined approach to cash preservation and inventory management. While certain measures impacted EBITDA for the quarter, they reinforce working capital discipline, resulting in $53 million of free cash flow, a notable achievement given the challenging environment.

We also executed on an opportunistic $400 million senior secured note offering in September, proactively increasing liquidity. In addition, we took the necessary actions on our footprint to position the business for the long term, including announcing the closures of 2 of our payment plans. The decision to close the [ Puget ] plant in China as announced last month, was driven by prolonged market downturn, weak domestic demand overcapacity and unsustainable pricing levels in China.

Combined with [ Ababa ] closure, which we announced in March of last year, these actions streamline our footprint and improve our cost structure over the long term while ensuring we can continue to reliably serve customers through a more efficient global network. We thank our [indiscernible] teams for their unwavering commitment to safety and their contributions as they have made to Tronox over the years.

Transitioning to our sustainable cost improvement program, we continue to make significant progress. We exited in 2025 with more than $90 million of run rate savings, 3x our original target, and we remain on pace for the high end of our $125 million to $175 million run rate target at the exit of '26. We're now tracking more than 2,000 initiatives. More than 500 of them are already delivering savings and another 250 are moving through the planning and execution stage.

The largest benefits came from fixed cost reductions, including the work we've actioned across labor, contractors and outside services along with SG&A reductions that came in ahead of plan. These savings are helping us offset a number of headwinds this year and continue to structurally lower our cost for the long term.

We also reached key milestones on our mining projects in South Africa last year. We commenced mining at Fairbreeze and began the commissioning of East OFS. We also advanced our rare earth strategy with the announcement in December of the conditional nonbinding financing with EFA and [ Eximbank ] for the building out of a cracking and leasing facility in Australia. We are progressing our work on definitive feasibility study and continue to evaluate adding refining capacity to the value chain. As we look ahead, we're cautiously optimistic, and that optimism is grounded in facts and execution.

Market dynamics are starting to change. TiO2 prices are improving as a result of price increase announcements that are starting to take effect in the first quarter, and we expect favorable mix benefit from selling more into higher-priced regions. At the same time, our actions on inventory, cost and portfolio rationalization are designed to counterbalance near-term headwinds and support cash generation. as pricing and costs improved from actions already underway, I expect free cash flow to be positive in 2026.

Taken together, these developments position us for a step-change in earnings power as the market fundamentals continue to improve. I'll speak to 2026 in more detail later in the call, but for now, I'll turn the call over to John for a review of our financials from 2025 in more detail. John?

Thank you, John. Turning to Slide 5. For the full year 2025, we generated revenue of $2.9 billion. The year-over-year decline was driven by unfavorable pricing and mix and lower volumes in both TiO2 and zircon. loss from operations was $253 million and net loss attributable to Tronox was $470 million. These results include $233 million of restructuring and other charges, net of taxes, primarily related to the closures of [indiscernible].

While our loss before tax was $458 million, our tax expense was $15 million, primarily driven by not recognizing tax benefits in jurisdictions with losses. Adjusted diluted earnings per share was a loss of $1.50. Adjusted EBITDA was $336 million, and our adjusted EBITDA margin was 11.6%.

Free cash flow for the year was a use of $281 million, including $341 million of capital expenditures. Since we covered our key fourth quarter figures in the January '26 prerelease, I won't spend time on the financial overview, but we'll instead move to the next slide to review the highlights on our commercial performance.

As John mentioned, volumes were stronger than anticipated across both TiO2 and zircon partially offset by continued pricing and mix headwinds. Sequentially, revenues increased 5%, driven by a 9% increase in volumes, partially offset by a 4% decline in price, including mix. Volumes exceeded our guidance of about 3% to 5%, reflecting continued market share gains in India, Latin America and the Middle East, supported by anti-dumping measures. North America and Europe were lower, consistent with normal fourth quarter demand patterns.

Pricing was in line with expectations, down 2% and mix accounted for an additional 2% headwind primarily due to stronger growth in regions with lower margins and seasonally lower demand in our higher-margin markets. Zircon revenues increased 32% sequentially, driven by a 42% increase in volumes. This exceeded our guidance of 15% to 20%. Zircon price was down 7% quarter-to-quarter or 10% total, including mix. Revenue from other products increased 10% compared to the prior year, mainly driven by higher [ pig iron ] volumes. Sequentially, revenue from other products decreased 17% due to higher sales of heavy mineral concentrate tailings in the third quarter.

Turning to the next slide. I will now review our operating performance for the quarter. Our adjusted EBITDA of $57 million represented a 56% decline year-on-year as a result of unfavorable pricing, including mix, higher production costs and higher freight costs, partially offset by the increase in sales volumes, exchange rate tailwinds and SG&A savings. Year-on-year production costs were higher by $39 million as a result of actions taken in improved cash generation.

These actions were deliberate and temporary, bringing forward maintenance, lower in pigment and mining operating rates, idling assets and additional downtime at Stallingborough drove unfavorable fixed cost absorption and higher idle and LCM charges. These are partially offset by savings from our cost improvement program, as John outlined earlier. Sequentially, adjusted EBITDA declined 23% and unfavorable pricing, including mix was partially offset by improved production costs, favorable sales volumes and lower freight costs.

Turning to the next slide. We ended the year with total debt of $3.2 billion and net debt of $3 billion. Our weighted average interest rate in Q4 was approximately 6%, and we maintained swaps such that approximately 77% of our interest rates are fixed through 2028. Importantly, our next significant debt maturity is not until 2029. We do not have any financial covenants on our term loans or bonds. We have one springing financial covenant on our U.S. [indiscernible] that we do not expect to trigger.

Liquidity as of December 31 increased to $674 million, including $199 million in cash and cash equivalents that are well distributed across the globe that we are able to move around with little to no frictional cost. Working capital was a use of approximately $26 million for the year, excluding $76 million of restructuring payments for the -- related to the closure of our [indiscernible] site.

Fourth quarter working capital was a source of $133 million, excluding $19 million of restructuring payments exceeding our expectations. This was driven by targeted working capital initiatives, including reducing inventory levels. This discipline around working capital will continue into 2026. Our capital expenditures totaled $341 million for the year, with approximately 60% allocated to maintenance and safety and 40% almost exclusively dedicated to the mining extensions in South Africa to sustain our integrated cost advantage.

We returned $48 million to shareholders in the form of dividends paid in 2025 and as a reminder, Q1 is typically a seasonal use of cash due to timing of payments and the seasonal build of working capital. However, I remain confident in our ability to generate positive free cash flow for the full year 2026. With that, I'll hand it back to John to review our capital allocation priorities. John?

Thanks, John. Turning to Slide 9. Our capital allocation priorities remain unchanged and focused on cash generation. We continue investing to maintain our assets, our vertical integration and projects critical to furthering our strategy, including rare earths. With Fairbreeze and [ EFS ] mining spend largely behind us, we're able to reduce our capital expenditures further in 2026.

While we have some catch-up capital from delayed projects in 2025, we expect CapEx to be approximately $260 million in the year. We continue to focus on preserving liquidity and we have plenty of liquidity to manage the business and to market fluctuations. As the market recovers, we will resume debt paydown targeting long-term net leverage of less than 3x.

We will do that the same way we navigated this downturn by staying focused on what we can control and influence, reinforcing the business through cost reduction and cash improvement actions. While prioritizing cash has been a near-term trade-off. These actions strengthened the foundation of the company. With that, I'd like to turn to our 2026 guidance and walk through the cash assumptions that will drive performance this year.

Turning to Slide 10. For the first quarter of 2026, we expect TiO2 volumes to be relatively flat sequentially on the back of a very strong fourth quarter. We're experiencing growth in all regions with the exception of Asia predominantly influenced by India, our second-largest market. This is due to customers shifting a portion of their volumes back to China following the temporary halt of the collection of duties in late December following a court ruling. We expect this to be a short-term event as we believe there will be a favorable resolution on duties in the coming weeks, which would shift volumes back to local and western suppliers, including Tronox.

We also expect TiO2 pricing to be up approximately 2% to 4% sequentially, reflecting the price increases that went into effect at the beginning of the year and the continued shift in mix towards higher-value regions. We expect zircon volumes to mirror the solid performance we had in the fourth quarter. Zircon pricing has stabilized in Q1 and we are optimistic that the price increases we've announced for Q2 will be implemented.

As we stated earlier, we are focused on generating cash while balancing the impact to EBITDA. We made decisions to keep the West mine down in one of our furnaces down longer than originally planned. We also dialed back some production in Australia on the mining side of our business. These decisions reduce near-term EBITDA, but they're focused on our goal of improving working capital and generating positive free cash flow. We are also managing FX volatility on the Australian dollar and South African rand.

At the current rates, this translates to a $10 million headwind in Q1 versus Q4 average rates, which has been factored into our guide. As we've done in the past, we are actively evaluating opportunities to utilize financial hedges to manage that volatility. Partially offsetting these pressures are the savings from our sustainable cost improvement plan, which continues to gain traction and will build through the year.

Taking all this into consideration, we expect Q1 2026 EBITDA to be in the range of $55 million to $65 million. incorporated in our positive free cash flow guide for the year are the following assumptions on cash. Net cash interest of approximately $185 million, net cash taxes of less than $10 million capital expenditures of approximately $260 million, and we expect working capital to be a source of cash in excess of $100 million.

Turning to Slide 11. From a broader perspective, our first quarter guidance does not fully reflect the underlying earnings potential of our business. In recent quarters, we've implemented several initiatives to enhance our cost structure, streamline operations, optimize mix and enable improved pricing. As these measures are realized in our P&L is able to generate significant benefits and establish a solid foundation for earnings growth as the recovery progresses.

We believe we are at an inflection point for both TiO2 and zircon price. Additionally, we've outlined a number of actions we've taken over the last year to prioritize cash generation that are temporarily reducing EBITDA. One notable example is how reduced asset utilization effects absorption. As these headwinds subside and as the market continues to recover, we will realize an improvement in our cost structure.

As the most geographically diverse TiO2 producer, Tronox is well positioned to capitalize on the opportunity created by the rebalancing of the market, evidenced by the effective antidumping duties and supply rationalizations in the industry. These factors establish the foundation for a meaningful step change in earnings potential.

Turning to the next slide, I'll provide a brief update on our rare earths initiatives. We continued to advance our rare strategy during the quarter, reflecting our objective to move further downstream into separated rare earth oxides over time while maintaining capital discipline. We made meaningful progress toward our definitive feasibility study and are evaluating development pathways to prioritize returns and limit incremental leverage on our balance sheet.

Concurrently, we are engaging widely with stakeholders, including potential customers, partners and funding sources to identify the most viable and responsible path forward. Our approach remains dedicated to generate long-term shareholder value and balancing strategic opportunities with prudent financial management. We believe that our radars will present a promising growth platform for Tronox leveraging our existing mining footprint and expertise in hydrometallurgical and chemical operations. That will conclude the prepared remarks. I'll now move into the Q&A portion of the call. So I hand the call back over to the operator to facilitate. Operator?

[Operator Instructions] First question will be from Josh Spector of UBS.

So I wanted to ask, if I go through your free cash flow guidance, I guess, to get to breakeven, you probably need about $350 million in EBITDA roughly. I guess, one, is that how you're thinking about it? And two, just given where you're starting in 1Q and some of the timing lags that it takes on some of the mining costs to flow through with the lower utilizations. How do you see yourself getting to that level from here?

Yes. So maybe, Josh, thanks for the question. I'll start and I'll let John add some color. So again, we provided a guide for the year. We haven't provided guidance for the full year. You can get to that math. So we're not providing a guide because there's still lots of variables with regards to how we're running the business. Our costs are going to be a large -- a lot of our costs are going to be dependent upon how long we keep the assets down.

On the last call, I made reference that -- we were going to keep our assets down and focused on cash until we got a couple of good quarters under our belt. We feel confident that the recovery was underway, and we got another quarter, so we're still progressing in that direction. But we have made some decisions to pull back on 1 of our furnaces a little bit longer. We've made some other decisions on mining. But again, we're targeting $100 million working capital improvement. And John, you can add some more color on that.

Yes. I think obviously, we -- from looking at where we guided to the rest of the year, we do see -- sorry, EBITDA expanding to get to that positive free cash flow, if not more significant than that. Some of it will be driven by earnings. As John mentioned, we do see the sustainable cost improvement program which we've only seen about a $10 million or so in 2025 heading, but that was a run rate at the end of the year of $90 million.

So we would expect to see that benefit flow throughout the year. Additionally, as you know, we did shut down [ Botlek ] in [ Fuzhou ]. And as we see our sites [indiscernible] volumes even being flat, we'll see that cost come through from a fixed cost leverage improvement throughout the year. And obviously, we are focused on controlling our costs throughout the year as well. So we do see a path to higher earnings in the second half of the year. And obviously, a big driver of that is price. As John mentioned, we are seeing an inflection point in both TiO2 and zircon Q1, Q2. So that will help us as we move across the year.

And Josh, we referenced that. I think even in the last call, on the zircon side of the business, we had a lot of customers that were starting to get back to normal buying patterns and sell that actually reflected in our sales -- in the fourth quarter, we're seeing that in the second -- in the first quarter of this year. We talked about a price increase that we have some confidence in. But both on zircon and on TiO2 to get a price increase in the first quarter is, I'd say, not normal.

So we're cautiously optimistic that the momentum we're seeing on price is going to continue to translate into additional momentum next year. The price increases on TiO2, we've announced everywhere. So globally, there's been announcements made -- and again, the implementation of those increases will be different in every region. But we feel pretty confident right now with cautious optimism that we're starting to see that recovery that we talked about last quarter.

Great. And if I could just follow up quickly, just on the cost side. So sequentially in fourth quarter, your production costs were actually a slight positive. I think in your answer then, you talked about taking down some additional furnaces. I guess if we look at your production cost bridge into the first quarter, is that a positive because of some of the cost actions? Or is that a negative because of some of the mining actions? What should we expect there?

Let me make one quick comment and then I'll let John answer that. So we didn't take down an additional furnace we've made a decision to keep one of the furnaces down longer than what we had originally planned. So now we're planning to keep that furnace down until midyear. And again, we've taken some other actions on the mining side of the business. We pulled back some of our mining production in Australia, the West mine in South Africa is now down. So I just want to be clear, it's more mining, not necessarily. On the smelting side, John.

Yes, but we do expect improvement in our operations from Q4 to Q1, a pretty significant improvement. And as we mentioned, Stallingborough was down in Q4. It's up and running pretty well. In Q1, so we'll see some benefit. And just overall, I see more efficiencies and improvements throughout our portfolio. I think the one thing, if you're looking at Q4 to Q1 bridge item, we have -- we direct you to currency. So if you look at the average rates that were in Q4 versus Q1, as we mentioned, looking at spot rates, that's about a $10 million hurt from Q4 to Q1.

Next question is from [indiscernible].

John and John, just to go back to the prior question, looking at the 2 of the key bridge elements for this year, sustainable cost improvement and the mining costs. One of the tailwinds the actual tailwinds you're expecting now in '26 versus '25 for those 2 bridge items for this year?

Yes. So I'll start on the continuous cost improvement program. Again, John kind of gave some indication on how much of that continuous cost improvement actually resulted in EBITDA in 2025, but the run rate that we have starting in the year is significantly higher than that $90 million when our target was $25 million to $35 million initially. And again, we've got very good visibility into the projects that we're working on to continue that work.

A lot of it's been fixed cost, but there's a lot of work going on across the entire company, and we feel confident that this $125 million to $175 million target will be at the high end of that range. There are things that are continuing to I guess, the headwinds against that. John talked about the work that we're doing to actually offset some of the FX issues, right? So we will be looking at hedging. But right now, that's a headwind in the first quarter. there's also, again, the cost associated with running the assets at lower rates that are a headwind. John, do you want to add anything?

Yes. No, I think, [ David ], if you recall, we did shut down [indiscernible] in the first part of the year in the first quarter as well as [ Fusio ], which we've announced early this year. But by bringing down those plans, obviously, our chain is pretty leverageable and integrated. And so we were able to ramp up our other facilities. And so that's providing a good cost improvement year-over-year from that fixed cost leverage.

And I'd say we made this comment last time, I think, on the call when we start thinking about when does the industry typically start to get pricing leverage, those 2 plants there down, we've actually kept a lot of the customers from where we were selling them. So getting -- we're north of 85% capacity utilization now. And normally, when you -- when the industry gets there, I can't speak to the industry.

I can speak to where we are, you start to get leverage on price. So running our pigment business at lower rates, as we've talked about what that impact is on EBITDA. It's not as significant on the mining side and the pigment business is running at much higher rates.

Understood. And just on rare earth, I know there have been some meetings over the last few weeks establishing maybe a framework for some pricing support in the U.S. for these minerals, which would be a -- what you need to move over with refinery. What's happened from your perspective? And what's potential for this pricing support going forward?

Yes. Look, that was, I think, a very positive results, right? It's not only the pricing support, but it's the [ Vault ] that was announced, so the strategic stockpiling. There's still some work to be done on getting finalized on what that actually will look like, and that will come with time. But we're also -- I think to be clear, we're working in multiple jurisdictions on our rare earth opportunity.

We've got assets in Australia and the U.S. So we're working across a lot of jurisdictions to try to come up with what is the best opportunity for Tronox. We're engaging with partners. We've talked about and EFA around the potential financing that we're to have to fund the sola cracking facility in Australia, but we're making very good progress. I'm not at liberty to talk about who those partners are at this particular stage because we've got nondisclosure agreements, but we're making good progress. We're staffing up that group. And we do feel that this is an opportunity that we're going to turn into another, I'd say, pillar of our strategy on the long term.

Next question will be from Duffy Fischer of Goldman Sachs.

You mentioned that the pigment level your operating rates are north of what's the plan on the mining operations this year? What operating rate do you think you'll run out there? And then relative to the benefit that you get from purchasing or you've always kind of talked about a couple of hundred dollars there. How much lower will that be this year because of that lower operating rate in mining?

Sure. So I'll start that one, Duffy. When you start -- we've typically said $200 to $400 a ton advantage of vertical integration on feedstock. And I'd say we're on the lower end of that range right now.

We have 4 furnaces in South Africa. We're running 3. The [ SR ] kiln that we have in Australia, we're continuing to run that capacity. We pulled back on our mining operations. Again, we don't need as much ilmenite to feed 4 furnaces when we -- when we're only running 3. So we will make the decision to start the West mine back up, increase our capacity in Australia, again, when we feel confident that the positive momentum that we're seeing now turns into more of a solid recovery.

And I would say that from the standpoint of where we are as far as vertical integration, I think we're still -- the power of the vertical integration is still something that we believe in, but our objective this year is to generate free cash flow. And all the actions that we're taking right now are to bring our working capital down at the closer we get to capacity, on the TiO2 side, we're going to need some of that feedstock.

But right now, what we're doing with the slag that we're producing is drawing down the inventory. We're drawing down ilmenite inventory. We're drawing down zircon inventory. And quite frankly, on the zircon side of the equation, our inventory is getting to the point where it's tight. So as we start to think about how we're allocating volumes and we talk a little bit about price increase opportunities in zircon, a lot of that is being driven by the market from our perspective is starting to tighten up, and it's going to give us an opportunity to have more confidence in those price increases in Q2.

Great. And then maybe just 2 quick ones on cash flow. If you get to your positive free cash flow this year, how would that look first half versus second half? I'm assuming you'll need capital our working capital in the first half and a weak free cash flow negative and then release in the second half. But roughly how big a delta will that be Q1 to Q2? And then what's the run rate spend on the rare earth project currently?

Yes. So if you look at our working capital and free cash flow progression across the quarters, we expect this year Q1 to be roughly the size and scope of what we would have done in the past several years, so a pretty significant use of it. And then we do clawback going across the year. And so significant use, most of the use, if not all, the use in Q1 and then free cash flow positive for the rest of the year.

And then on the rare earths, I mean, again, you look at our capital projection for this year, $260 million which is significantly lower than it was last year. There is not a lot of CapEx at this particular stage that's in that forecast. So again, we're looking at a variety of different funding sources for that. We're working on the definitive feasibility study. We've added some people into that group to continue to progress that work forward. But as of right now, there's not a significant amount of capital on that rare earth piece yet.

Next question is from Jeff Zekauskas at JPMorgan.

Can you remind us what the volume change was in TiO2 for the year for Tronox? Were you down about a couple of percent? And in that context, did the global TiO2 industry contract a little bit in 2025? And if it did, by how much in your opinion?

Your estimates on volumes '24 to '25 are pretty close. And I would say probably the market was somewhat similar to that. Again, it was, I'd say, maybe a little bit more of a tale of what happened in the first and second quarter versus what happened in the third and fourth quarter. And again, in the fourth quarter, we saw a significant increase. I think we were targeting 3% to 5% increase in volumes. We were up 9%.

A significant amount of that was actually coming from volumes that came in Asia, predominantly in India. And a lot of that came from a shift in market share as a result of the antidumping duties. So we've picked up volume in the Middle East, specifically in Saudi Arabia, we picked up volume in Brazil and we picked up volume in India. And I may reference on the call about the shift in the first quarter. So in the fourth quarter, they were the duties were stayed, but they were still being collected.

In the middle of December, a court ruling came which eliminated the requirement for those duties to be collected. So now you've got a shift of customers in India that are starting to buy more from China. We're still selling in India, but the volume between Q4 and Q1 is down but we would expect that the antidumping duties are going to be reinstated. And once that happens, we'll see that shift back to local producers, Western producers, including Tronox.

You've spoken of TiO2 prices as being at an inflection point. And when you look at the global coatings industry in Europe and China and the United States, it doesn't seem as though there's much volume growth, maybe it's up a tiny bit or down a tiny bit or flat? So what is it that makes us at an inflection point in TiO2 given the soft demand background?

Well, I think one thing you've got to reference is that since 2023, you had 1.1 million tons of capacity go away. So any movement towards a regular buying pattern where people were driving down inventories created a significant shift. Then you've got the antidumping duties, which are also helping that. So I wouldn't disagree with you that there hasn't been a significant move in demand.

A lot of this has been structural shifts based on a lot of proactive work that we've been doing as an industry to try to get the business in a profitable place. That being said, when we look into the first quarter, we're seeing volume growth in every region, except Asia, specifically India, as I just mentioned, and we're starting to see coating season, which is normalized. And again, I made this point on the last call, if you think about the duty affected areas at the peak of exports from China into those areas.

So Europe, Brazil, India and Saudi Arabia. That's about 800,000 tons of exports from China. And again, I made this comment last time, use the U.S. as a proxy when the Trump [ 301 ] tariffs went into place back in 2018, a 900,000-tonne per year market, we're only 20,000 tons of TiO2 is being exported from China.

So I'm not assuming it's going to go to that. But if you think about -- let's just say, there's half of that volume, half of that 800,000 tonnes gets distributed to other suppliers it's reasonable to assume that we would get at least 25% of that. That's 100,000 tons. And at that rate, we're sold out.

We're selling more than we're making with our new footprint. We've redistributed our products so that we can continue to service customers that came out of [ Bowick ], probably not so much in China because we exited that market because it just wasn't profitable.

Next question will be from John McNulty at BMO Capital Markets.

This is [indiscernible] on for John. So I have a couple of quick follow-ups. So I think it was Josh's question earlier on the production cost quarter-over-quarter. Do you expect that benefit to grow sequentially throughout the year or did I kind of like misconstrue what you were saying earlier?

Yes. I think some of it related to some improvements in our operating sites, which were challenge in Q4, as we mentioned, from a solar perspective. So we do see our sites operating at a decent clip in Q1. So I shouldn't see a huge increase in from operating well at higher rates. We are ramping up some plants a bit more. So you'll see some of that. But a big driver is the sustainable cost improvement program that we'll see get larger throughout the year.

So from Q4 to Q1, it had a lot to do with the higher cost rolling in to our balance sheet from the outages that we had -- but when you think about on a TiO2 basis, I'm not going to share our budget with you, but our costs were relatively flat throughout the year. With the forecast that we currently have with running our mining operations at lower rates, in the first half of the year than we are in the second half of the year if we start to ramp up in the second half of the year, costs will go down on the mining side of the business.

Got you. Okay. That's helpful. And then what exactly are you thinking for like the base case for U.S. and the Chinese housing markets for this year? It's embedded in kind of your free cash flow guide for the year.

Yes. Look, it's a great question. And I know a lot of the customers that we sell to are companies that you follow. I think a lot of it in the U.S. is going to depend on interest rates. So what I can say is that our volumes that we're forecasting right now for the year do not assume a significant swing up on the construction side of the business. Volumes are being driven a lot by the activities that were put in place for the structural shift on antidumping.

There is some growth -- we're seeing a seasonal improvement in Europe and in North America this year is similar to what we saw last year in the first quarter. And last year, in the first quarter, we had a pretty good bump up in our sales. The reason it's not bumping up this quarter is because we're coming off of a very strong fourth quarter.

So there's been a lot of investment in Germany. Germany is spending a lot of time trying to figure out how they can reengage that economy. So we're hopeful that the economy is going to pick up, and we'll see a swing in the construction market. But we're not planning on that being a crutch to lean on all year long.

Next question will be from Peter Osterland at Truist Securities.

For TiO2, what are the dynamics around mix that you're expecting in the first quarter. On a year-over-year basis, is mix expected to be a headwind? And what are the major drivers there?

Well, Q4 to Q1 mix will be a tailwind on price. So as I mentioned, Asia was -- we sold a lot more in Asia and there's some lower margin sales in Asia in the fourth quarter. India sales in the first quarter are down for reasons that I explained, and we're seeing a seasonal build in Europe and in the U.S., which typically yield higher margins.

So when I referenced first quarter, we're implementing price increases. We estimate those price increases to be 2% to 4%. That's a mix between actual price increases and the positive mix that we're getting from selling into higher-priced markets.

Very helpful. And then just as a follow-up on the potential for higher zircon pricing beginning in the second quarter, could you just size approximately the price increase that you're targeting? And are you seeing market dynamics that are favorable to potentially support continued price recovery beyond the second quarter?

So we're negotiating with a lot of different customers. I can't provide you with specifics on price, but I can say that I've got a high level of confidence based on what we're seeing right now that the increases that we're working on for Q2 will start to be implemented. And if the market continues to be tight, and again, there's -- I mean reference that our volumes or our inventories getting lower -- we had a strong fourth quarter.

Again, first quarter is going to be a mere image of that. So I would expect that the industry is going to continue to get tight. We're also starting to see buying patterns from customers where they had destocked they're restocking, getting back to normal buying patterns. And we have seen -- I think on the last call, I said we've started to see some positives on the zircon side of the business everywhere except China.

Now we're starting to see some positive moves on the Chinese consumption. So it's a bit early for me to give you an annual guide, but I have confidence that for lots of reasons, price momentum will continue beyond Q2. But that's still a bit early to call that definitively.

Next question will be from Frank Mitsch at Fermium Research.

John, listen, I mean when I see something like 13% volume growth at the same time the price is down 8%. Macro [ 101 ] suggests that there's a price war breaking out and people are using price to grab volumes, you've been outlining why that's not the case. But what are you seeing on behalf of the industry as a whole, you're announcing price increases, it takes two to tango. Is there -- is there some resolve in the industry you believe and some price discipline given that we're at pretty low profitability levels? Any color there would be very helpful.

Yes. It's a great question, Frank. Thanks. Again, I can't speak to everybody what I can tell you is what I hear in the industry, and that's everybody's announcing price increases. So we aren't on an island. And again, for us to be getting traction on prices. Others need to be pushed in China has made some announcements question is, will they implement those price increases. There's other things that are going on as well.

I mean we talk a lot about antidumping. I mean there's some activity going on to try to increase those duties in Europe. But the reality is profitability in the industry when you look at fourth quarter EBITDA announcements by the publicly traded companies there wasn't a lot of EBITDA there. Now I can't presuppose what's going to happen when other announcements happen, but I think the industry needs to get back to a profitable place.

So part of it has to do with profitability. But at the end of the day, there has to be, to your point, it does take two to tango, and you can't be on an island. I do believe that the industry is moving towards price increases. I can't speak to exactly what that will look like, but I do think that based on what we're hearing, we're not the only one announcing increases.

And then I would say one contributing factor that with respect to our Chinese competitors is sulfur prices have gone up significantly. If you take a look at where they were since mid -- at mid-2025, they're up -- so they are facing a big headwind on raw material costs.

Yes, I think it's a good point because it's not just Chinese. It's anybody that makes TiO2 on the sulfate base. So it's all the European sulfate producers. And John made that point, it's up 70% since July of last year. Since the beginning of '25, it's up 160% and that's not sustainable. It has a lot to do with the Ukraine Russia war, but there's lots of reasons why prices need to move, but the point you made is the most valid one, Frank, and that is, it all depends on how the competition work. And I can't speak exactly to that other than we're not the only one announcing increases.

That's very helpful color. And I appreciate the breakout on Slide 6 and 7 in terms of what drove sales and what drove EBITDA. What jumped out at me was volumes sequentially increasing $56 million on the top line, but $2 million on the bottom line sequentially. I was wondering if you could speak to the incremental margins on volume growth and what your expectations are there?

Great question. And again, a lot of it has to do with a lot of the sales that we had or the lot of sales growth we had in the fourth quarter, I would say the variance between the 3% to 5% guide that we had and the [ 9 ] that we actually achieved had a lot to do with where we sold it. A lot of that was in Asia and the best significant portion of it was in India. Again, we're still competing with the Chinese over there.

So it had a lot to do with where we're selling. So when we think about the volume shifting in the first quarter, it's shifting away from those markets. And that's why part of our margin improvement in the first quarter is being driven by mix, and that's a regional mix in addition to price increases.

Next gentlemen from Vincent Andrews at Morgan Stanley.

This is Justin Pellegrino on for Vincent. I was just hoping you could describe the next process and kind of the anti-dumping duty story here? What's the approach to take share from other Western suppliers for share that had originally been ceded to the Chinese? And then are there any other markets that you're watching for potential antidumping duty measures in the future?

Yes, I'll start with the last question, and I would say anywhere where there's TiO2 production, there's probably work underway to look at antidumping. I can't go into any specifics, but -- this is a shifting tide. And as I mentioned before, in Asia, China has largely saturated that market. But there's other areas where TiO2 is produced and there's work underway in every one of those regions on antidumping. Could you restate your first part of the question again, so I make sure I answered it?

Absolutely. I was just kind of curious, as we've seen these antidumping duties put in place now that they're largely in place, what's the approach to take share from other Western suppliers that was originally a share that was ceded to the Chinese? Is it largely a price dynamic? Or are there other competitive actions that you can take to try and gain share?

From other Western suppliers, I would say the majority of what we're doing with anti-dumping is actually taking share in China. So again, when we think about our marketing plan, there's areas that are strategic for us, and we'll continue to grow in those markets. But antidumping is largely going to be a structural shift where we're taking share that we succeeded, that we basically lost to China as they were dumping, not to say that we don't compete with all the other western suppliers we do. But antidumping isn't really driving an opportunity for us to go out and do anything other than recapture share that the Chinese actually had taken based off of very low dumping prices.

Next question will be from Roger Spitz, Bank of America.

And maybe you said it and I missed it, but if you exclude for TiO2 price for Q4 on a year-over-year basis or a sequential basis, if you exclude the regional mix, which was an adverse mix, what were -- what was TiO2 pricing? Was it essentially flat?

It was down 2% and that was what we forecasted. The other 2% was mix.

Okay. And the [ Saba ] downtime, did you provide an EBITDA impact in Q4 from that?

About $11 million.

Got it. And lastly for me, have you -- or can you say what is the total fixed cost savings of having shut [ Botlek and Fuzhou ] on an annual basis?

Yes. So -- yes. So as we -- from a [indiscernible] perspective, we've mentioned that longer term or by the fixed cost leverage to be about $30 million of savings. And then [ Fuzhou ] would be about a $15 million savings.

And just to be clear, maybe on that Stallingborough comment, that outage is behind us.

Next question will be from John Roberts of Mizuho.

Should we think about normal seasonal sequential volumes after the March quarter? It's obviously been pretty volatile and unusual seasonality in the last couple of quarters. But is that in your mind kind of when we normalize again?

Yes. I would say even in the fourth quarter, when you -- I mean, the first quarter, when we think about seasonal volumes, and I made a reference that you're looking at Europe and North America, but Q4 to Q1 growth is pretty similar to what we're seeing -- what we saw last year and that was an uptick. And we're forecasting normal seasonal growth that to the extent we see more of a pickup in demand, and it's not just the structural shift then you could get a bit of a higher bump on that.

But I think a lot of that is going to depend on the housing market and what happens with interest rates. But short answer is, yes, we'd see more of a normal shift in seasonal demand.

And could you share any updated thoughts on the proposed China acquisition of the idled U.K. TiO2 plant?

I can tell you that -- there's a lot of work going on there. There was an article that came out earlier this week. CMA is obviously investigating that. I think on the last call, we said that it's not a slam dunk that still a work in progress. And I can't give you clear visibility on what's going to happen there, but there's a lot of, I'd say, activity going on around that acquisition, and there's been no decision on how that's going to be concluded yet.

Next question comes from Aaron Rosenthal at JPMorgan Chase.

Is your definition of cash flows being referenced both on the call and the slides defined as cash from ops plus CapEx? Or is there an adjusted cash flow definition that we should think about? And on that same front, what are your expected cash restructuring charges this year?

Yes. No, that's correct. It's free cash flow after -- basically before the dividend and other debt movements. And then from a restructuring charge perspective, we -- the mass majority of the bottle restructuring charges were hit in 2025. So we do see a significant reduction just about $6 million left there. And then China, we expect about $15 million or so of restructuring charges related to that. So overall, over a $50 million improvement on the cash basis year-over-year.

Okay. Great. And then just looking at liquidity and thinking about the cash flow bridge. So 1Q cash burn, that makes sense, 2Q, maybe flattish and then implied 2H cash generation. But as you think about effective liquidity pro forma at 3/31 or into the second quarter, it seems like it seems to be very light and with very little margin and error are you entertaining any additional sources of liquidity in the near term, equities up a lot to date secured bonds at par, the market loves chems, it seems like right now, it would be a very opportunistic time.

Yes. So we've ended the year with $674 million of liquidity. So we believe that is a strong and sufficient amount of liquidity, delever or to manage through any cycle. And we said in the past that we can operate as well as $200 million or so of liquidity. We like to go into Q1 with over $300 million as that is the biggest use for us. So we're more than double the position of even being comfortable at -- in a reasonable range. And so we're just focused on running the business, managing pulling levers that we can -- but as we expect to generate a significant amount of free cash flow in the rest of the year after Q1, we think we're in a solid position.

Great. If I could just sneak maybe ONE more in. I think beyond the primary cash flow revolver, there is a handful of other smaller facilities. I think there's one that was up for renewal. I think it was maybe $50 million or $60 million in '26. Is the expectation that you are going to renew and extend that?

Yes. We normally get those renewed every year. We have a couple of facilities in the U.K. and Saudi that we get renewed.

Next question will be from Hassan Ahmed at Alembic Global.

John, obviously, a lot of comments made about volume growth in 2026 year-on-year. Then obviously, expecting a positive titanium dioxide sort of pricing section. Just wanted to sort of bring all of those factors together and seek some clarification. Look, I mean my understanding is, and correct me if I'm wrong, that you guys obviously had a very strong Q4 volume wise, right? So even if the market does not demand-wise grow that much, this year. Just for Tronox in particular, the sort of market share gains from antidumping and the like, should put you in a very decent position show meaningful volume growth year-on-year.

So first part of that question is, is that fair to assume without and then obviously, restocking and maybe growth in the market would just be gravy from a volume perspective. And then alongside that, on the pricing side of things, it just seems that towards the end of last year, pricing got a bit sloppy. You had a bankruptcy out in England.

There were -- this chatter about inventory being sold at below market pricing and the like. So a combination of maybe the absence of that and a lot of folks not making EBITDA, is that really what's driving your confidence in terms of getting pricing in Q1 and beyond?

Thanks, Hassan. I think I'll start with your first part of your question, and you're exactly right. We're not forecasting a tremendous amount of demand growth. This has a lot to do with the restructuring of the business. And again, I made that reference if we only get -- if China keeps half the exports that they were exporting at the peak, and we get 25% of that 400,000, 100,000 tons for us and very quickly, we're sold out. To the extent market demand improves, then that's going to be additional volume for us.

So we're not banking on a significant recovery, although, as I mentioned last quarter, the market will recover. I can't specify exactly, but we're starting to see seasonal trends that will blend itself towards supporting that. So agree with everything you said from a demand perspective. On the pricing side of the equation, I would agree with you as well. There were a lot of reasons why pricing should not have gone down in the fourth quarter. It did -- we're starting to not only announce increases.

We're implementing them in the first quarter and kind of going back off the question, Frank had earlier, you can't do that if you're on an island. We're the only one raising pricing, and there's a supply demand that's out of balance, and it's hard to do that. So I would agree with that. And again, you start to think about the recovery the recovery is going to be an inflection that will be a bit different because there is a lot of Western supply that's just not there anymore because it's permanently closed.

Every single Western supplier has closed plants we close to. One supplier doesn't even exist anymore and it wasn't like they weren't a good supplier. So I would agree with everything that you said and that the market picks up and interest rates start to move and housing moves in the right direction, that will only be a catalyst for higher pricing.

Very helpful. And as a follow-up, obviously, everything pointing towards '26 being a better year than '25 and hopefully, things cycling up there on after. I mean with that said, where do we stand terms of rationalization? I know you talked about it in prior calls, even on this call, that 1.1 million tonne figure of sort of capacity shut down since 2023. Are you -- I mean, with this sort of improving backdrop, I mean, what are your thoughts about further rationalization, particularly as they pertain to China? I keep sort of thinking through at least 20 facilities in China being less than 50,000 tons how does the whole sort of anti evolution thing play in and further rationalization happen if indeed the environment is getting a bit better.

Yes. It's another good question. The closure of our [indiscernible] plant was not an easy decision, and it wasn't as if it was low on the profitability wheel in China. We don't get subsidized, but it's a great question. I would have thought capacity would have closed already. And to the extent these anti-dumping initiatives continue to expand as we believe they will outside the regions they're already implemented in you're going to have to see some kind of rationalization.

And again, is it going to be inside? Or will it be outside of China? I think there can be a mixture of both. I can't tell you how long sulfur prices are going to be up -- but that is a significant headwind in the industry right now. Price is up in 12 months, almost 160%. That's not sustainable. It takes about 1.3 tonnes of sulfur to make a ton of pigment. So you do the math, it's a lot of money. So I would expect -- if the market continues to recover quickly, maybe you won't see as much if it takes a little bit longer to recover, you might see more rationalization. And China is still kind of an unknown. I would have expected more capacity to come out already.

Ladies and gentlemen, this concludes the question-and-answer portion as well as our conference call for today. We would like to thank you for attending and ask that you please disconnect your lines. Enjoy the rest of your day.

Good morning. Welcome to the Tronox Holdings plc Q3 2025 Earnings Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, please disconnect at this time. I would now like to turn the call over to Jennifer Guenther, Chief Sustainability Officer, Head of Investor Relations and External Affairs. Jennifer, please go ahead.

Thank you. Good morning, and welcome to our third quarter 2025 earnings call today. A friendly 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 what we know today. 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. Additionally, please note that all financial comparisons made during the call are on a year-over-year basis unless otherwise noted. On the call today are John Romano, Chief Executive Officer; and John Srivisal, Senior Vice President and Chief Financial Officer. You can find the slides we will be using on our website. It is now my pleasure to turn the call over to John Romano. John?

Thanks, Jennifer, and good morning, everyone. We'll begin this morning on Slide 4 with some key messages from the quarter. Our third quarter results were shaped by ongoing challenges associated with the weaker demand than forecasted, downstream destocking above what we expected and heightened competitive dynamics in both TiO2 and zircon markets. While our competitors' insolvency proceedings are expected to benefit Tronox's future sales volumes, we saw a temporary headwind in the third quarter with more aggressive liquidation of inventory at below market pricing. We have made headway in securing tariffs against Chinese dumping though late in the quarter, we encountered an unexpected hurdle in India when a state court temporarily stayed antidumping duties.

The zircon market also experienced headwinds beyond our expectations, particularly in China, where both pricing and volumes continue to face pressure. In addition, we had a sizable shipment of zircon that rolled from Q3 to Q4 at the end of September. We recognize the importance of safeguarding our cash flow and our cost improvement program is ahead of schedule. We are now on track to deliver in excess of $60 million in annualized savings by the end of 2025 and expect to reach our $125 million to $175 million annualized savings goal by the end of 2026. Separately, we have targeted operational actions to manage near-term cash flow. These include the temporary idling of our Fuzhou pigment plant and adjustments at our Stallingborough pigment plant, where we lowered operating rates and are accelerating planned maintenance to align inventory with current market conditions. At our Namakwa smelter operation, we temporarily idled 1 furnace and will soon initiate a temporary shutdown of our West mine.

These actions are intended to reduce inventory and enhance cash flow, supported by our new East OFS mine, which will begin commissioning November 17, supplying higher-grade heavy mineral concentrate into our network. We will continue to assess further measures across mining and pigment sites to ensure production remains closely aligned with prevailing market conditions. Combined, these initiatives are anticipated to generate an estimated cash benefit of approximately $25 million to $30 million in the fourth quarter, positioning us for free cash flow in the fourth quarter and 2026. And on the commercial front, we're driving targeted initiatives to monetize inventory throughout our value chain. Additionally, we strengthened our balance sheet by raising $400 million in senior secured notes, boosting our available liquidity. We are continuing to actively evaluate all available levers to generate cash, reinforce our operational foundation and continue supporting our customers strategic -- as a strategic global supplier.

Despite the unforeseen obstacles in the third quarter, there are reasons for optimism. Antidumping measures continue to gradually improve our penetration and growth -- and growth in protected markets. We're pleased that the Brazil finally finalized their duties 2 weeks ago, increasing them significantly for major importers compared to provisional duties. Likewise, Saudi Arabia has now implemented definitive antidumping duties at rates comparable to the European Union, and we expect India's duties to be reinstated in the near future. Additionally, increased focus by the West on diversifying away from China and rare earths presents a unique opportunity for Tronox. Our mining operations in Australia and South Africa contain substantial amounts of monazite, a rare earth mineral containing heavy and light rare earths, which can be processed for downstream use in permanent magnets.

We are continuing to action on what we can control and influence, reinforcing the business through our cost reduction and cash improvement actions and creating long-term shareholder value. I'll speak to these actions in more detail a little bit later in the call. But for now, I'll turn the call over to John for a review of our financials in the quarter in more detail. John?

Thank you, John. Turning to Slide 5. We generated revenue of $699 million, a decrease of 13% versus the prior year third quarter, driven by lower sales volumes and unfavorable pricing for both TiO2 and zircon. We also had lower sales of other products as compared to the prior year. Loss from operations was $43 million in the quarter, and we reported a net loss attributable to Tronox of $99 million, including $27 million of restructuring and other charges primarily related to the closure of Botlek. While our loss before tax was $92 million, our tax expense was $8 million in the quarter as we do not realize tax benefits in jurisdictions where we are incurring losses. Adjusted diluted earnings per share was a loss of $0.46. Adjusted EBITDA in the quarter was $74 million, and our adjusted EBITDA margin was 10.6%. Free cash flow was a use of $137 million, including $80 million of capital expenditures.

Now let's move to the next slide for a review of our commercial performance. As John covered earlier, in the third quarter, we saw further demand weakness and heightened competition, putting pressure on TiO2 and zircon sales. TiO2 revenues decreased 11% versus the year ago quarter, driven by an 8% decrease in volumes and a 5% decline in average selling prices, partially offset by a 2% favorable exchange rate impact. Sequentially, TiO2 sales declined 6%, driven by a 4% decrease in volumes and a 3% decrease in price, partially offset by a favorable 1% exchange rate impact from the Euro. Europe, Middle East and North America saw sharper seasonal declines amid market weakness, destocking and competitive pressures. Latin America experienced typical seasonal uplift, although weaker than expected, while Asia Pacific growth was muted by competition and a temporary stay on India antidumping duties.

Zircon revenues decreased 20% compared to the prior year due to a 16% decrease in price, including mix and a 4% decline in volumes driven by continued demand weakness, primarily in China. Sequentially, zircon revenues decreased 13%, driven by a 7% decrease in volumes and a 6% decrease in price, including mix. Revenue from other products decreased 21% compared to the prior year due to higher sales volumes in the prior year. Sequentially, other revenue increased 18%, reflecting higher sales of pig iron and heavy mineral concentrate tailings in the third quarter.

Turning to the next slide, I will now review our operating performance for the quarter. Our adjusted EBITDA of $74 million represented a 48% decline year-on-year as a result of unfavorable commercial impacts, higher freight costs and higher production costs, partially offset by exchange rate tailwinds and SG&A savings. Sequentially, adjusted EBITDA declined 20%. Unfavorable average selling prices, including mix, lower sales volume of TiO2 and zircon, higher production costs and unfavorable exchange rate impacts were partially offset by the sale of heavy mineral concentrate tailings and SG&A savings. Production costs were unfavorable by $4 million compared to the prior year and $7 million unfavorable compared to Q2. Both were a result of unfavorable LCM and [ idle ] facility adjustments due to lower pricing and higher costs from reduced operating rates.

These were partially offset by lower cost tons sold in the quarter as a result of the self-help actions that we initiated with our sustainable cost improvement program. Without these proactive actions, the headwinds would have been more significant. Turning to the next slide. As John mentioned earlier, we raised $400 million of secured notes in the third quarter to enhance available liquidity and repay borrowings under our revolving credit facilities. With that, we ended the quarter with total debt of $3.2 billion and net debt of $3.0 billion. Our net leverage ratio at the end of September was 7.5x on a trailing 12-month basis. Our weighted average interest rate was -- in Q3 was approximately 6%, and we maintained interest rate swaps [ such that ] approximately 77% of our interest rates are fixed through 2028. Importantly, our next significant debt maturity is not until 2029. We also do not have any financial covenants on our term loans or bonds.

We do have one springing financial covenant on our U.S. revolver that we do not expect to trigger. Liquidity as of September 30 was $664 million, including $185 million in cash and cash equivalents that are well distributed across the globe that we are able to move around with little to no frictional cost. Working capital was a use of approximately $55 million, excluding $30 million of restructuring payments related to the closure of our Botlek site. This was due to the decrease in accounts payable driven by lower purchases and cash improvement actions and increase in accounts receivable. Changes in inventories was a much lower source of cash than expected as a result of lower sales volumes. Our capital expenditures totaled $80 million in the quarter with approximately 59% allocated to maintenance and safety and 41% almost exclusively dedicated to the mining extensions in South Africa to sustain our integrated cost advantage.

We returned $20 million to shareholders in the form of dividends paid in the third quarter. The Q4 dividend reflects the updated $0.05 per share level. I want to reaffirm our commitment to improving cash flow and optimizing working capital. We are implementing targeted actions to reduce inventory through lowering production rates across all areas of our operation. And we continue to remain disciplined across -- around capital expenditures as illustrated around our actions with the West Mine. I remain confident in our ability to weather this prolonged downturn. With that, I'll hand it back to John to review these actions in more detail. John?

Thanks, John. So turning to Slide 9. As outlined at the starting of the call, we have seen positive developments on antidumping this year. This slide summarized the monthly Chinese exports to the 4 key regions that finalized duties in 2025. While India's duties are currently stayed, we have a high level of confidence that they will be reinstated in the near future. As the data shows, the implementation of antidumping duties has had a measurable and meaningful impact on Chinese imports in the EU, Brazil and India, and we would expect to see this trend carry into Saudi Arabia as the governments reinforce their commitment to local investment and sustainability. At the peak, these markets imported a total of approximately 800,000 tons of TiO2 from China. While we do not anticipate this figure to go to 0, we have and expect to continue to see a meaningful reduction in exports to these markets and share growth for Tronox.

As a reference, the U.S. has had tariffs in place on TiO2 since 2018 when the Section 301 tariffs were put in place under President Trump's first administration. Chinese exports to the region have remained consistently below 20,000 metric tons per year in a market that consumes approximately 900,000 metric tons. These developments are extremely positive for Tronox, especially as the sole domestic producer in Brazil and Saudi Arabia and a significant participant in the EU and Indian markets as well as the U.S. market. Combining this with the industry's idled mining capacity and over 1.1 million tons of global TiO2 supply that has been taken offline since 2023, the majority of which we believe is permanent, the industry is undergoing a structural shift that supports a supply-demand rebalance. As the most vertically integrated TiO2 producer, Tronox is well positioned to capitalize on this opportunity created by the rebalancing of the market.

Turning to Slide 10. We remain actively engaged in advancing our rare earth strategy. With high concentrations of rare earth in our mineral deposits and decades of expertise in mining and mineral processing, we're uniquely positioned to play a significant role across the value chain from mining to upgrading. We are already mining monazite in Australia and South Africa, but our capabilities extend beyond mining. We operate both hydro and pyrometallurgical processes and employ over 400 engineers, geologists and metallurgists among our 6,500 employees. Combined with our global footprint, we are -- we have the flexibility to optimize where we participate along the rare earths value chain. As a part of this strategy, in October, we took a 5% equity interest in Lion Rock Minerals, a mineral exploration company whose Minta and Minta East deposits have the potential to be a major source of high-quality monazite and rutile. This investment represents an attractive opportunity with minimal overburden and has substantial potential for resource development in support of our rare earth strategy.

Now turning to Slide 11, I'll review our updated outlook. We are now expecting Q4 2025 revenue and adjusted EBITDA to be relatively flat to Q3 of '25. This is primarily driven by weaker-than-anticipated pricing on TiO2 and zircon as a result of more aggressive competitive activity in the market, partially offset by improving volumes across both TiO2 and zircon. Although our outlook has been revised lower from our previous guidance, we expect fourth quarter TiO2 volumes to increase 3% to 5%, net of a 2% volume headwind from idling our Fuzhou facility and zircon volumes to increase 15% to 20% sequentially in part due to the rolled bulk order from Q3 to Q4. These are strong leading indicators for the fourth quarter, which is normally lower due to seasonality and directionally in line with what we would historically see on the front end of a recovery.

On the cost side, we continue to execute on our cost reducing measures as previously outlined. Our sustainable cost improvement program is expected to exceed over $60 million -- $60 million of run rate savings by the end of the year. And as I mentioned earlier, we have temporarily idled our Fuzhou pigment plant and one of our furnaces at our Namakwa site, lowered operating rates at Stallingborough pigment plant and will soon initiate a temporary shutdown of our West mine. We will continue to assess further measures across mining and pigment sites to ensure production remains closely aligned with prevailing market conditions. These actions position us for positive free cash flow in the fourth quarter and 2026. With regards to our cash use items for the year, we expect the following: net cash interest of approximately $150 million, net taxes of less than $5 million and capital expenditures of approximately $330 million. And we expect working capital to be a slight source of cash for the fourth quarter.

Turning to the next slide, I'll review our capital allocation strategy before we move the call to Q&A. Our capital allocation priorities remain unchanged and focused on cash generation. We continue investing to maintain our assets, our vertical integration and projects critical to furthering our strategy, including rare earths. We have taken decisive action to reduce our capital expenditures over the course of the year. For 2026, while we have some catch-up capital from delayed projects in 2025, we expect capital to be less than $275 million in the year. We continue to focus on bolstering liquidity. With the actions taken in the third quarter, we have ample liquidity to manage the business and endure market fluctuations. Last quarter, we lowered the dividend by 60% to align with the current macro environment. And as the market recovers, we will resume debt paydown, targeting mid- to long-term net leverage range of less than 3x.

We will continue to focus on what we can control and influence and reinforce the business through cost reduction and cash improvement actions. As the most vertically integrated TiO2 producer, Tronox is well positioned to capitalize on the opportunity created by the rebalancing of the market, evidenced by the effect of antidumping duties and supply rationalization in the industry. I remain confident that our -- in our ability to navigate this environment and deliver meaningful value for shareholders. And with that, we'll turn the question back over to the operator for the Q&A session. Operator?

[Operator Instructions] Our first question comes from James Cannon at UBS.

I think the first thing I wanted to poke on was just around some of the antidumping measures you're seeing. Just given the movement with India kind of pausing their tariffs for a while, it seems like if I square that against the new measures in Brazil and Saudi Arabia, that would be a net negative in terms of like market size. Can you talk about how those dynamics are playing into your volume guidance?

Yes. So you're right, the Brazil market and the Saudi Arabia market collectively are, in fact, lower than the demand in India. But I will say that we have a high level of confidence that those duties are going to be reinstated. And we're hoping that's going to happen before the end of the year. We are not obviously not having a facility there actively engaged in those negotiations, but we're very informed in what's going on, and we do believe the DGTR will make a decision prior to year-end. So the duties in India are currently still being collected. And if for whatever reason, those duties get reinstated, nothing is really changing. So when we look at the exports, we are -- there is a bit of a headwind where we were expecting more volume in the fourth quarter. When we think about our prior guidance, we were guiding to a higher number. We're still guiding to 3% to 5% more than what we were in the third quarter, and we're seeing some pickup there, but not as much as we had originally anticipated.

With Brazil and Saudi Arabia, we think that, that is a unique opportunity. When you think about the duties that were implemented in Brazil, they were significantly higher than the provisional duties in many instances with the larger importers doubled. So you should think about a number of around $1,200 per ton across all importers. So that's a significant play. We're the sole producer there. Saudi Arabia, what I can tell you is that was a -- we were expecting that to happen, but not as soon as it did. And we are the only producer there, and we also think we're going to have a unique opportunity there. So when we start to think about those volumes and that shift that I referenced on the call in the prepared comments about Q3 numbers versus Q4 numbers, it's not just a projection. We're looking at our -- October is already complete. And when we look at across every month that we've sold so far, if you recall, our first quarter sales were actually pretty strong.

March was our strongest month, and then we saw our volumes decline because we had a lot of other destocking going on, all the things that we referenced earlier. But our October sales, which are now complete, were the second largest month this year and equivalent to the March sales. And when we look into November and December, November is trending in the same way. We have very good vision on November and December orders. So I know there's probably some trepidation around what we're saying with regards to confidence level in the numbers, but that 3% to 5% that we're looking at with regards to growth Q3 to Q4 is very much in our line of sight.

Got it. And then I just had one follow-up on the rare earths opportunity. You talked about having some capabilities with chemical conversion. But if you could give a little more detail and just unpack for us what you can do in the rare earth space in kind of the refining type downstream piece of that market and whether or not you can do that with your current footprint or that would need additional capital or a partner?

Okay. Yes. So look, on the rare earth side of the business, obviously, we've been mining forever, and I made reference that mining is not the only capability that we have. So we're already in the concentration business. So that's just producing rare earth mineral concentrate and have historically been selling that. The next step in that value chain would be cracking and leaching. We've already completed a pre-feasibility study and have started a definitive feasibility study on that production. We've located a site where that would be in Australia. Look, moving down into refining and separation, that is work that's going to require for us to do some work with a partner. We're engaged with a lot of different participants across multiple jurisdictions. We have nondisclosure agreements in place, so we aren't at liberty to elaborate on who that is. But we're well positioned with our current capacity as well as some of the things that we referenced. So we made a small investment in a company called Lion Rock. That company has a very interesting deposit.

We've looked at it. We've actually sent our people there. We made the investment so that we could now validate the work that they've done. There's still a lot of work to do there, but it's not only our current mining, we're looking longer term at how we can continue to support that growth. There will be capital involved. And as we have more information, we'll articulate that. But at this particular stage, that's about where we'll have to close off the discussion with regards to development there.

Our next question comes from Peter Osterland at Truist Securities.

Sorry, Peter, we're getting a little bit of a tough connection from you. Can you start at the beginning of your question again, please?

Sure. Can you hear me now?

Better.

I just wanted to ask [Technical Issue] operating rates [Technical Issue]. Do you have a specific time frame in mind at this point for how long [Technical Issue] to continue industry [Technical Issue] could these actions come from.

Peter, I'll try to answer your question. It was a bit broken up. It was regarding, I think, the idling of the Fuzhou plant and our actions that we took in Stallingborough. So the Fuzhou plant, we idled that plant to preserve cash. The market, as we've talked about, all of these issues with antidumping are creating a lot of competitive activity inside of China. That is one of our lowest cost plants, but it's obviously operating in one of the lowest priced markets. So we've idled that facility. Our plan would be to probably have that offline. We'll make decisions on what we're going to do with that asset as the market unfolds. With regards to Stallingborough, we brought forward some maintenance and have slowed the facility down just to be in line with what the market is doing. So I would expect in the fourth quarter, we'll probably bring that plant back up to full rate.

When you start thinking about all the things that we referenced around these structural changes, we want to make sure that we're positioned to be able to support that inside of Europe. We have a significant position in Europe. The market in Europe has been a bit weaker in the third quarter. When we start thinking about all of the activity that's going on around the supply-demand dynamics right now with the pickup in Q4, I do believe, and I've said this before, but I do believe we're on the front end of a recovery. And front end of the recovery, you start to see demand patterns that are a bit different than what you would historically see. Q4 volumes being up 3% to 4% when they're seasonally normally down is a good sign for us. And the next step beyond that, if we see this continuing to transition in a positive direction, we'll start looking at pricing initiatives. So I'm very encouraged by what we're seeing in the market.

Stallingborough, to be specific, is a short-term action where we brought forward some maintenance, slowed the plant down to manage inventory, but we'll be ready to action that plant at full rates to meet the demand as it returns.

Very helpful color. And just as a follow-up, thinking about 2026 earnings potential, targeting the $125 million to $175 million of cost savings by the end of 2026. Do you have an estimate of what the year-over-year EBITDA impact will be in '26 versus '25? And what are the swing factors that would drive the low versus the high end of cost savings within that range?

Yes. So as we've mentioned previously, we have taken action this year, but on the sustainable cost improvement program, but it will take some time for us to flow through our balance sheet and to see it in our results. So in 2025, there's been tons of activity across all of our sites, all of our functions, all of operations. But in 2025, it's primarily been the lower-hanging fruit that we see in our numbers. So about $10 million we've seen primarily in SG&A, although as we move into 2026, as John mentioned, we're already on a run rate to end the year at over $60 million. So we should see at least that amount in 2026. It will be more operational focused at that level, and we see it coming through in fixed costs.

So maybe just adding on to that a little bit because we've had a lot of questions about this sustainable cost improvement program. And this is a bottoms-up process across our entire organization. And at this point, we've identified and acted on almost 2,000 ideas across our network. And out of those, we've got more than 1,100 that have been planned, executed and fully realized, and we currently have 413 of those ideas that are already delivering value. And when you think about how those savings kind of break out, a significant portion of those savings are coming from fixed cost reductions, and we're making good progress on the variable side as well. And we've made some great progress on ore yield improvements at our pigment plants, thanks to some of the investments in our digital infrastructure like TOIS, which is Tronox's operational information system, APC and other actionable metrics, all working together now, and we're lifting and shifting those progress -- those projects across our network.

Now I just add a few more bullets because I think it's important. In addition, some of our other capital investments are now starting to pay off. For example, some of the work that we did in Bunbury to upgrade our cooling and waste infrastructure are now translating into our capability to use lower head grade more efficiently. And we're also realizing benefits from our energy efficiencies and investments in KZN and Namakwa with larger electrodes at our furnaces, making differences in our costs and EMV optimization across all of our mining -- all of the mining side of our business. Our contractor usage has been optimized, and we've significantly reduced our outside services, helping us become more efficient. And we've improved our logistics and optimizations of our MSPs to produce higher-value product mixes that match current market demand and have found new opportunities to improve yield in several areas. And one of the things that we're utilizing now is an app called Power BI.

So every one of our people that are engaged in this process across the organization, including myself, have the ability to track these projects on a daily basis. So this isn't something that we're just talking about. It's something that's become ingrained in what we do every day, and we're making great progress on that front.

Our next question comes from Vincent Andrews at Morgan Stanley.

This is Justin Pellegrino on for Vincent. I just wanted to see if you could help us bridge to the positive free cash flow that you stated for 2026 and what assumptions are included within that, specifically if there's any expectation for earnings growth and changes in working capital amongst the other cash items that have been discussed on today's call.

Yes. Thanks, Justin, and I'll try to handle that. And obviously, we aren't giving a guide on 2026 as of yet other than being free cash flow positive. But some of the biggest drivers of improvement 2025 to 2026 include, as we've mentioned, the sustainable cost improvement program, growing from $10 million to well over $60 million year-over-year. We are also moving from a building of inventory in 2025 to reducing inventory. Some of that relates to the targeted operational actions that we have mentioned before, which is a $25 million to $30 million savings in Q4. And that should grow to almost $50 million to $80 million, just depending on how long we keep our facilities down for. Additionally, we did mention that CapEx will be reduced, $330 million guided this year to under $275 million for next year.

And then finally, as you know, we did shut down our bottling facility and the cash restructuring charges we do hit through free cash flow, which was -- should be well behind us -- mostly behind us in 2026. We have roughly $80 million of cash charges in 2025 and a much lower low teens or so expected in 2026. But obviously, it will depend a lot on the commercial market.

Great. And then just one more. I was hoping you could kind of talk about the higher-than-expected destocking that you saw downstream. Can you frame that just relative to historical averages? And then what are you hearing throughout the supply chain regarding expectations for rebuilding any sort of inventory in the channel?

Yes. So look, that -- I think the destocking, in my opinion, took a little bit -- it happened a little bit sooner than we would normally in the year. So we weren't anticipating a lot of that destocking to happen in the third quarter. Quite frankly, a significant amount of it happened in September, so right at the end of the quarter. So it was a bit unexpected. That being said, we think that a lot of that destocking has already taken place. And so when we start to look at our order pattern in the fourth quarter, A lot of it is just, I think, our customers going back to normal buying patterns. Again, when we start to think about a recovery, it's going to be different this time. And it's large -- at the front end of it, it's going to be based on a lot of this restructuring that's happened that's been fueled by all these antidumping initiatives. And then when you think about the duty affected areas, including the U.S., which I noted on the call, was actually started under the First Trump administration with the Section 301 tariffs, you've got markets that consume 2.7 million tons of TiO2 that now have duty impacts.

And that's starting to play favorably because a lot of those markets are markets that we participate in. And I know we've been talking about it for a long time, but it's starting to actually show up in the numbers. That paired with some of the competitive activity that was generated by one of our competitors that went through an insolvency, it's our opinion that, that inventory will be liquidated soon. And we're starting to see buying patterns in the European market, which would reflect that. India, still a big market for us. The duties have been stayed. We have high level of confidence that they're going to come back, hopefully, before the end of the year. And at this particular stage, although muted from our prior expectations, we're still seeing growth in that region. So again, I think there's a lot of reasons to be optimistic about where we are in the cycle. We're 3.5 years into a downturn, and I can say with 100% certainty that it will turn. And it's my assumption that we're on the front end of that at this stage.

[Operator Instructions] Our next question comes from John McNulty at BMO Capital Markets.

This is John Roberts. I heard you call John McNulty, but I'm just checking whether you can hear me. Will LB be able to use their new position in the U.K. to bring Chinese ore in and serve the rest of the European market without a tariff?

John, look there's a lot left to be done with the announcement that LB is going to be acquiring that asset in the U.K. There's a lot of regulatory work to go through. So I would say by no means is that a slam dunk. I can't speak to what they may do. That asset is down. The longer that asset is down, the harder it's going to be to be brought back up. And having done a lot of work trying to buy assets in Europe historically, I would just say there's a lot of wood to chop there.

Okay. And do you have any rare earth activity going on in South Africa as well?

We mine in South Africa and Australia and monazite is present in both deposits. What we're doing right now is actioning the majority of what we have in Australia. But yes, we have monazite in South Africa and some of the things that we've done historically, although this last sale of mineral concentrate didn't have much rare earth in it. Historically, we have and continued to mine. And as long as we're mining in both those regions, we're getting monazite, which has both light and heavy rare earths in it. And we're developing a process forward to monetize that in a way which we can move down the value chain. Furthest we're going to move down that chain would probably be the refining side. The [ metalization ] and magnet production is not something that we feel we're uniquely positioned to do. But being a mining company that's regularly involved in mineral upgrading, it's a natural fit for us to look at concentration, acid leaching and cracking and refining and separation.

Our next question comes from Roger Spitz at Bank of America Securities.

I just want to understand the updated guidance for either 2025 working capital outflow and 2025 free cash flow or discuss the Q4 numbers because you've got -- you said working capital is only a slight inflow even though you're idling all these assets. So can you update us on either Q4 or full year 2025, both working capital as well as free cash flow?

So I'll start and then I'll let John add on to it. But to be clear with the idling of the assets. So obviously, it will be a working capital gain for us on the Fuzhou facility, slowing down Stallingborough and bringing forward maintenance will be a benefit. But -- and also on the furnace because that furnace actually was idled on September 15. We're just reporting that now. But the West mine, which is a significant process. Again, we made reference that, that's going to happen as we bring on East OFS. East OFS is starting commissioning on November 17. And as we finish that commissioning, we'll then bring that West mine down.

The West mine, if you think about that particular asset, we had an East and a West mine. East OFS is replacing the East mine. And the West mine will continue to run and operate, but to preserve cash, we're idling that as soon as we bring on East OFS and East OFS is going to have that higher grade mineral -- heavy mineral concentrate that will become into the network as we referenced on the call. So John, do you want to add more?

Yes. I think just to answer your question, I'll give you a little more details. But through year-to-date Q3, obviously, it was a significant use on working capital and free cash flow, roughly $190 million use on working capital and about over $300 million use in free cash flow. And we mentioned that we were going to be positive both on free cash flow and working capital for Q4. So obviously, maintaining that and slight improvement over both. I do think you need to look at what happened in Q3 and to understand what the drivers are in Q4. So as John mentioned, we did have a lot of commercial impacts negatively with the antidumping delays in India, with the Europe competitors insolvency and then competitive dynamic in China and rolling of shipment on zircon from Q3 to Q4. And obviously, that zircon shipment will help us in Q4. And then we did have a tailings sale in Q3.

But obviously, that went to -- as that happened late in the quarter, we will collect on cash on that in the -- in Q4. So it should be an improvement quarter-over-quarter. But all of that drove the fact that inventory was less of a reduction than we had expected. And so not a significant source of cash.

We will see that recovery. Obviously, the volumes are much higher in Q4 on both TiO2 and zircon, much more muted than what we expected, as John mentioned, but still an increase. So we will see some benefit from reduction in inventory. And then just from an AP perspective, it was a pretty decent use in AP as well as we did have restructuring charges of about $30 million in Q3 that will be lower in Q4. So while driving lower purchases and lower CapEx drove higher AP, we will see that revert in Q4. So all that being said is we do expect Q4 free cash flow and working capital to be more significant than Q3, but roughly flat.

And my follow-up is you said you don't expect to breach your revolver maintenance covenant in Q4. Would you be able to provide either the EBITDA and/or debt headroom at the end of Q3 under that covenant?

Yes. So obviously, we -- as we mentioned, we do not expect a spring covenant on the U.S. revolver. We are sitting with ample liquidity of $667 million. And so obviously, the test is you have to draw up 35% of our revolver, which is $350 million. So right now, we are undrawn on that revolver. And so we have significant cushion to get to that point, several hundred millions of dollars.

And when we think about all the actions that we're taking to preserve cash and you couple that with some of the positive things we're talking about on the market, again, I made reference that the market will recover. We think we're on the front end of that, but we're taking actions that we feel are prudent at this particular stage to make sure that we have cash and that all those things that John just referenced around a covenant is not triggered ever. So this is a process that we're in place. It's been a tough downturn, but we're taking actions that we need to take to manage the business through the long term.

Our next question comes from Frank Mitsch at Fermium Research.

All right. Great. I was close to saying something I shouldn't. Okay. So I want to come back to the unanticipated headwinds on price for the fourth quarter on both TiO2 and zircon. So for TiO2, it sounds like the competitive actions that you're seeing from liquidation Venator's inventory is a large part of that. And I was just curious as to -- and then also you would anticipate at some point in the future getting these duties put back on. I'm just curious from your perspective, assuming a normal coating season, when might we see instead of unanticipated headwinds on price, unanticipated tailwinds on price on TiO2. And then you also referenced on zircon, more aggressive competitive dynamics. Can you please flush that out a little bit for us?

Yes. Thanks, Frank. So on the TiO2 side of it, I'll be specific to the competitor that was liquidating inventory. We weren't responding to all of those liquidation events, right? By definition, they were selling at prices that weren't super attractive. All that being said, it created a lot of competitive environment, right? Others in the market were being -- competitive activity was going on in second quarter and the third quarter. We made reference in the third quarter that we were going to regain some of our share, and we were working towards that. But the liquidation of the inventory is just a catalyst for more competitive activity. I do believe that a lot of that inventory is going to work its way through the system before the end of the year. We're already starting to have discussions with customers about what '26 looks like because they want to be aligned with customers or with suppliers that are going to live beyond '26. So with the demand patterns that we're seeing right now, and again, in '24 and in '25 in Q1 we saw these bump-ups and then kind of fizzled out in Q2 and Q3.

Q4 is a bit different. We haven't seen a swing up like this with all the things that are going on that I referenced around kind of the restructuring of the industry and the duties. We do think this is going to be a bit of a different recovery. And with demand patterns like this, if they continue, as I mentioned, our October sales are the largest sales month in the year equivalent to where we were in March, and we have a very good visibility into November and December, which would also indicate that a lot of the destocking has already happened, and we're getting back to normal demand patterns from our customers. So the next natural thing would be pricing going in the other direction. And we're looking at that. It wouldn't be before the first quarter, but that's something that we're looking at.

As far as zircon goes, there was a lot of competitive activity. There's been a fair amount of heavy mineral concentrate being mined from China and other parts of Africa. Indonesia has now started to back off. So prices have gotten to the point where the Indonesian market, which is not huge, it's 60,000 to 70,000 tonnes of zircon per year, but we're starting to see them back off on that. There's other mining projects that have been backed off on, as I referenced earlier. So the zircon swing in Q3 to Q4, part of that had to do with the world shipment, but we're also seeing demand start to pick up. The last call, I made some reference around the rest of the world had kind of picked up, but China had not done much. We're starting to see, I would say, the front end of a pickup in China as well. So maybe a little bit too early to call what we might be seeing on pricing, but the demand pattern in fourth quarter is encouraging on zircon.

Our next question comes from Edward Brucker at Barclays.

I think you sort of mentioned it as you're going through the cash flow implications of the idling of the facilities. But are you able to provide the actual cash cost of the idling of the facilities and furnaces and then the closure of the mine that you expect?

Well, first off, we're not closing a mine. We're idling the West mine. So we're just bringing it down as we brought one furnace down at Namakwa, that furnace supplies a lot of the slag that we consume. So as we're not producing as much TiO2, we've idled the furnace. We're idling the mine. We'll bring that mine back up when the market recovers. And our cash generation, our benefit from that idling in 2026 will largely depend on how long we bring that down, but there will be a cash positive input to that. In 2025 fourth quarter, the collective impact from an EBITDA perspective on bringing those assets down is $11 million.

I think that's really important. So when you think about take Fuzhou off the table right now, we're running just north of 80% capacity utilization. And if you recall, when we were in the last downturn running our assets at low rates, these fixed cost absorption numbers were costing us $25 million to $30 million a quarter, and that did not include idling a mine. So this -- I want to kind of translate that back to -- we talk about this cost improvement program all the time. It's hard to see in the numbers. But when you think about that LCM or that fixed cost absorption hit we're taking in the quarter at only being $11 million has a lot to do with what we're seeing in the cost improvement program because we're running at similar rates. We brought a mine down, but our costs have not gone down or have not been impacted as much. So John, do you want to?

Yes. No, I think just to be clear, though, it's $11 million impact, as John mentioned, in Q4, but that will be offset from a cash perspective by a positive $25 million to $30 million, as we mentioned. So net Q4 will be a positive from a free cash flow basis. And it was important to note that, obviously, we do spend a lot of time. We've said before, we have a 30-year mine plan, but equally as important is really the handoff we have between mines. And so the reason why we ran the West mine for longer -- a little bit longer and didn't execute on that earlier in the year, it's really facilitated by the fact that our new East OFS mine is coming online. And so that's why you kind of see that bridge be much more cost effective than you would have had you just had a sharp cutoff of that mine.

Got it. And just my next question, can you dive a little further into why you feel so confident that India will reinstate those duties? And then if they don't, are there any contingency plans for the region?

Well, I'll start off with the last question. India is the second largest country that we sell into. We have currently a 10% duty advantage because we're supplying India out of Australia and there's a free trade agreement between Australia and India. So it's still upside for us. Even with India supplying -- or the Chinese -- at the peak they were buying, that's a 450,000 ton per year market. 300,000 tons per year were being supplied by China. We were still growing in that market. It's still our second largest market. So the contingency would be it's going to be slower growth, but we will continue to grow. We have -- again, we're not a producer in that region, but we've been actively engaged in discussions with the government. So we have a good window into what's going on at the DGTR. We do believe those -- we believe there'll be an answer sometime towards the end of the year, and it's our belief at this particular stage that that's going to be a positive one. I can't provide any more color other than that, but we're pretty confident in it. And in the absence of it, we still have a growth model.

Our final question comes from Hassan Ahmed at Alembic Global.

A question around -- in the press release, you guys mentioned 1.1 million tons of TiO2 capacity being shuttered since 2023. So a specific question around anti-involution and China in particular. I mean, if my understanding is correct, China has probably around 50 TiO2 facilities. My understanding is 20 of those are quite subscale, 50,000 tonnes or less and quite uneconomic. So if I were to sort of bundle all of those 20 subscale facilities up, I'd say that's roughly around 700,000 tonnes of capacity. So how are you thinking about that capacity? Is that vulnerable? Are you guys hearing something about closures around that? And sort of generally, what are you guys hearing about anti-involution?

Yes. Thanks, Hassan. It's a great question. And just to be clear, that 11 -- 1.1 million tons of capacity is from 2023 to the current date. And again, our belief that the majority of that is off-line. There were some Chinese plants included in that. We're not including our -- idling of our plant. But we have heard that there are other plants that are looking at being idled. And the real question is, do they go off permanently or do they bring them down for short periods of time. But I would expect that there's going to be some kind of consolidation in that capacity. Look, we're going to have to continue to compete with the likes of [indiscernible] on the long term. That's why these duties, albeit not -- maybe they're not permanent. Duties typically last 5 years with a 5-year sunset that typically follows that. So that's why all of our focus has to be on how we become more cost efficient and the traction that we're getting around costs so that we have a long-term sustainable plan to be competitive no matter where we're selling the product.

But I do believe -- look, our China plant is -- it's our lowest cost plant in our entire system. But the market in China is the lowest price market, and it's more competitive today because that 800,000 tons that historically was exported outside into other regions of the market, you've got fewer markets for that material to move into. All the other areas that are nonduty affected are largely saturated with Chinese material anyway. So I would agree with you. It will be a matter of time, and it's one of those things where you would have thought it would have happened earlier. I think a lot of those are state-owned or SOEs where they're getting subsidies. We don't get subsidies in our Chinese facility. So again, we've idled that for the right reasons, and we'll determine how long that's down based on the current market condition. But I would agree with you that, that's not -- what you just described is not fully baked into the 1,100 tons that's already been brought offline. And in a down cycle that's lasted now 3.5 years, you've never seen -- I've never seen in my almost 40 years, anything like that amount of capacity reduction. Maybe 25% of that historically is what you'd see in a downturn. And normally, what happens as the market goes down and right before people start closing plants, there's a recovery. And this one has been longer than any other one, and every competitor has idled or closed a plant.

Very helpful, John. And as a follow-up, I wanted to revisit the India antidumping side of things. I know things are still sort of transient and the like. But my understanding is that the sort of overturning by the courts of the antidumping duties actually didn't have much to do with the cause agents of why those antidumping duties were sort of levied in the first place, but it was far more procedural. I mean, again, my understanding is that the Indian Paints Association came out and said, "Hey, look, certain details were not shared with us, and they were shared with other parties. So those need to be -- so it was far more procedural than really why they were imposed in the first place. Is that what actually gives you confidence that they may be levied again?

That's exactly right. I couldn't restate it any more clearly than you just did. It was a procedural error. We believe that the data that they didn't get has been submitted. The procedural correction will be done and the duties will go back into place. So I can't state what you stated any more clearly, the right answer.

Thank you. So there are no further questions today. So I'll now hand the call back over to John Romano for closing remarks. Thank you, John.

Thank you very much, and we appreciate you joining the call. Look, I do believe that we are -- clearly, it's been a challenging 3.5 years, but we're pretty optimistic on the things that we're doing around self-help -- the duties -- a lot of that work was hard work that we initiated. A lot of the work that we're doing on the cost improvement program. I gave you a lot of details on that. It's not just things we're talking about. It's things that our operational teams are weaving into the work that we do every single day, just like safety is a priority, cost improvement and maintaining those cost improvements and being competitive long term is something that we will continue to do for the long term. And our team has done an outstanding job of implementing those programs and lifting and shifting them from one site to the other. So I'm feeling really good, and that's largely on the back of all the work that our team has done to get us to where we are today. So we look forward to updating you again throughout the quarter and next quarter. So thank you very much.

This concludes today's call. Thank you for joining, and have a great day.