Good day, ladies and gentlemen, and welcome to the Tronox Limited Q2 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to introduce your host for today's conference, Brennen Arndt. You may begin.

Thank you, and welcome, everyone, to Tronox Limited's Second Quarter 2013 conference call and webcast. With me today is Tom Casey, Chairman and CEO; and Kevin Mahoney, Vice President and Corporate Controller. Tom will start with a review of our second quarter performance. Kevin will then review our financial position, and Tom will provide closing comments, and we'll complete the call by taking your questions. We'll be using slides today as we move through the conference call. Those of you listening via Internet broadcast on our website should already have them. For those listening via telephone, if you haven't already done so, you can access them on our website at tronox.com. Let me begin today with a reminder that our discussion will 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 2012 Form 10-K, our most recent Form 10-Q and other SEC filings. This information represents our best judgment based on today's information. 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, which we use in the management of our business, including EBITDA, adjusted EBITDA and adjusted earnings per diluted share. EBITDA represents net income before net interest expense, income tax and depreciation, depletion and amortization expense. Adjusted EBITDA represents EBITDA as further adjusted for non-cash, unusual and nonrecurring items. Adjusted earnings per diluted share represents EPS, adjusted also for unusual or nonrecurring items on a fully diluted basis. A reconciliation is provided in our earnings release. It's now my pleasure to turn the call over to Tom Casey. Tom?

Thank you very much, Brennen, and thank you, all, for joining us today. As you saw in our earnings release, our second quarter financial performance reflects the market conditions that we have been expecting and been talking about. Pigment volumes remain strong. Finished pigment inventory continued to decline, and global average selling price modestly declined, down about 1%, but at a much lower rate than we had experienced in the pigment market in previous quarters. As we discussed last quarter, as inventories return to normal level and demand remains at normal levels, plant utilization rates will necessarily increased. Therefore, pigment EBITDA will improve first by improved fixed cost absorption as the plant utilization rates improve and then by higher selling prices. We believe this sequence is occurring . We believe -- we expect that pigment inventories will normalize in the third quarter and selling prices will increase in the latter part of the second half. Similarly, the current softness in the titanium feedstock market, which resulted from pigment producers' lowering utilization rates last year will also turn positive as pigment plant utilization rates increase. We have been able to offset much of the titanium feedstock volume and selling price softness seen in the first half by sourcing 100% of Pigment segment feedstock purchases from our own Mineral Sands business and benefiting as lower feedstock prices become lower costs in our pigment production. Our Pigment segment delivered its third consecutive quarter of sequential volume increases and second consecutive quarter of revenue increases. Selling prices declined, as I mentioned, about 1% sequentially. Volume gains were realized in all regions for the second straight quarter. Our average cost of feedstock in our pigment operations continue to decline. Remember that we charge our pigment unit the then current feedstock market price, so we have…

Thank you, Tom. I'll review the Corporate and Other segment and then move to major line items in our income statement and balance sheet. Corporate and Other revenue, which includes our electrolytics business was $35 million, compared to $27 million in the first quarter of 2013, as sales volumes increased 23% and selling prices improved 3%. The electrolytics business generated adjusted EBITDA of $7 million, which was offset by adjusted EBITDA of negative $17 million related to corporate operations for a net adjusted EBITDA in Corporate and Other of negative $10 million in the second quarter. The operating loss from Corporate and Other was $11 million as compared to $24 million in the first quarter of 2013. Selling, general and administrative expenses for the company in the second quarter were $41 million, or 8% of revenue, versus $51 million, or 11% of revenue in the first quarter 2013. Interest and debt expense was $35 million versus $27 million in the first quarter, principally the result of higher debt levels. On June 30, gross consolidated debt was $2,408,000,000 and debt net of cash was $1,019,000,000. Our debt maturity profile is very favorable. Of the $2.4 billion, gross consolidated debt, approximately all of it matures in 2018 and thereafter. Depreciation, depletion and amortization was $73 million in the second quarter. We continue to expect that annual depreciation, depletion and amortization will be in the range of $290 million to $310 million. Capital expenditures were $45 million in the second quarter. Moving to the noncontrolling interest line, this component of equity on our balance sheet represents the amount of Exxaro's 26% ownership of our South African entity as required by the country's Black Economic Empowerment legislation. In our 10-Qs and 10-K, we provide revenue generated by our South African operations, which was $144 million in the second quarter. This should enable you, after making your own assumption regarding profit margin, to estimate noncontrolling interest. And another reminder, Exxaro does not contribute capital or share cost to our South African operations. Regarding our tax rate, we continue to expect that our estimated effective tax rate for 2013 should be in the range of 8% to 10%, and for 2014 and thereafter, in the 15% to 20% range. With that, I thank you, and I turn the call back to Tom.

Thanks, Kevin. Moving on to Slide 8 and the summary. Let me close by sharing our perspective on the market environment we see going forward, and also the growth strategy that we are pursuing. At first, a reporting comment to help you track our progress. Beginning next quarter, which obviously is the third quarter of 2013, and thereafter, we will have for the first time valid or clean year-on-year comparisons. Recall that we closed the Mineral Sands acquisition on June 15, 2012, so the third quarter of last year was our first full quarter as an integrated entity. We will report year-on-year comparisons as standards and add sequential comparisons when they enhance our sense of making the market and operating trends more understandable. That will happen starting in the next quarter. Regarding the market environment, we expect -- we anticipate that pigment demand, particularly in the United States and North America and Asia Pacific, will continue to remain strong, and our finished pigment inventories will return to normal levels. When inventories normalize, our plant average utilization rates should rise to match the normal demand that we expect, and we will no longer incur the significant costs of under-absorption of fixed costs. In this more favorable pigment market environment, and also as the result of our vertical integration, we expect our bottom line will reflect enhanced profits, not only from higher and more profitable pigment sales, but also from the corresponding increase in demand for feedstock that follows necessarily the increase in pigment production. We expect pigment margins to increase and then feedstock volumes and margins to increase. And as a result of our structure, we will capture those increased margins at both levels. Regarding our growth strategy, we see ourselves as an advantaged consolidator in the global pigment market. Our…

[Operator Instructions] Our first question comes from the line of Hassan Ahmed with Alembic Global.

I was just trying to bridge Q1 earnings to Q2. And overall company level EBITDA up $28 million. But as I take a look at the segment level, Minerals segment EBITDA Q1 to Q2 was down $28 million, while Pigment segment EBITDA was up $11 million. So net-net, that was a $17 million decline, rather than a $28 million uptick. So essentially, a $45 million swing. So I'm just trying to sort of reconcile what the components of that $45 million swings are. And if I may, obviously, you mentioned the gross profit elimination was around $8 million, so that's one component. On the corporate side, it seems it was a $13 million swing, but there's still around a $20 million swing I'm trying to figure out.

Let me -- I'm going to pass it to Kevin. Some of the adjustments I will let Kevin deal with but let me talk about -- a little bit about the segment results. In Mineral Sands, as we said, the volumes, the external volumes were relatively modest. I think the third-party sales volumes, I think we said that they were about $50 million. I'm looking for the exact number right now, but we disclosed the amount of revenue that came in out of internal sales and the amount of revenue that came out of external sales, and remember that the external sales revenue was largely zircon, some pig iron, so titanium, high-grade titanium feedstock remained relatively soft in the market, other the increased in purchases to us that is to our own pigment operation. So some of what's going on has to do with that. There were some additional modification -- or adjustments that are contained in those lines, so let me talk to Kevin, and Kevin, you want to take on the details of Hassan's question?

So part of it is that the trade revenue is $55 million higher in that process. And SG&A is about $10 million lower.

Fair enough. And another question. I mean the other income line was quite big, I mean, it was a $26 million sort of profit versus -- if I remember correctly, maybe close to $6 million in Q1. Where was that other income coming from?

Yes, that was almost entirely a foreign exchange. We benefited from the fact that a lot of our sales are in U.S. dollars and the rand depreciated about 8% in the quarter. So we had the benefit of foreign exchange in the quarter for about $26 million.

Fair enough. And Tom if I may have a follow-up. You talked about, obviously, internal and external opportunities. And you also said that if you don't find any external opportunities, obviously, you will return the capital that you have. I'm just trying to figure out, is there some sort of a timing associated with it? I mean, is it a couple of quarters? I mean, what is that cut off, at which point you sit there and say, all right, no deals happened, or no deals presented itself and we're kind of working on separate ways?

I wouldn't -- I mean, I think that by the end of the year, or 1 year from when we took it. So by the end of this year or into the first quarter of next year, we would have a much better view of whether there are deals to be -- that we believe are attractive enough to consummate. We are -- since we did the financing, we have had series of conversations with a series of people all around the world. And we're also evaluating organic investments. Our predisposition is that inorganic growth will be more impactful in the short term because it will not affect the overall market supply levels. But we're open to whatever makes sense. I would say that I think by the end of the year or as I said early into the first quarter we'll be ready, but we're active now in a variety of different markets around the world.

Fair enough. And one final one. A few of your competitors have basically been out there talking about march towards more normal levels of earnings, and a few of them have actually gone as far as saying that 2014 should be a normal year. So do you agree with that view? And if you could just talk about what you feel the normal earnings power of the new Tronox is?

I do agree that 2014 will be a more normal year. As I said, our pigment volumes have been high, have recovered from the destocking that we saw in 2012, and as you saw from the releases, they are back to sort of normal levels. At the second and third quarter results, second quarter results and what we expect in the third and fourth quarters, we would be back to normal production. Whereas the destocking of the finished goods inventories, obviously, delayed the financial impact of that return to normality. And -- but that's a temporary phenomenon, and with -- what we've been disclosing every quarter where we are on the inventory levels and so you can predict we're dropping 10 days a quarter, so you can predict when we get down to levels where we have to increase plant utilization. And I think '14, I think that by '14 we're clear of all that. And the other thing I think is important to recognize is as all the pigment manufacturers, including ourselves, increased plant utilization rates, demand for high-grade feedstock will improve. And so you get -- there might be a lag, obviously, as they work down -- pigment producers work down their own inventories, but it is in my view, inevitable that as pigment production demand increases then feedstock demand increases along with it.

So you essentially get that double pop, really?

That's right. We get a double pop, and I think that we'll see that in 2014.

Our next question comes from the line of John Roberts with UBS.

Tom, how high could your internal investment be? So you're looking at both internal and external, you must have some insights into the high end of your capital spending outlook?

I mean there are -- the way we think about it is that if we invest in, for example, Hamilton, our plant in Mississippi or in Botlek or even in Kwinana, the plant in Australia, we could add lines incrementally. And so our choice would be do we add 1 line, do we add 2 lines, do we do a substantial increase? That will have a delayed impact on EBITDA and earnings as we build -- as we construct those facilities, but the fixed cost increment will be valuable, will be very positive for us. So we have looked at that, and the trade-off will be, in part, timing. Do we think that, that an acquisition that is available to us is impactful sufficiently far in advance of the financial impact of incremental expansion that is worth doing and particularly, that will be a function of how we see demand going in the market over the year or 2 that we would be building any organic. As I said earlier, my inclination is to go to, at least, in the short term, to look at the inorganic rather than the organic. But we're looking at both.

And then on the feedstock purchases, the $1,192 per metric ton that you mentioned in the Pigment segment, do you have the number for last quarter? I don't think you gave that last quarter.

I though I did, let me -- it's 13...

Not the $1,333, but the $1,192.

Yes, the $1,192 is the average cost of feedstock that we purchased in the second quarter.

Right. And what was that in the first quarter?

In the first quarter, it was $1,309. And then the fourth quarter of '11 -- of '12, it was $15 -- $1,501 or something. Now just to repeat the point, when we book for cost in the pigment unit, we do it at a market price less a small discount to reflect no credit risk and lower marketing. So basically, when we report pigment purchases of ore, like the price of those ore purchases, that is the spot market price in the high-grade titanium feedstock market for that quarter.

Our next question comes from the line of Ian Corydon with B. Riley and Company.

Just to follow up a little bit on titanium feedstock prices, is it fair to say you think that feedstock market prices are going to be down sequentially in the second half before recovering at some point in 2014?

Hold on, I going to give you an informed answer, but I have to find it. I think for us, they may be -- I think they'll be down somewhat, not enormously, but that's largely a result of the fact that we have 65,000 tons of that under market contract that we have to deliver in the second half. So if you think about the market as a whole, I suspect that they'll be relatively flat.

Got it. And in terms of zircon, how are your inventories versus where you like them to be? And do you have a sense for what inventories in the market look like today?

Our inventories are back down to where we would expect them to be already, generally speaking. And we think that there are very little inventories in the market.

Great. And last question is just on Fairbreeze, can you give us an update on where we stand? And any milestones you're looking at in the second half of the year?

Yes, I think for the third or fourth consecutive quarter, I have been advised that we expect the license any day. So that's any day across, what, 180 days or 270 days. I'm told that there are no oppositions, that the government has the final signing authority and the government is -- has the license, and it's just a matter of processing it. So I've been saying this now for 3 quarters. So I can't give you any better information than that. But I mean we're ready, and when we get that license, it's a two-part license. One is the water use license, which allows us to use the water, and then there's a pipeline license that's associated with it that our guys expect to follow in a couple of weeks from the primary license. But as soon as that's ready, we're prepared to start increasing our investment and building up Fairbreeze. We're already doing some of the preliminary work. And we still expect to sort of mid-2015 for delivery of product from that mine. That raises a point, which I will -- just to disclose, make sure everybody keeps this in mind, in the period of time between now and when that mine comes in, we're using inventory levels, we're using inventories that have been accumulated in Australia and in South Africa, and those inventories, obviously, don't contain zircon, and therefore, some of the co-product revenue, we get out of KZN will be somewhat reduced for that period of time.

Our next question comes from the line of Andrew Cash with SunTrust Robinson Humphrey.

I just wondered if you guys could step back away from the quarter a little bit, just talk about the Mineral Sands integration. My understanding is that TiO2 ore is supposed to be short for many years because of the time it takes to build new ore capacity. With ores long now, and prices are on the way down. I just wonder if you could address do you think this is a temporary situation? What has to happen to put the pieces [indiscernible] back on track? And what is industry ore prices? And when do you think the ore prices will start trending back up in a substantial fashion?

I think that the explanation for the demand for ore prices, and therefore, for high-grade feedstock, and therefore, the impact on price is very clear. The entire pigment industry outside of China, and China already operates at these levels, basically reduced its operations from 90% plus to 70% or even lower in some cases. And so essentially, demand for feedstock necessarily had to decline 30% in 2012. And so that is largely the driver for what is happening in the high-grade feedstock market. I think we have already talked about on other calls why -- the cause of that demand for pigment, which largely, we believe, was restocking. And that's over now. So it's -- one, is highly correlated with the other. You cannot produce pigment without feedstock. As you reduce your production of pigment, you're going to reduce your demand for feedstock. The control of the supply of Mineral Sands is less precise, and so built supplies will build up. That's what happened. As utilization rates increase, demand for feedstock increases, and we think price will increase. When that happens is when the pigment producers start to produce -- start to run their plants at more normal levels, and as I said in our text, our earlier statement, we would have been running at 89% have we not been working inventories down. I think others are in a similar position. As the plant utilization rates increase, demand for feedstock increases, then prices will stabilize and increase. There will be a lag, but I think in 2014, we'll see prices increasing.

So just in summary, it sounds like the ore tightness -- the looseness, is just a temporary situation. In past calls, I think you talked about China and as a small percentage of dislocation of some of the traditional producers in the Western world. Do you have any update on any consolidation in China, have there been any shutdowns of Chinese sulfate capacity? Do you think there's anything imminent? What do you see going on there?

I mean we're -- first of all, let me qualify all of this by saying we're not on the ground in China, I'm not on the ground in China. And so everything I learn about China is indirect, it's through other people, but with that caveat, we believe that -- first, the Chinese plants are generally operate at relatively low levels compared to western plants. Whereas a Western plant at a normal level would be around 90% or below 90s at full capacity, the Chinese plants are operating at substantially lower rates than that. Anywhere between 50% and 70%. We believe that a number of -- a fairly significant number of the smaller less efficient and less environmentally appropriate Chinese plants have closed. Some in response to the price levels that we're seeing in China for -- we experienced in China, and some for other reasons, largely governmental. We think that the government has qualified Chinese sulfate production in a category of sort of eligibility for loans that is while it's not the worst category, it's in an intermediate category, which we think will restrict some of the ability of Chinese producers who have announced expansion plans to actually fund those expansions. That and the low operating margins are getting our prices, means to me that I think Chinese expansion will be relatively less than what you hear them announce. Chinese production is less than what their nameplate capacity is by a significant amount. And the Chinese export presence, at least as demand increases in China and in the rest of the world, will not be, again, will continue to not be a really material impact on supply or availability of prices in the rest of the world.

I appreciate that, Tom. I was wondering if I could just ask 1 question to Kevin. You guys mentioned that your average purchases for pigments is $1,192 in the quarter. Could you give us an order of magnitude, range of cost? Was it plus or minus $1? Plus or minus $10, plus or minus $100, just to kind of a range there, if you could?

I just want to make sure I understand the question.

The average feedstock purchases on average was $1,192. So I was curious what the range was. I know you probably won't give the exact number, but if you give us sort of an order of magnitude, was it kind of plus or minus in the $1 range? Or plus or minus $10, or plus or minus $100, kind of that sort?

It varies by each type of feedstock. So it's a very difficult question to respond to.

Okay. TiO2 pigments, just...

As Kevin had said, we take natural rutile, which is a pure form of feedstock and that has higher titanium content, starts at a higher price. We take synthetic rutile, which is slightly less than that in terms of TiO2 content, and therefore, slightly lower price. We take slag, which is in turn lower still than titanium content, and we charge -- we have a lower price for that. So what Kevin's saying is that there's not one single blend of feedstock or 1 -- not 1 quality of feedstock. We have 3 blends, 3 forms of feedstock that go into a blend in our plants, and they vary in price. But are you asking -- so that makes it hard to answer your question, number one. But also number two, were you asking did the price change in the quarter?

Well, I guess really what I'm trying to do is think about the next quarter, and maybe you answered that already in your prepared comments. I think you mentioned something about -- it looks like it's going to be similar in the third quarter as it was in the second quarter, the cost of...

Yes, we think -- we think it will be -- I mean we think that it has declined just over the last 3 quarters. The average price declined from 15 to 13 to 11, right? Or closer to 1,200 actually. So, we expect the decline to stabilize because for the reasons we talked about before, that is demand out of the pigment producers will be increasing as their plant utilization rates increase in the second half.

Our next question comes from Hamed Khorsand with BWS Financial.

Just wanted you to walk me through your optimism about pricing increase in the latter half of this year. I would imagine that you had 60.5 days of inventory doesn't really give you much pricing power yet. And then so you can't really say what will happen in Q3 and in Q4 you're in a seasonally weak period of the year. So I wouldn't imagine there's much buying going on for your customers. So what's driving your optimism there would be a price increase sometime between now and the end of the year?

Again, we've talked about why -- what we think happened in the market that led to the demand softness, and therefore, in terms of supply over -- the oversupply, which affected price. As those predicates are resolved, that is as the destocking ends because the customers' inventory levels decline to more normal levels. And as our destocking ends because our finished goods inventory gets down to normal levels, then it has to -- unless demand takes a dive, which we don't anticipate, then plant utilization rates will increase, and therefore, supply will be tighter relative to demand. And in a normal market, when supply tightens relative to demand, prices increase. So it's sort of economics 101. I mean we're not fairly sophisticated in our analysis. It's just -- it's the way we see the market working because we think demand is back. And therefore, once demand is back, certain sequential consequences will move through over the period following that. That's the source of our optimism. You're right, that we're halfway through the third quarter, and so I don't -- we don't expect to see much movement in the third quarter, but in the fourth quarter, we expect to see some, and in '14 we expect to see more.

Do you think Q4 will be -- won't track the seasonal trends, and you'll see increase, sequential increase, something like that?

We don't -- we want to be delicate about price. My lawyer is here, and he's already beginning to shake his legs pretty ferociously. So let me -- I mean, obviously, I said fourth quarter is seasonally low, that affects volumes. So we would expect a seasonal -- we would expect a volume decline from the second and third quarter to the fourth and then the first, simply for seasonal factors as you mentioned. And I would agree with that. What happens to price, however, I think is going to be a different matter. I think we have said that we expect price to recover in the latter part of the second half of the year. And so if I were you, I would derive that we expect prices to increase in 2013. How much? We're not talking about 50% price increases.

Our next question comes from the line of Ed Mally with Imperial Capital.

I just went through a few things. Going back to the finished pigments inventory, and I've seen that dip down to 60.5 days, as we look toward the third and fourth quarters, how much more would you target bringing that inventory down to get to what you would define as a normal level to be able to run the plants at 89% operating rate or higher?

We would normally build inventory in part for some -- because of the seasonal impacts that Hamed and I were just talking about. So if at the lowest point you're sort of around 50 days, you would be higher than that in the fourth and the first quarter. That's also a quarter where we tend to do some maintenance if there's maintenance on the plants, normal, annual kind of maintenance that would require us to lower production, shut down lines, we'll do that in those quarters. But in general, I think we're approaching normal levels now. There's still more to, a little bit more to go, but not terribly much.

Therefore, if we think about the second half of the year, upper 80s type operating rates are within reach, in your opinion?

Yes, I think it's going to increase over the second half of the year and likely end there.

Okay. Secondly, just going back to the question on the other income of $26 million in the second quarter. You talked about the foreign exchange gains as being part of that. I see in the adjustments to EBITDA that there is a reduction of $13 million attributable to FX [ph] gains. So is it correct to say that, in the P&L, you booked a gain and you backed 1/2 of it out? Or is there yet another component of that $26 million aside from the foreign exchange?

That's a good question. There are 2 aspects of what we recorded in the P&L. The first one is the FX that's realized from transactions in the marketplace. The second is FX that represents open positions, such as our intercompany debt, which effectively we call unrealized. So the realized items and unrealized are both recognized in the P&L. We back out the unrealized. Effectively, we back out the FX on our open balance sheet position, principally our intercompany debt. And that was about 1/2. For the quarter that was about 1/2 of the total FX.

Okay, good. That's helpful. And then final thing, capital spending budgets for 2013, and what your current thoughts are on that?

We said earlier that we expected to spend about $250 million a year for the first 3 years, 2013, '14 and '15, which included -- these are approximations, but about 1/2 was maintenance and sustaining across both segments and 1/2 was Fairbreeze. Fairbreeze will be a little bit down in 2013 because of the delays, but we're spending some at Fairbreeze now so it's not completely eliminated.

So are you thinking that the second half of the year will be higher CapEx than the first half then?

Yes. And I would think that we'll be down -- we'll probably be somewhere over $200 million, given what we spent at Fairbreeze and what we intend to spend at Fairbreeze on the license but less than $250 million.

Our next question comes from John Brennan with Sirios.

Just on the feedstock purchases, could you give comparable numbers for the second and third quarter of 2012, just to get a sense of how the markets develop coming into the second half here?

No. I mean, we have -- I don't it accessible. I'm sorry. Kevin, do you have asecond and third quarter of '12?

I mean did it change significantly from the $1,500 that you gave for the fourth quarter?

No. I think -- my sense is a -- hold on for 1 second, Kevin is handing me some numbers. The fourth quarter of '12 was about that, about $1,500, and I think that the third and second were about that, so I don't think there was significant change. The significant change has happened in the last 2 or 3 quarters.

Okay. And one of your competitors recently talked about pricing being down 50% in the second half?

Of being down?

Yes, on feedstock cost year-over-year. So is that weakness coming from different suppliers? I'm just trying to connect your forecast with theirs.

I think, again, we made the point earlier that there are numbers -- there are different kinds of feedstocks. So it's not just 1 set.

But you're giving these on a comparable TiO2 basis, right? I mean, these are comparable numbers so they're mix adjusted, I would assume?

These are average. This is the total average. The total number of tons divided into the total number -- I mean dividend by the total cost.

Right. Is it adjusted for TI content though or were they meaningless?

No, no. Well, it's not meaningless to us because it tells us how much money we spent but we don't adjust it on a pure TiO2 basis because we're not doing that kind of market analysis. We're looking at what our costs are. But let me talk about the 50% decline. At the peak of the market when every pigment producer was all out, the natural rutile prices went to upwards of $2,500; zircon went to $2,500; synthetic rutile went in the $2,000s, $2,200; and slag went to sort of around $1,800, I think. I think that if you look now at prices for synthetic rutile and natural rutile and zircon, it's quite possible that prices are down 50% on those products. Slag is -- even slag it's not down 50%, but it's down substantially. So I think that's right in terms of the various elements, but it's not uniform across all of the feeds, all of the grades of feedstock.

Okay. And then the balance, what's the normal amount of external volume of feedstock sales that Mineral Sands would typically have so as you're recovering your operating rates on the TiO2 side and you have obviously more demand for internal sourcing, so you go to 100% as the market recoveries, how many -- what's the available tonnage that you can offer to the market on the Mineral Sands side?

We have 465,000 tons of nameplate capacity. We run it at, say, 92% theoretical kind of -- that's your maximum utilization 92, 93. So that's about 410,000 tons of pigment we produce. We need about 1.1 tons of feedstock for every ton of pigment. So essentially, we need 450,000 tons of feedstock to run our pigment operations at what we would consider to be practical maximum. We produce between somewhere around 700,000 to 750,000 tons of the feedstock business. So let's say, 700,000, that gives us 250,000 tons we're long on feedstock. In '13, we had a contract to supply 105,000 tons of that material to this third-party pigment producer, so that left us with 145,000 tons of available feedstock.

And as you go into 2014, that contract is going to be completed, so you'll have 250,000 that you could -- you'll be that long.

Right. Or shift into an acquired asset or an expanded asset.

And on the acquisition side you mentioned your preference is more the organic growth and expanding capacity internally...

No, wait, wait. No, I didn't. If I said that, I made a mistake. I said that organic investment has certain cost advantages over inorganic, but it also has certain timing disadvantages relative to the impact on the business. And that impact -- we're looking at inorganic more.

Because I was going to ask given the number of properties that are around the market, and the size of some of these properties, are all of the options open to you in terms of looking at everything that's available?

Yes. I mean, there may be other -- I think lots of people having lots of conversations, and each asset has a different cost structure. It's in a different market, which is more or less attractive than some other markets. And so, we're trying to be disciplined about what we do, so, but I think everything is available to us, whether we decide we want to pursue everything is a different matter.

Our next question comes from the line of Frank Longobardi with Alcentra.

It's Frank Longobardi from Alcentra. I just have a follow-up on the pricing optimism question. I appreciate the economics 101 kind of theory behind it, but when I look at some of your public customers, some of them were quite vocal in saying that there's just absolutely no way there's going to price increases for the rest of the year. And I admit that -- I understand that you said they may be modest for you but I'm just trying to reconcile what customers are saying versus kind of what you're seeing. And are you seeing something different than them?

So look, both of us are talking our own book, first of all, right. But we think that the market conditions towards the latter half of this year and into '14 are going to warrant price increases. We'll see. I mean we don't expect substantial increases, but if you look at the reported performance of the various businesses, I think it's -- they're doing -- our customers are great customers, they're doing well in their markets and we're doing less well. And so particularly, I think we'll try to get some price increases, and we'll see how it turns out.

Are you having those conversations now? Or are you waiting to have them?

No, most of the third quarter conversations are over. And most of the fourth quarter conversations have not yet really begun.

Okay. And then, finally, I know you're going to start with the year-over-year comparisons, but on the pigment side it should be relatively apples-to-apples. Is there any way that you can show me, tell me the volume change year-over-year on the pigment side?

The volume in the fourth quarter -- quarter-to-quarter, it's about level. It's about level. Remember, the second quarter of 2012 was a relatively strong quarter in terms of volume and prices. And our volumes in the second quarter of this year in pigment are about the same.

About the same versus a fairly strong quarter in '02 -- I mean '12?

Right.

Our next question comes from the line of Michael Nunn with TIAA-CREF.

I apologize if I missed this but I was curious if you look at various inorganic options in terms of making acquisitions, then you look at organic options in terms of putting some more CapEx into your business, and you come to the conclusion that they just aren't great options, what is your intention with sort of the excess cash that you've got on your balance sheet right now to sort of fund those acquisitions?

We would return -- we borrowed $1,500,000,000. We took $700 million of it to pay off the existing term loan. And so we have $800 million of borrowings that were over and above the balance necessary to pay off the term loan that existed at the time we did the financing. So that's the number we think about as available to us. And our intention would be to return the unused portion of that, or the unnecessary portion of that to the creditors who lend it to us.

Okay, and just to put a time frame on this. You said that you think you'll have sort of sorted out what your plan is by end of the year, first quarter of next year. Is that right?

Yes, we borrowed, I think at the end of February or early March, and sort of our own internal sense is that if we haven't found a useful application for those funds in the year, then we ought to begin to think about returning them.

Our next question comes from the line of Keith Kitagawa with HSB (sic) HSBC Capital.

I was wondering what is the philosophy when you took out that $1.5 billion term loan and you had all that excess cash? Was there a transaction that was potentially on the table that felt great [indiscernible] or can you just like walk me through why you guys are comfortable carrying all that excess cash for another 12 months and end up paying, say, $30 million of extra interest?

It was opportunistic. I mean, we did not have a transaction that we were engaged in at the time, but we felt that there would be acquisitions available of various kinds, both large and a series of small ones. And that having the funds available would make us more capable of acting quickly if the requirement to do so happened, and the cost, which is -- I don't know, it's $25 million to $30 million -- so somewhere in there, $30 million as you said, was a price that we decided was worth paying to have that capability. We also -- when we did that financing, we replaced the term loan that had covenants -- that covenant that with normal financial term loan kind of covenants with a term loan that had essentially no covenants on a financial maintenance basis. So we improved the balance sheet risk profile and the money -- the money was available to us at a relatively attractive rate because the markets were relatively strong then. And so we just decided that all in all, the net of borrowing the money at that time was worth doing. That's why we did it.

Our last question comes from Amer Tiwana of CRT Capital.

My question is around zircon. You guided that in the third quarter, volumes are going to be up, revenues are going to be up. What about pricing? Where do you see that going? I mean, in the last quarter, it was up 1%, so should we see a similar level of price increase in zircon? Or do you think pricing is coming back there?

Well, first, we -- I think what we said, we said volume -- the third quarter is normally close to or slightly better than the second quarter in terms of pigment volumes. So that's true. We did, we implied at least that we expect to see relatively flat or slightly increased volumes. We didn't say revenue -- at least, I don't think we said, and if I did say it was, I don't want to. We didn't guide as to any other aspect of the performance. We didn't guide as to revenue or to EBITDA because there are other moving parts particularly on the feedstock side. So I think that zircon has been a major contributor to the Mineral Sands' performance over this first half of the year. We expect that it will continue to stay strong. We expect that the prices will increase somewhat in -- on the zircon sales, but there will be other moving parts. Pigment, we expect, I don't think we've talk about price, but obviously, we haven't announced the huge price increase that we expect in the third quarter. At titanium feedstock we've already talked about what's happening in that market. So there's a netting going on. But I wouldn't -- we've not given guidance as to anything but the volumes in pigment, which we expect to be relatively modestly up as would be the normal case in the third quarter relative to the second quarter. All right, I think that's the last question, if I'm not mistaken. So thank you, all, for participating in the conference. We appreciate your time, and we'll look forward to talking to you next quarter. Bye-bye.

Ladies and gentlemen, thank you for your participating in today's conference. This does conclude today's program. You may all disconnect. Have a great day, everyone.