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Tronox to Acquire Exxaro's Mineral Sands Operations, Creating Leading, Vertically Integrated Titanium Dioxide Pigment Producer

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Tronox to Acquire Exxaro's Mineral Sands Operations, Creating Leading, Vertically Integrated Titanium Dioxide Pigment Producer Tronox to Acquire Exxaro's Mineral Sands Operations, Creating Leading, Vertically Integrated Titanium Dioxide Pigment Producer -- Exxaro Resources Limited (Exxaro) to Receive 38.5 Percent Equity Stake in Tronox in Exchange for its Mineral Sands Operations -- Transaction Brings Together Tronox's Proprietary Pigment-making Technology with Exxaro's Mining, Mineral Separation and Smelting Mineral Sands Operations -- Combined Company Will Benefit from the Assurance of Feedstock Supply and Will Have a Strong Platform for Future Growth OKLAHOMA CITY and PRETORIA, South Africa, Sept. 26, 2011 /PRNewswire/ -- Tronox Incorporated (TROX.PK), a leading producer and marketer of titanium dioxide pigment, and Exxaro Resources Limited (JSE:EXX), a leading mineral sands producer of titanium dioxide feedstock and zircon, today announced a definitive agreement under which Tronox will acquire Exxaro's mineral sands operations, which include Exxaro's 50 percent interest in the Tiwest Joint Venture with Tronox in Western Australia, along with 74 percent of Exxaro's KZN Sands and 74 percent of its Namakwa Sands operations in South Africa, in exchange for approximately 38.5 percent of Tronox's equity. Exxaro's mineral sands operations produce the key titanium bearing ore feedstock used in the production of titanium dioxide pigment. The combined entity will have approximately 3,500 total employees in 16 locations around the world. Combined trailing 12 month revenues were $2.0 billion and EBITDA was $495 million (excluding any synergies). With the addition of the 50 percent interest in Tiwest, Tronox's production capacity will increase to approximately 465 thousand tonnes of titanium dioxide pigment and will be backward integrated with production capacity of approximately 95 thousand tonnes of natural rutile, approximately 380 thousand tonnes of slag and approximately 220 thousand tonnes of synthetic rutile all of which are materials that can be used in the production of titanium dioxide. In addition, Tronox will have the capacity to produce a number of other minerals including approximately 265 thousand tonnes of zircon and approximately 220 thousand tonnes of pig iron. Exxaro's mineral sands businesses will be contributed on a debt-free and cash-free basis, resulting in a conservative pro forma capital structure with significant financial flexibility to fund growth. The combined entity will benefit from synergies and an accelerated growth profile. Operational synergies are estimated to amount to approximately $30 million annually, primarily through the rationalization of administrative and ore logistics costs as well as ore in-use optimization. Dennis L. Wanlass, Tronox's Chief Executive Officer, said, "This transaction combines Tronox's best-in-class pigment production operations and leading proprietary technology with Exxaro's highly technical expertise and globally competitive mineral sands operations to create a uniquely differentiated platform with the ability to outperform through all points of the business cycle. This strategically compelling combination provides flexibility and manageability of an important raw material source and firmly positions the combined entity as a highly efficient, vertically integrated pigment company. Combining this vertically integrated source of ore, along with our existing contracts with other ore producers, ensures Tronox will have the necessary feedstock to support our growth strategies in the years to come. "We are very pleased to expand our footprint into South Africa and have a great deal of confidence in the business environment created by the South African government. We look forward to working with the highly skilled employees in South Africa who will be joining us as part of this transaction, and to the new growth opportunities that this transaction will offer. "Our two companies already have a strong, well-established 20-year partnership and a proven track record of enhancing production capabilities and implementing technical efficiencies in the integrated pigment process at our Tiwest joint venture operation in Western Australia, and we expect to realize similar enhancements across the combined organization. The combination of these operations will create a truly global, vertically integrated titanium dioxide pigment producer — with a strong platform for future growth that is uniquely positioned to capitalize on favorable market dynamics and to serve the needs of our growing pigment and zircon customer base in the Asia Pacific region and around the world." Sipho Nkosi, Exxaro's Chief Executive Officer, said, "An integrated model has always been part of Exxaro's mineral sands strategy. Key among the contributions that Exxaro will bring to this transaction are its long life mineral resources, mining and processing expertise, world-class direct current furnace ilmenite smelting technology, strong minerals research and development capabilities and proprietary slimes handling capabilities. "The transaction will add security to the future of the KZN Sands and Namakwa Sands operations as it will, to a large degree, limit market cyclicality and surety of demand and will ensure continued ability to operate these assets and protect jobs. The combined company should realize significant cost benefits and efficiency improvements and it provides a platform for future global growth in pigment production." "The transaction will improve the future potential for South Africa to be chosen as a site for a potential new greenfield pigment plant as the demand increases and growth strategies are formulated," he added. Transaction Structure and Terms To effectuate the transaction Tronox will form a new Australian-domiciled holding corporation ("New Tronox") to combine its assets with Exxaro's mineral sands operations. Pro forma for the proposed transaction, New Tronox will hold a 100 percent interest in Tiwest in Western Australia (in which Tronox and Exxaro were joint venture partners), all other operations of Tronox and a 74 percent interest in the KZN Sands and Namakwa Sands mineral sands businesses located in South Africa. New Tronox will take on no material incremental debt as part of the transaction as Exxaro's assets will be contributed on a debt-free and cash-free basis. The combined business is expected to continue enjoying significant tax advantages including the use of historical net operating losses and other tax attributes established upon Tronox's emergence from Chapter 11 bankruptcy protection. In view of the combined entity's expected strong cash flow over the coming years, New Tronox intends to adopt a dividend policy similar to other comparable companies at the appropriate time. Existing Tronox shareholders will receive approximately 61.5 percent of New Tronox's pro forma shares representing all of the Class A ordinary shares which New Tronox intends to list on the NYSE after the closing of the transaction. Each Tronox shareholder will have the right to elect to receive either (i) one Class A ordinary share in New Tronox and cash consideration of $12.50 per share (a "Parent Election") or (ii) a non-transferable exchangeable share in Tronox Inc. (i.e. a subsidiary of New Tronox after closing) (an "Exchangeable Share Election"). Each exchangeable share may later be exchanged for one Class A ordinary share of New Tronox and cash of $12.50 per share, without interest. Tronox will have the right to force such an exchange beginning approximately 13 months from today. The transaction is expected generally to be taxable to Tronox shareholders, although the Exchangeable Share Election, which is subject to minimum and maximum (with pro-ration) election thresholds, is intended to provide certain Tronox shareholders with a mechanism that may allow them to defer a taxable event until their exchangeable shares are exchanged into New Tronox Class A shares. In exchange for Exxaro's contribution of its mineral sands businesses to New Tronox, Exxaro will receive approximately 10.0 million Class B ordinary shares in New Tronox, representing approximately 38.5 percent of the pro forma shares outstanding (Class A and Class B). Exxaro will retain a 26 percent direct ownership interest in the South African assets to comply with the requirements of the Mineral and Petroleum Resources Development Act ("MPRDA") and the South African Mining Charter. Exxaro's direct interest is subject to a put/call agreement whereby the 26 percent direct ownership of the South African operations can be exchanged for 1.4 million of additional Class B shares if the Department of Mineral Resources in South Africa ("DMR") determines that 26 percent direct ownership is no longer required under existing South African Black Economic Empowerment (BEE) legislation. Exxaro may accelerate the put/call in connection with a change in control of New Tronox. On a pro forma basis, Exxaro's ownership in New Tronox after giving effect to the exercise of the put/call would represent approximately 42 percent of the shares outstanding. The transaction, which has been approved by the Boards of Directors of both companies, is expected to close in the first half of calendar 2012, subject to the SEC registration timeline, Tronox shareholder approval, customary regulatory approvals and other closing conditions. The Board of Directors of New Tronox will have nine members and Exxaro will have the right to name three (non-executive) members. Tom Casey will remain as Chairman of New Tronox's Board of Directors and Dennis Wanlass will serve as the Chief Executive Officer
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