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Why Shares of Tronox Are Falling Today

By Lou Whiteman - Apr 20, 2020 at 10:35AM

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Investors are hitting "sell" after enjoying a spike on Friday.

What happened

Shares of Tronox (TROX 1.92%) soared on Friday after the company released strong preliminary first-quarter results, but the mining company is giving up some of those gains on Monday as investors fret about commodity demand if the global economy falls into a recession. Tronox opened down 11% on Monday and was down 8.5% as of 11:00 a.m.

So what

Tronox shares are down today, but the stock is still up 18% from its close last Thursday after the company forecasted first-quarter adjusted earnings of $0.20 to $0.26 per share on revenue of $722 million, well above the consensus forecast for $0.12-per-share earnings on revenue of $704 million.

As importantly, the company said its operations have so far not been affected by the COVID-19 pandemic to the extent that some investors might have feared.

A mining operation.

Image source: Getty Images.

"All of our sites are currently running to planned production levels, excluding South Africa where we elected to leverage our inventories on hand and not operate our mines and concentrators and run our smelters at a near-full rate with a reduced workforce through the initial 21-day countrywide lockdown period," CEO Jeffry N. Quinn said in a statement. "In the coming days, we expect to restart our mines and concentrators."

Tronox also said that as of March 31 it had total available liquidity of $570 million, including $419 million in cash and equivalents. Total debt is high at $3.2 billion, but the company has no upcoming maturities on term loan or bonds until 2024.

Now what

The first quarter was strong, but the question that remains is how demand for Tronox's titanium dioxide, zircon, and other mined products will hold up post-pandemic assuming the global economy falls into a recession. The company is aware of the risk, saying it is proactively managing cash flows and looking to reduce capital expenditures by at least $50 million.

Quinn remains optimistic, saying that "regions hit hardest by the virus have experienced lower than normal demand, but we are seeing signs of certain markets picking back up in areas within Europe."

That's good news, and Tronox appears well positioned to weather whatever storm lies ahead. But given the gains the shares enjoyed on Friday, and the risks of holding a commodities company during a downturn, it is no wonder investors are taking their gains and heading for the sidelines on Monday.

Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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