Atome Plc (ATOM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. Welcome to the ATOME Energy PLC Investor Presentation. [Operator Instructions] The company may not be in a position to answer every question it receives during the meeting itself. However, the company will review all questions submitted today and publish responses where it is appropriate to do so and these will be available via your Investor Meet Company dashboard. Before we begin, I would like to submit the following poll. And if you could give that your kind attention. I'm sure the company would be most grateful. And I would now like to hand you over to CEO, Olivier Mussat.

Good morning. Thank you very much. Appreciate it. Hi, everyone. I guess it's becoming almost a quarterly session, and it's been a very busy summer for ATOME. So I guess we'll come back to work. So ATOME, for those of you who have dialed-in, who do not know us quite well yet. We are the only company listed on the London Stock Exchange which is fully dedicated to developing project into the green hydrogen and ammonia and green fertilizer sector. And it's about addressing the market, the fertilizer market that exists today. It's about $200 billion a year, but addressing it in a climate positive way. Thanks to green hydrogen, we can make green ammonia, and with green ammonia, we can make green fertilizer. And this is really what ATOME has built this business to be and is concentrating on. So I will go through the first slides very quickly. As soon as my keyboard answers. So you would have the usual disclaimers that you would have seen in a number of places. So what is ATOME doing, right? So we are actually today building the largest green ammonia and fertilizer facility in Latin America to start operations by 2025. Why Latin America, it is where you have some of the world's cheapest power. And the only way to make cheap green hydrogen, cheap green fertilizer is if you have very competitively priced power. And that power needs to be baseload, i.e., from hydroelectric sources because to make fertilizer, it's like a chemical process, you need to be running 24/7, if you want to be efficient and most competitive. The advantage of having a project in Latin America and especially Paraguay, and we'll get into that, is you are also -- you not only have some of the most competitively priced power in the world, green power in the world. You also have the world's largest market for fertilizers, right? So Brazil is one of the world spread basket. It is the single largest importer of fertilizers. And it's also where we get our coffee, bananas, orange juice from. So being able to produce something domestically and competing against imports from the UAE, from Russia, from Trinidad puts us into a very strong position. But the fact that we are producing a green product is makes us very attractive for markets in Europe. Some of you may know that it has now been officially announced in the European directives, that as of January 2026, the carbon border mechanisms that are being put in place will impose a tax on the import of fertilizers. And to give you a sense, 1 ton of ammonia generates approximately 2 tons of carbon. And therefore, if you think or if you want to believe that by 2026, looking at the forward curve, the cost of carbon would be about $100. It means that you could actually have -- if you have a green fertilizer product, A premium of anywhere between $150 to $200 per ton of fertilizer you are producing. So this is really where our projects make a lot of sense by being very cheap, very competitively priced in a large market and having the upside on the other side. It's also very important for the U.K., and some of you may have seen and that this summer, CF Fertilisers announced the closure of the last ammonia nitrate fertilizer unit in the U.K., which was using natural gas. Just a couple of years ago, the U.K. was producing domestically over 1 million tonnes a year of nitrate fertilizer, and all of that production is now shut down permanently because of the price of natural gas in the U.K., which is being prioritized to power. So it puts -- in perspective how important it is to do what we are doing. It's not only about supplying green fertilizers, but also fertilizes periods in a world which is going to start running short of fertilizers. And in a world which is growing by 1 billion people every 10 years. So our first project is now getting a lot more developed and advanced as we are going through front end engineering and design. And to give a sense, using last year's average price of calcium ammonium nitrate, which is what we'll be producing. Our first 145-megawatt Phase 1 Villeta project, what we call the Villeta in short, could actually produce a return -- an unlevered return of about 29%. And an annual revenue of $140 million. Obviously, this is all assuming an average price of CAN, which was the average of last year, which was higher. But it also shows you how resilient the project is and how much revenue this can produce on a yearly basis for a project which will last more than 25 years. From a carbon point of view, it has the potential to displace nearly 0.5 million tonnes of CO2, so over 13 million tonnes over the lifetime of the project. But clearly, ATOME is not just a one asset company. We have a pipeline of projects over 600 megawatts of pipeline actually. But our first project, so Villeta and Yguazu will take their power from the 14 gigawatts Itaipú Dam that we will show you later more in detail. As we will show the presentations from James, our country CEO in Paraguay as well as Terje who discusses the fertilizer sector. So clearly, it's -- there's a strong team behind developing the ATOME idea and putting this idea into reality. I think, obviously, Peter Levine, who is our Chairman and largest shareholder, and the initiator ATOME, as we incubated it within Molecular Energies. So clearly, he has the experience to work with public companies and to deliver real value to shareholders, but also importantly, coming from the industrial sector has a very keen eye and keeps a very strong culture of the company to be very mindful about cost. In the end, what we are doing is industrial, it's chemicals, it's a margin game. Even if we have some very competitive price of power, it's about chasing margin at every single step of the way. My background, I started as an engineer in the power sector, then move to Oil & Gas and financing. And for the past 9 years before ATOME, I actually used to be the Chief Investment Officer of the International Finance Corporation Global Energy team in the IFC, is the investment of World Bank. You also need people on the ground to deliver, which is where James Spalding is absolutely key to our team. He is the boots on the ground of ATOME Paraguay. And he used to actually be the General Director of the Itaipú, where we're getting our power from. And he served under 6 Presidents and was also Minister of Finance. And served on the Board of the IDB and the World Bank. From the hydrogen expertise side, we are very fortunate that Mary-Rose is part of our Board. She used to be the General Manager of the International Energy Agency's Hydrogen unit, worked as well on the National Renewable Energy Lab in the U.S., so she's got more than 30 years experience working in the hydrogen sector. And of course, Terje Bakken, who joined us earlier this year, who comes from a 35-year experience into the fertilizer sector and he was on the board of two of the largest fertilizer companies in the world, namely EuroChem and Yara. So our first project that I mentioned briefly earlier, Paraguay. It just gives you an idea of what is -- where the project is. And with Villeta, the reason we have chosen it is actually next to the Villeta port, which is where all of the fertilizer companies import -- agri company, sorry, import fertilizers and export the agri products. So it's really -- not only it's the best route to market, obviously, if we wanted to export internationally but it's also where your clients are. And that's absolutely key. As I mentioned earlier, it's all about keeping your costs low. So you want to make sure that from an infrastructure point of view, you are staying very close to your market. It holds to over just across one of ANDE substation at Villeta, so we can take the power directly from the substation again, minimizing costs and drawing water from the Paraguay River. I mean, clearly, it's not a lot of water. We would be drawing less than 0.001% of the flow of the river. And again, making us a very low impact project within the area. And how we're progressing. We've bought the land, as we mentioned last year, we have signed a long-term power purchase agreement with ANDE, we have commissioned AECOM as our owner's engineer who is obviously leading a lot of the technical work on ATOME's behalf. And we -- the help, we have appointed Casale, which is one of the oldest ammonia licensor in the world. It's a Swiss company with over 100 years' experience. And Urbas, which is an experienced EPC contractor in the power sector, having done a number of assets in Latin America as well. On the financing side, we have mandated the Inter-American Development Bank, which is the Latin American equivalent of the World Bank. As well as Natixis as financial adviser, with which we have launched now the process to fund the project through project finance and asset level investment. And as part of that, you have to obviously run a -- do a market studies, which is what Nexant has been leading. And of course, the Environmental Social Impact Assessment being led by Brazilian company JGP, who has a long experience working, obviously, with finance and private equity houses when the asset ESIA, Environment Social Impact Assessments of the real impact of the project on the community and on the environment. So in the next slide, what we will actually get into is really the project itself, and that's kind of a world first. And -- of what the project will look like as Urbas and Casale have put together and are nearing the end of content engineering and design, and we are in the early discussions on the EPC side. And it will give you a flyover of what the facility looks like live. Imagine it as it is on the site that we have now in Villeta, where we have started clearing the land. So the -- so I'm just going backwards a little bit. So -- so if we can start on this slide, the video of the website -- of the -- I'm sorry, the video of the asset. Thank you. So in here, it's basically imagine on -- the bottom, I'm trying to hit pause on this thing, just for 1 second. So what you see here on the top left is these cables, which are coming straight from the Villeta substation from ANDE as they go into the plant and really imagine this is actually looking at the Villeta area and how we are designing the plant. So Obviously, this is the view from the road. The power comes in into the first substation. And this large building that you are seeing over here is actually where we have the electrolyzer stacks and we have 110 megawatts of electrolyzers in 5-megawatt stacks. So we only need about 100 megawatts of electrolyzers but we are oversizing the facility because clearly, we need to future-proof the asset. So keeping some extra capacity is the right thing to do and it's the safe thing to do to ensure you can operate 24/7. So the bottom of this, you actually see mostly office and spares building. And if we advance the video, we will see, goes a little bit slowly. So this is above the site building. But if you look ahead of you, basically, the blue tank and the red tank, this is where the water treatment and the cooling water facility is. You have obviously cooling waters on the left. As I mentioned, it's -- you have a chemical process running with the ammonia and Haber Bosch process, so you need to cool those. And in the blue tank is the demineralized water, which will feed the electrolyzers. These white tanks that you are seeing [ langdon ] actually, the hydrogen storage tanks, which gives us a couple of days of storage of hydrogen as to create redundancy within the system. So the water will come in into the building. And with this -- all of these -- with our 5-megawatt set of electrolyzer, obviously power comes in into the electrolyzer, water comes in, the electrolyzers separate the hydrogen and oxygen. So whilst the oxygen is either sold into the oxygen market or released into the water treatment stream. Then what we have is the hydrogen will continue. In yellow, you are seeing the hydrogen compressors. And what you are seeing now is 2 streets. On the left side, the air separation unit where the nitrogen is separated from the air, most of the air is made from nitrogen. So it's just a simple compression system which separates nitrogen from the air. And it mixes the compressed hydrogen with the nitrogen into the ammonia synthesis plant, which will put together the N with the H to create NH3. So this is what we call the Haber Bosch. This is -- it will be a Casale unit. Then that white tank you see on the right is where the ammonia will go. And you will have a nitric acid plant, which will further concentrate and the N with the H, and obviously come in and create the ammonium nitrate solution. What you see this Square building is the granulation plant. So the ammonium nitrate solution will then be mixed with Dolomite Limestone, which is pretty much calcium. So if I'm going to go a little bit over here, so at the bottom of the building, what you will see is actually where we will store the rock, the dolomite and -- the limestone and crush it into, let's say, powder. And it will go from this big building to the left on this conveyor belt into the granulation unit and mix the ammonium nitrate solution with the dolomite rocks and become -- after that, calcium ammonium nitrate, which is then sent back on the belt, and it will be stored in either in bulk or in what we call big bags, which are bags about a ton of fertilizers, which will then be distributed to the fertilizer company. So you see the storage facility and obviously, the trucks which will come out every day. So we estimated about 30 to 40 trucks every day of fertilizer that will be produced. So this is -- I mean I want to say a word first in the sense that nobody has even put this together in that particular way. We don't use any specific technology. We use existing alkaline electrolyzers. We use existing Haber Bosch processes. It's just the way that we are putting it together, which is making it quite novel. So if we can shut down this presentation. And obviously, why Paraguay, and obviously, this is where the power is coming from and also where the demand is. So we will move to the presentation from James Spalding, which really gives an overview of Paraguay itself. [Presentation]

Paraguay is located in the heart of South America, we're landlock country, boarded by Argentina, Brazil and Bolivia. We are also a founding member of the Mercosur free trade zone, which incorporates Paraguay, Argentina, Brazil and Uruguay. And as a Mercosur member, we enjoy free trade and low taxes for our commerce within these countries. Paraguay's main exports are in the agricultural sector. We're the fourth largest exporter of soybean, but our grain production has increased, and we're looking at about 10 million tonnes per year. And we use Paraguay-Parana Waterway. So Paraguay, accounts on Itaipú and Yacyretà, 2 very important hydroelectric dams. Paraguay's electricity grid is 100% clean and green renewable energy. Itaipú Dam is 14,000 megawatts. It's the second largest dam in the world. And currently, Paraguay demands about 30% of its half from the current production. Paraguay at the same time is a country that's open to investment, both national and foreign. It's open to business and look forward to trade to commerce, both with its neighbors and with the world. We have received very good support from the current administration of the government. And as Paraguay recently held its national elections, we have a President-elect who will assume power on the 15th of August for a 5-year term, and we have already seen his support in our project. Our current investment is focused on a 120-megawatt facility located in Villeta, which is about 30 kilometers south of Asunción. This land, which we've already purchased, about 75 acres, is located very near to the Paraguay River, which is the major transit point for commerce coming in and out of Paraguay. And the 120 megawatts is important to mention that this is firm baseload 24/7 existing greener renewable power coming from the hydroelectric dams. So we have no need to reduce or modulate our production at this time.

So what you heard was quite important and it's underway that we have long-term stable power supply. We 145-megawatt scale of a project, we will actually be using 120 megawatts of that power. And this represents just around 1% of the total capacity supply of the grid. As I mentioned earlier, we are looking at a project, which is going to be here for 25 years plus. That is quite key. And also what is the alignment -- long-term alignment with the government. So at $31 per megawatt hour, it generates over $30 million per year to the government. So clearly, this is not an insignificant source of income for Itaipú, the dam. And it's also a regulated price. Like there is no special deal. There is nothing that says, "Oh, you guys had a really good deal at some point, and we are going to change that." No, it's actually the official industrial price. And it's because Paraguay has power in excess that why we're able to do that. But obviously, from a development impact, we are very key to a country, which is the fourth largest exporter of soy bean where most of the workforce is in the agricultural sector. So if you can actually produce domestically fertilizer competitively cheaper than what it is imported, I mean last year, the price of ammonia shot up to about $1,600 a ton, now it has come down to around $400 to $500 a ton. Clearly, it's also a very good investment from the government's point of view, to isolate themselves from macroeconomic shock and remain competitive. The last point I will add is on Paraguay itself. I mean clearly, we are overly focusing on Paraguay on this presentation because this is our project which is going live. It's really that -- it's one of the best performing countries in Latin America. It has just raised a 10-year bond at BB+ and about a 5-point I think 6.75 coupon, and making it extremely -- showing the resilience of the economy and some of the cost of becoming investment grade, so BBB-. So it's becoming a very interesting investment proposal for a number of funds looking into Latin America, especially as we are seeing that Chile hasn't proven to be quite stable. Argentina remains Argentina, a very difficult place to operate and the coming up -- and the elections coming up in Argentina are not going to simplify things. And we are seeing, obviously, some more stability out of Brazil, but Brazil also has a history of boom and bust. So Paraguay has really been an iron of stability over the past decade. So as I leave Paraguay, I will go into the fertilizer market, and we will watch Terje video that goes into -- going into more detail about the states and the future of the fertilizer market. [Presentation]

The big challenge that the food industry is facing is really to produce more with less and in a sustainable way. So it's really about agricultural efficiency. How you could grow better crop with less input factors, fertilizers, it's really about nutrient use efficiency, so you need better products, you need better fertilizers. But you also need better processes. So better processes and better products will bring more sustainable agriculture. With the need for more biomass to be produced with less input factors. Where the input factors also bring more greenhouse gas emissions is not sustainable. And with changing the processes like ATOME does producing ammonia and calcium ammonium nitrate without having the greenhouse gas emissions is one requirement, is a needed requirement. ATOME, we talk with the food industry and whether it is the fruit and vegetable growers, the canola growers, they know that their brands for the products in the future will show what is the carbon footprint of this particular oil. When you could see that one oil or one banana has lower footprint than the other, the consumers will choose the more sustainable way. So it's going to be a combination of demand full from consumers. And of course, the regulators also need to do something, so we need to change regulations, so green, sustainable initiatives that ATOME has, will then have advantages to meet the shelves of the food shops as soon as possible. Green calcium ammonium nitrate is -- has 2 characteristics, is green is sustainable, it's produced in a sustainable way without having green house gas emission. The other part of calcium ammonium nitrate is a more efficient fertilizer because when you have light-rate nitrogen instead of a ammonium nitrogen, it can be absorbed directly by the plant because we are in the middle of the food basket in the world. Nitrogen fertilizer is the most important Nutrient . There is an agriculture in terms of ammonia tons, 120 million tonnes consumed every year for calcium ammonium nitrate, which is more a specialty fertilizer and used a lot for fruit and vegetables, where quality also is important. Now ammonia for fertilizers is obviously today, the largest segment, and we like to focus where agriculture is having potential like in South America, like in Paraguay, Brazil, Argentina. Paraguay itself has a lot of new crops coming, a few of them here. Chia is a new super food that is being produced or grown sustainably in Paraguay -- and we think for us to have the first project to be robust, practical and to support the farmer and to support the food industry is going to be a very practical, good step to show that sustainable fertilizers, sustainable nitrogen can come and service that segment right away.

All right. So if we go to the next slide. Oh, I control the slides, I forget about that honestly. So from a sustainability impact, clearly, what we are doing is we are able to produce competitively against any import and that's obviously quite key. We have made a choice very early on that we didn't want to have to rely on subsidies whatsoever to have a commercial project. Yes, we care about planet. We care about people. We also care about profit. But the reality of green fertilizers is you have the opportunity to decarbonize 2.6 gigatonnes per year of carbon. And we found it quite amazing that yes, we all heard a lot about sustainable aviation fuel, sustainable shipping, looking at decarbonizing the transport sector. But no company has really looked at decarbonizing the agricultural sector. And yet everybody in this call can decide whether or not they want to take a flight. We can't really decide whether or not we want to eat bread, which is where the fertilizer market really is that key. It's -- and from the green side, as you heard from Terje, we have clients, the Nestlé, the Cargill of this world who have made commitments on climate and the lowest hanging fruit for all of them to reduce their carbon footprint is to go towards using green ammonia, green nitrates, green fertilizers. So this is why we think it's a real -- it is really the market, the most important market we can play a role in. But also, it's a market which is very similar to the energy market and is being highly disrupted because actually 30% of the fertilizers come from Russia, Belarus, Ukraine. And everybody knows what's going on in these places at the moment. Just last weekend -- this weekend, China announced that it was restricting exports of fertilizer. So what we have is a market which needs to go green, but also needs to continue having constant supply as it's a very fast-growing market. So from -- I think our news flow from a mobility point of view, we've always said, for us, it was a demonstration project, and it's a way at a small scale to get comfortable with how to import and start up hydrogen projects. So we are still on track to have our electrolyzer delivered by the end of this year. On the Villeta project itself, front end engineering and design will be completed at the end of this year as well. The other side is, still is the offtake agreement. So what -- once we produce CAN, what are you going to do with it? And we are discussing with a number of large-scale offtakers that you would have seen in the news of who are the largest fertilizer companies and who have expressed interest to actually buy the entire production of Villeta. So we are trying to see how we can negotiate the best partnership agreement into ensuring that we get the best absolute price for our products because it's a very unique product. We will be the first company to deliver green fertilizers at scale. And which means that there will be final investment decision taken this quarter for Villeta, and we are progressing fast discussions with the financiers, but also on the engineering, procurement and commissioning, so the EPC contract as we speak. We have obviously a couple of more projects in the pipeline. So we announced earlier this year our JV with the Cavendish Group to create the National Ammonia Corporation in Costa Rica, focused on Central America. And in Paraguay, we have agreed with ANDE, the power producer to have an allocation of a further 300 megawatts that we call Yguazu project Phase 2. And we are now undergoing technical studies to mature this project. But clearly, over the next few months, the absolute priority is delivering the Villeta FID, when we have a project where we know what we are producing and how much to whom and who is going to be financing the project. So the -- with that said, I think I'll move to the Q&A side of the session.