Atome Plc (ATOM) Earnings Call Transcript & Summary

Thanks for this kind introduction. Also, some may have noted that we've also been able to get IASBCT status, which is nice too. I came in a bit late, but that's the problem when you are pioneering. Green fertilizer sector did not exist until just a couple of years ago. So indeed, our focus is very much on green fertilizers, and I will get a little bit into this discussion as soon as I'm able to. So I know it sounds like a grand statement, I think the world's largest. Well, the thing is we will be the first, right? And a number of projects have been discussed around the hydrogen economy and what you can do, a reality is we started earlier than most, and that basically puts us into a very strong position because of our development strategy. The market of fertilizer, it's over $200 billion a year. I mean nobody can escape fertilizer. It goes into our bread. And it's obviously also 1 of these sectors, which emits the most amount of carbon, more than shipping and aviation combined. So everybody around here has heard about sustainable aviation fuel. But somehow, agri is not exactly considered. Our strategy is really to go and take a very rigorous infrastructure development process and I will get into that. Like the way to make these projects very successful is all about the discipline and the derisking because in the end these are $100 million plus $400 million-plus projects. Indeed, you discussed about the scale. It's all about creating the first project and then copy pasting it pretty quickly. I mean, we've been in existence for about 3 years. So the engineering itself took about 2 years. And obviously, the idea is that in Project 2, we'll be able to go faster and a little bit cheaper and so on. Clearly, management point of view, and I'll get into the next slide is as an equity investor before, you can have the best idea in the world, but if you don't have a team to deliver it, you're going to be sticking with just a good idea. So as far as the team itself, so I personally joined the company at its inception. Originally, I'm a power engineer. I was commissioning gas-fired power plants with offshoot of GE, then move to oil and gas for Schlumberger and then financing with Standard Chartered. And my previous job was to be the Chief Investment Officer of the International Finance Corporation, which is the World Bank's investment arm, so managing about $7 billion of assets. And it is during my time at IFC that I basically deployed the hydrogen strategy and obviously, the end users of hydrogen. Everybody has heard a lot about hydrogen, but what do you do with it? The reality is today the most use of hydrogen is in the industrial sector. It's to make ammonia, 80% of all ammonia is to make fertilizer, right? So don't do complicated things. Don't wait for hydrogen cars to be ready, go and go with the market, which exists today. And obviously, Peter, who is our Chair and the largest investor and creator of the company, comes from an industrial background as well, and he has had a track record of basically creating company successfully also selling them, which was the case for Imperial that he started from, I think, $3 million and sold for about 2 points in change, but also was the Chairman of a number of engineering companies. And because these are large infrastructure projects, it's all about margins, right? We are not here to sell a dot-com dream or a VC dream. It's all about being quite dogged about chasing the margins, making sure that you are derisking your project. And the rest of the team is about having the right people on the ground. Our first project is in Latin America, in Paraguay. And Jim Spalding, who used to be the head of the electricity sector in Paraguay, also former Minister of Finance, and also the lead of a decarbonization strategy of the country -- because this is where the project will be. And then what do we do with our projects. We sell fertilizer. And last year, Terje Bakken joined us. Terje was the EVP for Yara which is Europe's largest fertilizer company, and he was also on the Board of Eurochem, again, 1 of the world's largest fertilizer company. So he has the expertise to get the product to the market. And finally, Mary-Rose, who joined us from the International Energy Agency and who was leading the hydrogen agency part for about 15 years. From an investor's point of view, we were spun out of a company called Molecular Energy, which was public. And as mentioned, Peter, obviously has put a fair amount of investment into the company. Schroders is also our largest institutional investor and has increased its position into the company. And then you have Baker Hughes, who joined us last year. It's 1 of the largest industrial company to provide hydrogen compressor. So there is a technology partnership with them. And we have Trafigura and then finally, me. So this [ 3.7% ] Just so it's clear, asset management, we all chip in into the company. So every single way that we did, we basically asset management, invested into the company at the same share price as everybody. Again, it's from an investor's point of view, I was always very careful that any company we invested in and the management was fully aligned with its investors all the way through. So as far as the green fertilizer sector, so what we have to remember is that we have a very fast-growing population. We basically added 1 billion people in less than 12 years. And we have the fact that we need higher yields in a world that there's less and less fertilizer available or where fertilizer actually have a problem, like if you may not know, but 30% of the world's fertilizers come from Russia, Belarus and Ukraine as far as nitrate fertilizers. It's one of the reason where the prices went up so drastically. And when we say nitrogen fertilizer, it's basically fertilizers who derive from either natural gas or coal. So it's very much hydrocarbon-based fertilizer. And if you look at the growth of the population, it is 100% correlated by the supply of nitrogen-based fertilizers. So the whole goal in green fertilizer and the whole push has been to pretty much decarbonize what is worth 5% of the world's global emissions at 2.6 giga tonne, but importantly, also think about food security. I think if you would talk to any farmer 2 years ago, he would tell you that he would stop using fertilizer because he couldn't afford it or it wasn't available. So the green fertilizer aspect, it's not just about being green, it's about having a product available. And if I had to take the example of the U.K., for example, just a few years ago in the U.K., we used to make about 1 million tonnes a year of fertilizer of nitrogen fertilizer. Today, we make 0, right? And it's because we had to prioritize natural gas towards energy and also these were all plants which were producing a lot of carbon. So it was easier for a number of companies to basically shut down their capacity. So that's the other angle, of course, about the demand side. We're talking about 365 million tonnes a year of what we will be producing adjusted on the demand, right? And in Latin America, it is actually one of the largest import market at the moment. So whilst our production will be able to be shipped everywhere, the reality is we are able to produce in Latin America and sale in Latin America at a premium. The other advantage coming up is that from 2026, '27, there will be a carbon border tax in Europe and the U.K. on the import of fertilizer. But to give you a sense of scale, 1 tonne of green carcimonium nitrate fertilizer, is equivalent of about 1.7 tonne of carbon. So this is really the challenge. This is what you can actually address very today. And if you look at all of the statements made by food companies like Nestles and others, but even Marks & Spencer, who came up last year, we have a partnership with Fertiberia to the supply of green fertilizer into the future. They said that actually M&S farmers in the U.K., the operations of farming represented 85% of the carbon footprint of M&S as a whole and half of that was solely related to fertilizers. So clearly, if you want to get to your Scope 3 goals very quickly at a relatively low cost, that is green fertilizer is one of the easiest one. And so project #1, which we'll discuss quickly later. To give you a sense, it's the equivalent of a 2.4 gigawatt coal plant. So it's clearly a lot bigger than the [ Drax ] if you had to compare it and about 3 million passenger cars. So the way that you make green fertilizer, I mean, this is hyper, hyper simplifying it, but you start -- if you did regular fertilizer using oil and natural gas, you have CH4 carbon, H hydrogen 4, you separate it through steam you have a whole bunch of hydrogen and then you go through the regular process. If you want to do green fertilizer, what you take is the molecule of water, H2O, but to separate the H and the O, we need a lot of electricity, which means that the only way to make cheap hydrogen is if you have cheap electricity. And this is by far the most important thing. And when we put the strategy of the company together, we really looked about where do we want to be in the world. We want to be in the world where you have the cheapest cost of power available in some of the largest markets available. And Paraguay itself, as a country, is where you have the second largest hydroelectric dam in the world. It's part of Mercosur, which is Brazil, Paraguay, Argentina, which is one of the largest import market in the world. So you go from cheap power, electrolyze your H2O, it becomes green hydrogen. And then to go to green ammonia, you use the Haber–Bosch process, which has been used for 100 years, which then adds nitrogen from the air and you end up with NH3, which then you can add calcium to it and it become basically a bag of fertilizer, right? So very 0 difference between regular bag of fertilizer, which is gray and a green bag of fertilizer or you can really change them. It's very easy to transport everywhere. And most importantly, along that chain, there are no technology risk. The innovation is putting processes which were independent from each other before. So from the way that we look at our development playbook is very much looking at assets, which are reasonably sized. We don't believe that going big in this early stage of a green fertilizer economy is wise. It's all about staying at around 100 megawatts and then copy-paste, copy-pase, copy-paste. Looking at 10-year plus supply of power, again, power, power, power. It represents over the lifetime of a project, 70% of your cost is directly related to power. So a long-time approach, a very low risk approach, again, extremely key. We've seen a number of hydrogen projects taking overly high risks and people here may be invested in companies like who have done PEM electrolyzers, and we've seen that the promises have never been met. We use alkaline electrolyzers, which have been basically in existence since the 1920s. So it's all about making sure we don't take risk and also using existing infrastructure. You may have seen a number of projects we say, well, I'm building this fleet over here, but somebody needs to build the port. Somebody needs to build a transmission line where do you get access to the market. So it's all about not needing to have all of this network around you and leveraging what's already existing. From an environment and social point of view, that's basically almost infrastructure 101. Sometimes the thing that takes the longest is environment and social. And if you don't prepare for it from day 1, you can suddenly have a project where you would have spent tens of millions of dollars, if not hundreds for some, which is completely stuck in approvals because you didn't plan ahead. So from our point of view, it was always on the privity list, and it's done from our first project. And of course, the offtake agreement. So who are you selling it to? If I have a long-term supply of power, I need to make sure I have a long-term offtake of my end product, my fertilizer, so that I can maximize the terms of my financing. And of course, it's all about the alignment with your host government. And guess what, when you talk to people in Paraguay and Costa Rica and you say, I'm going to be doing green fertilizer and a large amount will be here for your farmers as well as abroad it creates a very, very strong alignment rather than trying to say, I am building a project, whether it's a solar farm, whether it's an ammonia export facility, whether it's an oil and gas field. And all of it will be exported and you will see none of the benefits. Like we are very, very, very clear that it's there is a strong benefit in the region that we operate in. And of course, many, many times, farming is extremely important if you are in emerging markets. So on the right side, you see kind of what's our business development criteria. When we look at asset #3, 4 or 5, you start with the renewable power. That is #1. Then you look at the market. And then, of course, you look at what is your place in the market? Like, there's no sense into building more fertilizer facilities in places where you have existing fertilizer facility. It's all about fighting these pockets of this collection. So project #1, which we raised money for the past couple of years. What we call the Villeta Project. Now it's a 145-megawatt fertilizer project that we'll be producing, we say, up to 270,000 tonnes. I think it's actually 260,500 tonnes per year of fertilizers. And so as we discussed, it was about 1.7 per tonne of CO2 to be displaced. Where we are now? The power purchase agreement is done, dusted. We have bought the land. We have basically at the end of front engineering and design, which is this nice little diagram you see on the right. We have gotten now the environmental and the operational license, which means that the moment we are ready to go, we can basically put the first shovel in. The government has also given us the free trade zone. Obviously the terms in Paraguay are quite good. It's about 10%. But going free trade zone allows us to go to 0.5%. Again, as I mentioned earlier, we're always trying to find the margin in ways the extra thing that we can get to make sure that we are competitive on the long term, and we have the most attractive project around. So as far as the work going on today, we are working with Natixis, our financial adviser and the Inter-American Development Bank. So on the project finance, we have received basically we have 3x oversubscribed on the -- what we call the letters of interest for the debt because we cater to 2 things. Number one, it's a climate-positive project. And also, it's a food security project. And indeed, if you are sitting in the U.K., clearly, seeing by cost inflation by 10% from my food is painful. But guess what, if you are in Paraguay in Brazil, that has actually increased by about 30%. This is how important it is for them and why we get strong support from the development financial institution, sorry. So the next milestone that we will deliver before the end of June. It's the offtake agreement, the front engineering and design, thing we've mentioned a few times that we are about 97%. We are basically now in the checklist going up, like we have about 600 documents that we are going through, that we are QCing and that we are agreeing and releasing. And after that, we'll come the EPC contract, which are all key for the large project finance. But as I mentioned, the whole idea for us is that the [indiscernible] ATOME as a PLC. It's about doing the early work, which is not the 1 that spends the most money and use and leverage that equity so that we can get the best terms at the project finance level and attract investors and lenders at the project level. Great. Almost done. So the next project that we already have going. Clearly, 90% of our work has been focused on delivering Villeta to get to the point where it is today. We've announced last year that we were entering in Costa Rica. And the idea with Costa Rica is to do exactly a copy paste of Villeta. It's leveraging all of that work done, all of that money is spent and do it over there. And at the moment, we have a collaboration with ICE, which is the national power company of Costa Rica. And we have a local partner that we call Cavendish, where we created this JV of ATOME and Cavendish called, the National Ammonia Corporation. The project #3 basically will be in Paraguay, where we are negotiating a 300-megawatt PPA, which we hope to be able to announce again in the coming months. And it's all about, again, increasing the capacity. It will be a different product than what we have in Villeta. And this 1 will be more focused towards export. And we have been approached for Project 4, Project 5, Project 6 because we are the only one, and we were the first one. So only 1 listed gives us a lot of visibility where other people are coming to see us. But also the fact that today, we are very busy with what we need to deliver. We have people coming to see us. We are kind of gently telling them, not now. It's not the right time. But certainly, our ability to go and copy paste and copy paste will come through the FID of Villeta. So I think the summary, I mean, that's not able to say on this one. But clearly, yes, we are the first green fertilizer developer listed in the world. Since our creation only 2 other companies were created 1 called FertigHy in Europe, sponsored by HEINEKEN, looking at Europe and another 1 called Atlas Agro, which is private, which had a $325 million investment from Macquarie Fund to do its first project in the U.S. So clearly, there are fast followers out there. But as far as exposure to the sector in the agri sector, we are still the only one. And also because we have a fair amount of advance and we are building up the team capacity, and we are pretty confident that we will be able to go and continue faster after that. So as I mentioned, as far as the news flow clearly expect quite a bit before the end of H1. And then hopefully, when we get to H2, we'll start talking a bit more about the next project as Villeta gets under belt. Thank you very much.