Atome Plc (ATOM) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the ATOME Plc Final Results 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 can review all questions submitted today, and will publish our responses where it's appropriate to do so on the Investor Meet Company platform. And before we begin, as usual, I would just like to submit the following poll. And if you would 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. Olivier, good morning, sir.

Good morning, and thank you very much. Thanks for everyone joining and attending, and being followers of the ATOME story and possibly investors. So clearly, this is the results. So it's more going to be around backwards looking than forward looking, but certainly intend to spend very adequate time on Q&A. So please do submit questions, and we will get to as many as possible. So I will start with the usual slides about disclaimers, as you all know, right? So we have a view of ATOME. We are a pure-play green fertilizer company, right? And our aim is to have the largest green fertilizer facility in production in the world from 2027. With our first project, now 145-megawatt Villeta project in Paraguay, which will be expected to produce around 264,000 tonnes a year of calcium ammonium nitrate and basically generate income from day 1 of production. This particular project, Villeta has now finished front-end engineering and design, which basically means that the basis for the engineering of the project is now finished, and we are -- we have selected the EPC, which is going to be Casale and Urbas, and who had actually executed the FEED. And the offtake agreement is being finalized, and we expect to have it done over the next few weeks, so that we can actually get to a final investment decision with the investors and start the construction by the end of this year. Obviously, we also have a pipeline of project, which is of the 120-megawatt Costa Rica project, which is essentially going to be roughly a copy paste of the ATOME, and a second project in Paraguay that we call the 300-megawatt Iguazu project. And both for these projects, we intend to reach agreement for the power purchase of the supply of power this year 2024. So obviously, all of these projects and all of these, let's say, unique business proposition that we have built together and the USP attached to our green fertilizer couldn't happen without a management team and I really thank them for doing a lot of work this year, and I will go into a few more details. Obviously, we're doing it to make revenue, to generate income, but we don't forget our climate impact and project #1 alone will be able to displace around 15 million tonnes of CO2 over its project life, right, and I will go into that a little bit later as well. So let's talk about the backward side, what happened in 2023. So clearly, we are still a developer of projects. So we are in the expenditure side. So at the end of the year, we basically ended with a $6.8 million loss. But importantly, nearly $5 million of this cost were capitalized, right, and our accountants agreed with us that in the end, all of the money we are spending is going to generate and is the foundation for the project of Villeta, so it will become part of a project. We obviously -- this year, we welcome a couple of new investors, including Baker Hughes and we raised in 2023 around $5 million. And at every single step of the way, the management team actually followed on, on the raises and held its corner at the same share price as all of the new investors. So from an operational point of view, so we upgraded our power purchase agreement to 145-megawatt. And for those who have been here since day 1, we had started at 60 megawatts that was then upgraded to 120 megawatt and now the total power supply is 145 megawatts for Villeta. We have purchased the land, where we did -- where we are going to be building the facility, and also did the environmental and social impact assessment on the land with the help of the IDB. And now we actually have the environmental license and the operating license granted, which means we can start construction as soon as FID is done. With the support of the Paraguayan government, we have been granted a tax-free zone. And as I mentioned earlier, we have basically taken care of the FEED. We have selected the EPC, and the EPC agreement itself is also in its final stages and will be signed at the moment we hit FID. We have also created National Ammonia Corporation in Costa Rica, which is our JV vehicle for the 120-megawatt project in the country. And obviously, the pre-PPA that was signed for the 300 megawatts in Paraguay. So obviously, from an operational point of view, what happened since H1 2024. So we did a placing for $2.50 in February, March. And also, we have put a shareholder facility together with the support of Peter, our Chairman and largest shareholder. And it's -- for us, it's a very strong sign that as a management team, we will continue to be backing ATOME, and we believe in the company, we believe in ourselves and our business model. And also, it gives us a lot of flexibility as we are negotiating, obviously, the equity and the debt at the Villeta project level. Obviously, I mentioned the FEED study completion, which has now been done, the appointment of EPC partners and where we are on the offtake -- sorry, the offtake terms, which we essentially expect to be announcing over the course of the summer. Admittedly, we are a little late compared to what we had hoped to do in -- and we were expected to have it done in June. But we have a strong progress. Of course, the idea in this is that we need to make sure, we have an offtake agreement, which yields the most value for ATOME and also for us together as shareholders. And from a target point of view, as I mentioned, the project financing for Villeta is expected to be slated by the end of the year, as well as the start of construction as everything else will be ready by then. So as far as the management team, for those of you on the call who don't know us, so our Chairman and largest shareholder is Peter Levine, who has had a track record of success on to a number of companies. Obviously, specifically Imperial Energy that he created from very little, if not nothing. And then exited at $2.2 billion. But importantly, he was also the Chairman of 2 very large engineering companies, Severfield and Keltbray, and that's actually quite key for us because at the end of the day, fertilizer companies, fertilizer projects are chemical projects, they are industrial projects, and it's all about margins, right? It's all about making sure that we keep a very keen eye on costs that we don't overextend and we also obviously match our expectations and our timelines. Personally, so my background, as I joined ATOME since day 1 of the strategy, putting together the strategy with Peter has been very much on the engineering side. I started with GE Power & Water and then went to Schlumberger and have been in the finance world since 2008 when I joined Standard Chartered. And before ATOME, I was with the private investment arm of the World Bank with IFC as Chief Investment Officer of Global Energy, which was a $7 billion fund across debt and equity and across renewable assets, battery, hydrogen and hydrocarbon assets. And the team also we need a very strong local presence in Paraguay, and James Spalding, he use to actually run a Itaipu. So the second largest hydro dam in the world, where we are getting electricity from. And he was the Head of the Decarbonization Strategy for Paraguay, former Minister of Finance and also very importantly on the Board of Inter-American Development Bank. So the next step, of course, is we are going to be producing green fertilizers. We have to make sure that we have the best terms and have the best partners and which is where Terje Bakken comes in, and he joined the company last year as Head of Ammonia and Fertilizer Markets and his background was working with 2 of the largest fertilizer companies in the Western Hemisphere and as Yara and EuroChem, where he was on the Board of EuroChem and the Head of Fertilizers for Yara. Finally, on the Board of ATOME, we have Mary-Rose de Valladares, who has also been here since day 1, and she used to be the Head of the Hydrogen Partnership at the International Energy Agency for nearly 15 years. So she was also very instrumental in making sure we're putting the best project together with the best partners. From a shareholders' point of view, as I mentioned, Peter is a largest single individual shareholder. And we had -- we have been very fortunate to have the increasing support of Schroders, who -- as we announced yesterday, has now increased its shareholding to 12.1%. And last year, we welcomed Baker Hughes, the international engineering company, who is also a specialty maker in a number of hydrogen technical solution, including compressors, where they came in at 6.3%. Finally, we have Trafigura, also one of the largest global commodity traders and myself at around 3.6%. So I will just go to the next slide. So obviously, the whole idea is about green fertilizer and developing and delivering the world's first green fertilizer. And why is it? And what we saw is that when everybody was looking at the hydrogen economy, there were a number of assumptions made that the hydrogen economy will grow extremely fast, mobility will happen faster than what it actually has that there will be a huge market for ammonia, for green ammonia, you name it. But what we realized is that everybody was looking at decarbonizing heavy transport, decarbonize in some segments of industry. But really, nobody was looking at the fertilizer angle, right. And yet fertilizers is responsible for more carbon emissions than aviation and shipping combined. And secondly, whilst we have a choice of taking a flight, we don't have a choice, we need to eat, right? So for us, it was a very logical step to very intently add fertilizer because today, half of the world is fed by fertilizers, which are derived from hydrocarbon. But obviously, by using existing technology, existing power supply, existing infrastructure, you can actually create green fertilizers at industrial scale. So clearly, for us, the impact is very real. And it was all about how do we make sure we create green fertilizer today and where we can be competitive with gray, we've had the needs for subsidies. Well, you have to look for low cost of power, baseload power, which I mean like hydroelectric power, you can run 24/7. And this is quite important because we are dealing with fertilizer plants, chemical facilities need to be running 24/7. So we went out to look for green power, green -- low-cost green power, baseload power. And also what we saw is that the largest fertilizer import market is in Latin America. So if you can produce domestically green and you can be at par or cheaper than what is imported, which is typically gray, i.e., from hydrocarbons, you actually have a very strong commercial proposition. The other side is what we saw is that there is -- has been an increasing push to actually now have penalties globally and the fact that these fertilizers, the existing fertilizer market is highly carbon generated. And what was announced last year is that there will be basically restrictions on imports through carbon border adjustment mechanism in Europe, in the U.K. So from 2026 in Europe and 2027 in the U.K., imports of fertilizer -- hydrocarbon-based fertilizers will be taxed. So clearly, there will be a green premium through that enforcement of a tax, right? So at the moment, as everybody has been talking about subsidies, so that's the carrot. But then there is a stick. And if the stick has been much more important. And now we know for sure that, obviously, there is an increased imperatives in growing for green fertilizers because the food industry is under immense pressure to decarbonize. So where are we playing in that? Well, our first product will be calcium ammonium nitrate produced from Paraguay in Villeta, which basically will lead to about 90% of carbon footprint reduction on the use of fertilizers. I mentioned earlier, Villeta alone will displace about 15 million tonnes of carbon over its lifetime. To give you an example, that's the equivalent of 1 Drax plant, right, when it was still a coal plant. So it's not insignificant. Our process is pretty straightforward. We are relying on existing technology. You take a lot of power, 145-megawatt is actually a lot of power from hydroelectric capacity, which is Villeta [indiscernible] in Paraguay. With that, we basically create green hydrogen. So power plus water where you separate the H2O in HNO. And then once you have your hydrogen with a Haber Bosch process. You create ammonia because that hydrogen is green because it comes from renewable energy. You have green ammonia and from that green ammonia, you actually go and through further processes, you actually go from ammonia to ammonium nitrate to calcium ammonium nitrate, which is a fertilizer that everybody can use. It's an existing fertilizer market and its bags of fertilizer, right? So we don't have to deal with the issues, the logistical issues of transporting hydrogen, which is very difficult to transport in large quantities or ammonia, which also has issues because of the requirements and the health and safety requirements of moving ammonia. So for us, it was extremely clear, moving into green fertilizer was the one thing that would clearly generate and give us access to the biggest market and also to give us the biggest return on our investment. So from a business development criteria, I've talked about 3 projects in there. But actually, what is the -- let's call it, not -- I wouldn't say the secret sauce, but clearly what is our business model when we go and we copy paste, copy paste, copy paste to replicate across a very large pipeline. It's really about having long-term feedstock agreement for power. And this clearly, the type of power, the quality, the price of power is absolutely key. And that allows you to take a very low-tech risk approach on the systems you are going to be putting together. The other side is also leveraging existing infrastructure's existing markets. Our business is very, very focused. We don't want to end up having to build port facilities, build infrastructure, build transmission lines. If we don't have to, that only increases the cost and lengthens the time line of construction. And also making sure that from day 1, we use the best-in-class environmental and social processes. A number of projects that you may have seen whether it's in the hydrocarbon world, the renewable world or the mining world have been unduly delayed because this has been left to the last minute, right? This is not something that we will do that we are doing. And of course, making sure that we have offtake agreements, which match the supply of power. And of course, it's about aligning yourself with your host government and finding the right partners, right? So at present, we are only showing 3 projects and 1 which is extremely advanced and if not the most advanced in the world, but clearly, we have been behind the scene building up a pipeline of projects that, hopefully, we will be able to mature to a point that we can talk about it, and then expand the footprint of ATOME. So from a project point of view, Villeta, which is the most important one for us this year, which obviously, I mean, I've talked about it a little bit before. So 145-megawatt purchase agreement, which is now done, executed and ready to go. The land, which was acquired, the advisers and the EPC contractors appointed, the environmental and operational license granted, the free-trade zone granted, the FEED study completed. And also importantly, as we started the process with Natixis and IDB on the financing side, we have been actually very pleasantly surprised by the support from the lenders, who are seeing us really being way forward compared to a lot of the pipeline of projects that they have seen and also that we are ticking all of the boxes that as infrastructure lenders and investors, they expect to see and so far -- as far as very concerned, we have a project ready to go. And as soon as the offtake agreement will be signed, then things will accelerate significantly so that we can actually close the financing this year and start construction. So the major milestone that happened over the past couple of months was the announcement of the end of Front End Engineering and Design. It is the first time and the first one in the world for that scale of project, and it basically goes around the plant design, the processes. It describes the timeline, the production capacities, the warranties that go with it. As I mentioned, the job done by Casale and Urbas has been immense. We're talking of over 100,000 of engineering hours, over 600 documents and reports, I mean, this has been a lot of work to do. We've been thankful that AECOM has been our Owner's Engineer supervising all of the work. And thanks to the quality of the work of Casale and Urbas. Now we have decided to continue with them as EPC, right, and currently, the EPC contract, which we are finalizing, we'll set out all of the engineering, the procurement, the construction strategy, the commissioning and the schedule, right, it's all about making sure that we can reach commercial production within a defined timeline, right. And as we have said, the expectation is that we will reach FID by the end of this year, start construction by then. And then by 2027, we will be in operation and producing and delivering fertilizers. So the second project, which is the 300-megawatt of Yguazu. Obviously, it's a larger project. It's a bit more than double of Villeta. It's taking a lot of the existing work that we have done with Villeta, and also clearly shows the alignment that Paraguay has with us and what we have delivered to date, right? So I think, again, we are thankful for that partnership. And now we have also finished the -- what we call the electromechanical study. So again, we're showing -- we're following exactly what we did on Villeta. And the electromechanical study in collaboration with ANDE of the power utility is about showing where will this power be delivered? Where are the best possible location, for how long, and how do you make up the power over the next 20 years? So that work is done, which then allows us to go into the negotiating phase to enter into the power purchase agreement in the second half of this year. And as soon as that PPA will be signed, then we will go into pre-Front End Engineering and Design to basically further scope the project on the market and on the location. And in Costa Rica, I think we've talked about it a little bit earlier this year. So about -- well, now nearly 18 months ago by now, we had met the team at Cavendish, and we entered into a joint venture last year to create the National Ammonia Corporation. And the idea there is very much to copy paste Villeta, so that we can really accelerate that project. And Costa Rica for us has been very interesting since day 1. It is the other country in Latin America, which has a predominantly green grid. So we have a lot of the same qualities that we are seeing in Paraguay. And also, we are seeing a lot of the same behavior with ISA, the power utility of Costa Rica. And we are very thankful to have them as a partner as we are now in the final stages from a contractual point of view, that will hopefully get us to a PPA by the end of this year so that we can indeed start work on the pre-FEED, now that we would have finished the power connection studies, the roadmap, the legal review and then have a strong basis with an executed PPA to do all of the techno-economic work that is needed after that. So from a -- so this slide obviously is kind of an interesting slide, which was put with the help of Longspur, which shows really what the project means and what it means on valuation ranges, right? So we are conscious that because this is the first in the world. And whilst you have a number of fertilizer companies which are publicly listed, like Yara for Europe, like Fertiglobe in the Middle East, OCF in the U.S. How do you really understand ATOME and the ATOME story and the value creation. And for us, it's very much an infrastructure-driven way, right? It's all about derisking projects, increasing the value of a project that we have, and then when you get to these inflection points, you bring the right partners at the highest possible valuation. So as I mentioned earlier, obviously, we're talking to lenders and to equity investors at the asset level. And this gives you a little bit of an idea of how these projects are viewed, right? And so for us, for Paraguay alone, our forecast returns are over 20% when you consider the price of fertilizer, and also if you consider the green premium that could come with it and it increases the IRR. So from us, it's all about getting into a very rapid commercialization post-FID, getting a valuation marker as well from our equity investors at the asset level and we need to go and build out because once you have created a very solid foundation by actually deploying the first project and bringing it to completion, you're obviously derisking the rest of your portfolio, and then further value can be given to that portfolio and therefore, to the equity of the company. So in summary, right, I think it's kind of the outlook. What have we done so far? We've finished the FEED study. We've appointed the contractors. We expect to have the contract and the project funding by the end of this year with a significant help of the offtake contract, which is really the key main driver that everybody from an investor point of view, from an uptake -- sorry, from a project finance point of view is waiting. And by the end of this year, we will certainly go and target to have a 300-megawatt PPA done and dusted, as well as in Costa Rica have made significant advancement, which will help us get into pre-FEED. And as I mentioned earlier, go one step above when it comes to the valuation of the pipeline. And with this, thank you for that. I will -- then we can move to the Q&A session. And of course this presentation will be available on the ATOME website.

Olivier, that's great. If I may just jump back in there and thank you very much indeed for your presentation this morning. [Operator Instructions] I'd just like to remind you that a recording of this presentation, along with a copy of the slides and the published Q&A can be accessed via your invested dashboard. Olivier, as you can see there, we have received a number of questions throughout your presentation this morning. Thank you to all of those on the call for taking the time to submit their questions. But Simon, at this point, so if I may now hand over to you to chair the Q&A with Olivier. And if I pick up from you at the end, that would be great.

Thanks very much. Olivier, due to the company change in direction from hydrogen to now green fertilizer, do you see any further future changes in direction for the company? Or is green fertilizer now is the focus?

Yes. So it's a good question, and thank you. The -- when we created ATOME, we were very clear since day 1 that we were going to be looking at ammonia and derivatives and that there was going to be an element of hydrogen when it comes to mobility that was back in '21. And what we have seen since is that at least on the hydrogen part of the business, right, the mobility was just an end use of just hydrogen, that market was going to be extremely slow, right, which is why we really went in and we totally focused on ammonia, but especially agriculture, right? So as I mentioned earlier, what the realization is that today, 80% of all ammonia is focused on agriculture, right? So if you want to go and make sure you have a market start decarbonizing the existing market instead of trying to create other markets. And then from a fertilizer point of view, what you will have seen, of course, is as we hired Terje, for us, it's become very clear. We are very unique and up until about a year ago, we were the only one really focused on this, on the green fertilizer aspect. And we are still the only one publicly listed, so giving the opportunity to investors into that window. But we've seen 3 companies appear since last year. which was one company called FertigHy in Europe, focused on projects in Europe, obviously, having to rely on a fair amount of subsidies because the price of power in Europe is 3x the price of power that we are having in Latin America. And the sales price of fertilizer is actually lower in Europe than it is in Latin America. Another one called Atlas Agro, which is backed by Macquarie, which has given it's -- an indication of investment of around $350 million. And just last week was announced a company, which is backed by KKR. And both of these companies are private. So we know we are exactly where we need to be. And I think a number of investors in the hydrogen industry have also realized that we were right earlier and that we are exactly in the right direction.

Thanks, Olivier. There are a number of questions on offtake. I know you can't go into significant detail on this because you're still finalizing negotiations, but let's start with a couple of them. Do you expect to receive a green premium for the output from Villeta is the first one? Second one is will offtake agreements be part of your copy and paste for future projects? Let's start with those.

Okay. So clearly -- so today, right, we know that you have very small quantities of contracts today, which have a green premium. And I think there was one that was signed between OCI and Macallan, the whiskey producer, was it maybe a year ago, right. So they are not massive quantities, but you have increasingly discussions and realization of green premium. So in our offtake agreement, what we have is indeed a line of sight of green premium, but it is -- doesn't form the basis for our offtake agreement, right? What we are going to do and what the discussions that we are having with a number of off takers that have basically put terms on the table ahead of terms that we are negotiating is very much a position with them. They will offtake a 100% of the production of Villeta over the next 10 years with a specific price formula and some protection mechanisms as well for us. So this is actually really novel into the industry for fertilizer because whilst in the power industry, so if you look at LNG projects or liquefied natural gas projects, they have long-term contracts, which are indexed on a basket of coal, oil, gas into specific regions. And pretty much you agree a specific number, and you have that visibility. In the fertilizer industry, it has been historically a lot more volatile because farmers buy fertilizer at the absolute last minute, right? So because it depends on how much it rain, how much sun there was, you name it. So we spent a lot of time "educating" the fertilizer companies into what we need and also how do we find an arrangement as off-takers, as long-term off-takers where they will guarantee to take or pay our production for long-term. How we can basically, let's call it, share the upside when the upside is created on the green, right? So is it going to be the basis for the next project? Clearly, right, this is part of our special formula. And the whole idea is also to find an off-taker, which becomes a strategic off-taker, right? So Project 1 is going to have its dedicated offtake agreement. But clearly, this is part of the blueprint and for the further projects.

A question on the Costa Rica grid. Is Costa Rica's power from hydro or is that from other sources?

So the Costa Rican power makeup is actually -- it is mostly hydro and then you have a large amount of wind and solar. And you actually also have 1 HFO plant running at the moment because there wasn't enough rain over the past El Nino. So indeed, I think it is above 96% renewable. And in the discussions that we have had with ISA, it's all about the partnership and how we optimize that power with them. But having a hydro is absolutely key, right? This is also part of our strategy since day 1, doing hydrogen derivatives projects on solar and wind alone is possible, but brings a whole raft of issues with them and also increases cost if you have to produce and if you have to have 24/7 supply to reduce the cost of your end product. So I'm explaining a little bit too much on this one. So the answer is yes, Costa Rica is mostly hydro. But this is also why we are going after that type of power.

Okay. There are a number of questions on project funding and in particular, your thoughts on ongoing equity stake for ATOME. So perhaps you'd like to...?