Atome (LSE:ATOM) — ATOME Energy PLC - Half Year Results and Current Trading Update

0:01 Good afternoon, ladies and gentlemen, and welcome to the ATOM Energy PLC Half Year Results Investor Presentation. The company may not be in a position to answer every question received during the meeting itself. However, the company review all questions submitted today and publish responses where it's appropriate to do so. Before we begin, we would like to submit the following poll. And if you give that your kind attention, I'm sure the company will be most grateful. I'd now like

0:32 to hand over to Chairman, Peter Leving. Good afternoon. Good afternoon, and welcome to Investor Meet for ATOM. We're very pleased that you can join us today. In the six months to the June 30, we accomplished in ATOM an awful lot. And to date, in the nine months now since we effectively first spoke to the company, we have over delivered in terms of what we stated where our objectives are when we came to the market. And we expect to continue to overdeliver in the rest of the year and going forward into 2023. What we've done is we've turned promise into concrete achievement.

1:19 We've turned potential into reality in terms of green energy and green power. And we're now, within a very short period of time, at the forefront of the energy green energy revolution as far as green hydrogen and ammonia is concerned. We are the only pure play still green hydrogen ammonia company production company on the market. Now we've got a lengthy presentation, which we've prepared for all our investors. It is on the website. What we're not going to do is going to go through every page and every word. But Olivier, who's I'm going introduce now, Olivier is our CEO, will do the presentation, will actually be stressing the highlights, and we would be very pleased to answer any questions that any of you have in terms of where we've come from, what are we doing now, and what are our objectives.

2:17 So without further ado, I now pass on to my colleague, Olivier Musat, the CEO. Thank you, Peter. And, Mark, thank you very much. So right now, we have a presentation on the screen.

2:30 So as Peter said, it's available on the website. You know the usual disclaimers. And so from an executive summary, well, we are we are world leading in all senses of the world word. We are leading in the market in the London Stock Exchange. And on the project side, we are also leading the race by quite a long shot. Thanks to our fast track project strategy that we had devised a couple of years ago now by the power purchase agreement signed and with the front end engineering design and which is ongoing now. Of course, there is the aspect that we were right earlier on what's going on today in the energy and fertilizer market.

3:18 The the squeeze that we expected to happen in hydrocarbons obviously happened a lot quicker than expected for the very unfortunate reasons that you have all seen with what's going on in Ukraine. As a reminder, Ukraine, Belarus, Russia, it's 3030% of the world's supply of fertilizers. We are obviously going green now because our first projects are 100% renewable energy, both on the ammonia fertilizer, the energy, and, of course, on the fuel side. And finally, we are now starting to discuss a little bit more on the pipeline of projects. You know, we we say that it's always, you know, Paraguay is the best place to start in the world, and actually, we tend to say Paraguay from Paraguay to the world.

4:04 But now how can we replicate what we are doing in other geographies about attracting investors into these new geographies and looking at new opportunities? From the team's point of view, again, it's a team you you you now know well, which is complementary. And, of course, very importantly, it's a team which is also on the ground, thanks to Jim Spaulding's leadership. And and Marrow is as an independent nonexec director, making sure we are always at the forefront of all of the discussions with the regulators, with the with the engineering firms, with the technical specialists. So indeed, we have we have grown fast and actually much faster than some of the larger industrial groups, which are only now getting into green ammonia and green hydrogen.

4:56 So the highlights of what we have done today, you know, as as Peter's mentioned, we have done an awful lot. But actually, what we started and where we are with h one, we are completely in line with all of the expectations that we have on the financing side and what we said at the outset of the IPO. Where we have really, let's say, blown up all our expectation and really went way beyond what we even thought we would be doing is if you for some of you who have been here since the IPO, when we listed, we were looking at about 250 megawatts of projects in Paraguay, a 100 in Iceland, and now we are looking at a portfolio of over 500 megawatt. Paraguay alone now is more than 400 megawatt. The first project is now 60 megawatt going very quickly into one twenty.

5:44 We have appointed ATOM as our owner's engineer. We have bought the land at Vieta for our first project, and that land is large enough to go into multiples of size of the phase one. We are we have also appointed Netexis as our financial adviser to structure the financing of Vienda. And for those of you who don't know Netexis, it's one of the largest energy and infrastructure bank in the world and actually the one involved in most of the capital raising IPO and debt facilities of hydrogen funding over the past couple of years. And on the offtake side, we have obviously, we're doing a lot of work. We continue to do a lot of work there. And, also, we have entered into MOUs with both Paraguayan Aviation Authority and the barge association.

6:38 So as you know, we are able to ship ammonia worldwide from Paraguay. And also with the third largest fleet of parts in the world, Paraguay is a prime candidate to switch its diesel engine and marine engines into ammonia. And, of course, ATOMobility, as you know, we have now we have ordered the electrolyzer from CPH two, which is in construction and which will be delivered and installed in q one next year. In Iceland, we continue to have, you know, the advanced discussion with all of the power suppliers. Just last week, you know, the government the outstanding government for its energy fund gave a a grant of about a $175,000 to our Greenfield subsidiary, really showing and and demonstrating that they believe also in the project and they're ready to support the project.

7:32 And and finally, we are looking at a number of future growth opportunities. Actually, we cannot give too many details at the present, but one of the or the the one of the strategic upside of us being listed early on was to be visible and to have to be recognized as an early entrant to have developers in different regions looking up to us and reaching up to us into taking over the development of a project. So other other we are looking at Latin America wider outside of Paraguay, of course, the Mediterranean region. Some of you who follow the news will have seen that Egypt's hydrogen strategy ahead of COP twenty seven is extremely aggressive with EBRD structuring about a $42,000,000,000 program.

8:18 And finally, Eastern Europe where you have a number of opportunities arriving. So quite a mouthful in there. Again, the the following slides, I will leave to your discretion to read further into details. But where we are and why do we have such a competitive advantage, as a reminder, is we have negotiated access to power, which is at present 20 times cheaper than what you can buy in Europe. And even before all of the troubles between Ukraine and Russia, we were already some of it's the cheapest power in the world and sustainable in the long term. So our competitive advantage has only been magnified. The fact that the demand is here now is absolutely clear. You know, the ammonia market, and I will get into it, is is wide, is large, but it's all about being able to provide zero carbon molecules that can be used in light and heavy duty transport, maritime transport, power, agriculture, and also as a way to transport energy globally, the same way that LNG is being used to carry energy globally.

9:25 So when we go into the hydrogen slide, again, you know, some some of you have seen a number of elements. I would also invite you to look at a number of reports which are being published and updated now, including IRENA's new hydrogen report. There will be another hydrogen report McKinsey report published in a couple of weeks around ahead of COP twenty seven. So if you want to educate yourself a little bit further on the investment opportunity that that green hydrogen and green ammonia present, I would invite you to look at these reports. And if you remember, you have at the at present three main colors of hydrogen, gray hydrogen using natural gas and, of course, spewing out a lot of c o two to produce hydrogen, which is the historic way, Blue hydrogen, which is exactly the same as gray hydrogen, but the added cost and complication of doing carbon capture.

10:19 And green hydrogen, where you use electricity to split and renewable electricity to split the water molecule into hydrogen and oxygen on the other side. We were competitive before when the gas price was over $6 per MMBtu. Clearly, we are now even more competitive. And when it comes to blue hydrogen, as I say, at the moment, it's more costly. You can go into a large scale, of course, but you would need a price of carbon of over a $150 a ton to make it bankable whilst we don't need to have any of these, let's call it, side mechanisms for us to have the most competitive hydrogen and ammonia on the market. On the ammonia side, I would draw your attention on two things. Well, number one, what was in 2019 a 150,000,000 tons a year global market and and globally traded commodity is now over a 180,000,000 ton a year.

11:19 So we're talking as a map from a market point of view, it's over it used to be over $70,000,000,000 market. Now, obviously, we are looking at multiples of that. And the way to look at the ammonia price in the long term, considering that 99% of all ammonia is produced from natural gas, you only need to look at the actual price of gas in the future, whether it's a TTF or Henry Hub. We are, again, in in a in a space where you are now able to ask on the market for other thousand dollar ton for ammonia. All our business models and and we had we would have seen a number of the analyst reports. They're all predicated on using $600 a ton ammonia price. So we have decided to remain on the conservative side just to show the growth opportunity that we have in the project and the long term viability of our project.

12:16 If now we're gonna go into the Paraguay projects. So a number of you have seen. This is the picture of the Itaipu Dam, the second largest hydroelectric dam in the world. The Paraguay as a country itself, it is double b plus Fitch and SNP rated, which has been confirmed. It's a it is a place where thanks to its very low cost of electricity and very low low cost of fertilizer, has managed to weather the storm of both COVID and the current economic storm extremely well and has become a prime place for investment. And, actually, we keep being surprised by how much incoming we have from a number of Latin American investors trying to understand more about Paraguay and their potential.

13:04 What we often forget is that Paraguay is not at all a landlocked country with its riverways, which allow it to be the fourth largest exporter of soybean in the world. We're talking about $2,000,000,000 a year. But, actually, it's also the world's largest exporter of green electricity selling over $1,000,000,000 a year of hydroelectric power to Brazil. And the strategy of the country and the reason we are having such traction besides the experience that the team has in the country is also the fact that the country wants to use domestic electrons to create domestic molecules and increase the size of its economy and its competitiveness. It is also part of being the free trade agreement between its neighborhood countries, which means that we can produce fertilizer in Paraguay and sell it into Brazil at zero tax zero tax, knowing that Brazil is one of the world's largest importer of fertilizers. So the size of the market and the domestic market is huge in itself, but, of course, the fact that we have access to to the export markets for the Atlantic is an added bonus.

14:19 Of course, on the transport sector, there is a large potential, which is why we invested in the mobility side. And I mentioned earlier the fact that you have a very large fleet of barges to transport industrial production, which could become a future market on the industrial side. This slide will be new for for all of you and actually gives gives more details about the Vieta project, which currently we describe at the 60 megawatt, which we have signed the power purchase agreement with Ande, the electricity supplier. As a reminder, this is the largest power purchase agreement ever signed by Ande, and we have already started discussing doubling the size of to one twenty megawatt. And the discussions are extremely advanced, and we would expect some news flow on this over the next couple of months.

15:07 The the way we are developing it is, as I mentioned, we have now we have appointed ATOM as our owner's engineer. The FEED contractor will be announced within the next couple of weeks, actually, by by early October. And we were pleasantly surprised by the real let's call them blue chip names on the engineering side who responded and who who are just aggressively bidding. And the reason for that, it's because of our state of advancements. You are reading a lot of press around gigawatt projects in Australia or even large projects in Europe. Well, the reality is that, you know, when you have to go into very large projects which have to build power capacity, port capacity, transmission capacity, you know, these will take, you know, nearly a decade to get until you actually get to production.

16:00 Whilst our project is literally one of a handful who are going for FID within 2023, and we may actually beat everybody in 2023. We have also appointed, as I mentioned earlier, to put together the financial structuring so that we can raise debt for the funding of a project. And we have had a number of discussions with development finance institutions, you know, the IFC and the IDBs as you would expect them in order to be prepared as we reach FID in q one, a final investment decision in q one twenty twenty three. So from the next steps, actually, what we call now phase two, Itaipu, Iguasu, 300 megawatt.

16:47 So if you remember, when we did the listing, you know, Vieira didn't exist, and we were talking about Itaipu at 250 megawatt potential. And what we are discussing with today is they will be commissioning next year a 500 megawatt plus substation close to Iguazu Itaipu Iguazu. And we are now in advanced discussion about a 300 megawatt power allocation, which would then obviously transform into a power purchase agreement over the coming months. At this point, you become the largest in the world by a long shot. So we are pushing these things extremely fast. Again, the advantage of Iguacu as well is you are on the Parana River. You have access to export market. You are right next door to Brazil. So it is extremely significant, and it really shows the the growth that we are going through and also the relationship that we have in the country.

17:42 Finally, a note on mobility. We have put in here obviously, it's it's it's a reminder of what we have signed with with c p h two. The civil engineering is now ongoing. The front end engineering and design is as well is also ongoing. And you will see from the picture in the middle that actually site work has already started. From an Iceland site, so what you are seeing here is the potential facility at Bakke, where on the top right, you have the export ports. So the the idea with Iceland remains that phase one will be focused towards exports of hydrogen and ammonia into Europe, and phase two are really going into the shipping sector.

18:27 So and we put a little bit of a reminder in here of, you know, the advantage that green ammonia has as a shipping fuel, and you will see a number of of of companies are very fast developing engines which can which can use dual fuels. And Trafigura, who is one of our shareholder, has a partnership with MAN at present to to go to to finish the development of MAN's ammonia marine engine with the intention to put them on stream by 2025, which would be just right around the time we will be able to supply ammonia within Iceland.

19:09 You would have also seen on the international market that the EU and The US, but now the EU has been pushed also by The US to be much more aggressive, to be a very a very strong place to sell ammonia to because the requirements that they have, the demand that they have has no supply on the other side. So our ability to provide that supply when the demand is not met only enhances our competitiveness. So in this slide, it's it's a little resume of what we have been saying along with all of the work done by the greenfield team in Iceland. And, of course, in number six, you know, we continue to have positive discussions with the government, with the power supplies, and with the offtakers. And now the government has just granted the greenfield team an not so insignificant grant.

20:02 Also wanted to give a bit of highlight of what is our growth strategy, whereas we look in other geographies than Paraguay and and Iceland. Well, it starts obviously with a high renewables potential because low cost of electricity is key. 70% of the cost of production of of green hydrogen and green ammonia is related to the cost of electricity.

20:24 Obviously, having limited domestic gas production and existing infrastructure in place so you don't have to build transmission line ports, power supply, as I mentioned, and a significant domestic sector. So you can start very quickly supplying to the domestic sector and then grow grow our side. A question of timeline and outlook, and and this is as much to show you the progress we have made, but also all of the announcements you can expect over the next few months. And, obviously, from a from the mobility div division timeline, from the the contractor appointment, the FID the FID appoint the final investment decision point, and then the build out and from any type whose point of view when we will expect to have the the power purchase agreement signed, which, again, we expect actually within the next few months, and then we start the build out. And, obviously, it will be much larger in scale. We will leverage immensely from the work done at the Vieta level to accelerate.

21:28 But when we go into the Itaipuiguasu, that will follow the Itaipuiguasu by about a year as far as the construction side. And, of course, on the Icelandic side, we are now still in the discussions on the power purchase agreement. And as soon as a PPA is signed, we will go into the FEED processes. And so that that's that's the resume. And and for us, what we really want to leave you at the end is that, you know, we are scaling up fast, extremely fast. And because of that, we are also getting a numb a lot of credibility from a number of investors and also and also industrial partners. And to the point that what we are really doing now is is make sure that we provide the best value for our shareholders. And that means negotiating on on the on the farming partners, on the investment partners at the asset level, obviously leveraging all of the work that we have done rather than signing it too early to an offtake agreement, for example, which wouldn't be as competitive as it could have been, or to engineering agreements where you would leave a lot on the table. Right? So for us, we are really looking at it and make with with the keen eye always to maximize the value that we can give to our shareholders of which management is a very important part of. We also, as we mentioned earlier, we have very low operating cost, not only because of the price of power, but also on the people side. We obviously work as a very you know, it's it's a very lean

22:58 and mean team, but we are working in jurisdictions in Paraguay where the workforce is also extremely competitive on top of being very competent. Obviously, when you are managing the second largest hydroelectron in the world, you know what you are doing. So we are, you know, we are building, you know, a very successful track record from Paraguay, and we are leveraging it, which is, you know, why we coined this expression from Paraguay to the world. It's not only about making Paraguay the first exporter or the largest exporter of green electricity in the world. It is going to become the largest exporter of green ammonia in the world, and we are gaining a knowledge and an ability to deploy the business model in other jurisdictions. Peter, if you want the concluding remark? No.

23:44 I think that's that that sums it up. Olivier, thank you very much. Thank you. That's great. Thank you very much, Olivier. Peter, thank you very much for your presentation this afternoon. Ladies and gentlemen, please do continue to submit your questions using the Q and A tab situated on the right hand corner of your screen. Just put while the company takes a few moments to review those questions submitted already. Like to remind you that recording of this presentation along with a copy of the slides and the published Q and A can be accessible via your Investor Me company dashboard. Peter, Olivier, I will bring up back up your cameras as requested for the Q and A. So there we are. And if I may hand back to Simon. And Simon, I could ask you just to manage the Q and A, if I could ask you to read out the questions and obviously the team will give a response as and when it's appropriate to do so. So Simon, if I may hand back to you, sir. Thanks, Mark.

24:32 First question comes from among others, Steven. How certain are you that clean power hydrogen will be able to deliver your MFE two twenty order on time? In April, they reported they had supplier issues and engineering modifications. So thanks for that question. And so as, you know, you may have noted, ACOM is our owner's engineer and and and taking care of the a lot of the engineering details for ATOM and able to provide some of the other sites. And we are in constant discussion with CPH. And, actually, you know, how how confident are we? We are extremely confident. Right? I mean, every single that we have, every discussions that we have, we have a direct relationship not only with the engineering team and the management, which which really gives us comfort that we are absolutely in the right direction.

25:28 So we don't have doubt it will be delivered in the first half of next year. Thanks, Olivier. A question from Steve. When do you expect to announce a decision regarding an offtake agreement at Verletta? So as mentioned earlier, I think the you have you would have seen in, you know, in hydrogen, it's become a little bit of a joke. It's the land of MOUs, and you see massive projects with an MOU between, let's say, an industrialist, an off taker, a management team, municipality, you name it. And and what we are seeing is is that, you know, people are committing but pretty softly. The advantage that we have and and the way we look at things, because we're advancing the project very fast, is that we also recognize from our own experience that the best moment where you can when you can leverage the offtake is when you are at the FID stage, when you know exactly what are you going to be produced, at what time, where can you send it. And we are building in house capacity as well to be able to negotiate a very, very strong offtake.

26:35 The the important thing is, as I say, is making sure that we don't leave money on the table. Right? It's it's about managing flows. How do you make sure that your product get to the best place in the market and that it has the right the right infrastructure to get there? So getting early, could we get now into a offtake agreement with one of the large trader? Yes. We could. It's been discussed. It's been asked. The reality of what we realized is that this today is not the right time, and over the next few months is not the right time if we want to maximize that value. And it's not necessary either. And as I mentioned, ammonia, it's it's a global market in the billions of dollars. So finding a market to ammonia and especially green ammonia, which is an extremely short supply, is not a problem.

27:22 Thank you. Next question comes from David. You referenced other growth opportunities for the company. Could you expand on this and but would focus on existing significant projects be more preferable in terms of management focus? So it it it it's a very good point. Right? And and it's been discussed many times. And this is the advantage of having teams on the ground, people on the ground who are experienced, who know what they are doing, who also have the right level of contacts and discussion so that we can move things and we can continue moving these projects ahead and sometimes even faster than what, you know, we think we we we thought we would. So the way that we are looking at growth is always in partnership with strong local players. But going into new new new geographies has its own challenges. So in in Paraguay, we benefited from the nearly ten years of experience on the ground from the president team, which was our incubator.

28:22 So we didn't need local partners there. But as we are going to be looking at other geographies, it's going to be a model of partnership so we can continue on delivering the very large projects that we have today and then leveraging on that experience into these new projects because we will be the only one in the market with that experience making us more attractive for local partners. Thanks. Next question comes from Jonathan. Given that water flows are increasingly unreliable, is there a plan or fallback for other green options such as wind or tidal, or would you have to go gray to supply your hydrogen? So well, it's it's it's a mix of things in in this. Right? So so the way that we have looked at, for example, in our relationship with Ande, it's if if you look at Ande, they are exporting anywhere between two to five gigawatts of power every day back to Brazil.

29:20 But if you when you look at the, let's call it, the low water season, it could go down to about one gigawatt of excess capacity. So in the partnership that we have with OnDe and in our business model anyways, is you always want to ask for power, which is which is easier to give. Right? And in the sense that we indeed don't want to be in a situation when the water levels are too low and we have to be curtailed. And that would only happen if you go with, let's say, very unrealistic expectation that you want to go for a gigawatt project, and then you are stuck with a stranded asset for a number of months. It also enables us, and I think this has helped our dialogue by us being reasonable and understanding the challenges of local electricity producers that that has, you know, created and enabled us to have deeper discussions, which is how Vieja came about. When they saw that we were very reasonable on the side, they say, hey. By the way, we just commissioned this this new substation right at the heart of your market, right next to all of the fertilizer importers.

30:24 Would would you want that? And you can only do that if you actually respect these issues, And and we absolutely don't discount that in the future, we could go and we could build, you know, our own solar facility in Paraguay or elsewhere, but, you know, we have to work before we can run. And, clearly, if we want to go for upsizing further our our projects, going into renewable generation could be an option. Thanks, Olivier. Question from Navy. On the offtake agreement, do you expect that for Valletta, the offtake will serve local demand? Or do you think it will be more skewed towards the export market? So it's so when it comes to the local demand, you know, our production will from a from a global fertilizer point of view, the first phase of the ATOM, I mean, even a 120 megawatt, we will we will barely make a dent into the local market. So I said the local market is big enough to take all of our production.

31:21 The question for us, you know, as as any responsible investor is where will we get the best, the most bang for our buck. If I have an off taker in Brazil or in Japan who is offering me 20 or 30% more, we would have to consider it. So we know the local market can take it. That's not a problem. Where would it be? We are we are in the middle of that analysis, and we will be maturing these discussions very quickly. Question from Steve. What key milestones should we look for to measure your progress over the near term? So the next one in in a couple of weeks' time will be the announcement of the winner of the front end engineering and design. We which, you know, is going to be names that you would expect to see.

32:10 We have followed by that, that we will obviously start in a couple months after that looking at ordering some of the kits, some of the electrolyzers, followed by final investment decision, which will then go on. That's just on the technical side. On the power purchase agreements in parallel, what you will see is announcement of the confirmation of a 120 megawatt of the ATA. So, automatically, the ATA would go from 60 to one twenty, followed by then the 300 megawatt PPAs, which are currently in discussion. From the Iceland side, it's going to be more a question about firming up power purchase agreements and power, sorry, power supply agreements.

32:58 And, hopefully, you know, and I don't touch wood because we cannot talk too much about it, we will be able to make some announcement on development outside of Paraguay and Iceland, which also would be quite significant, not not just about providing a little bit more portfolio effect to the to the to the company, but, you know, showing where it's going to be the next next growth of the company is going to come from. As you know, this takes a couple of years to develop, so you need to build you need to start now to build on the next pipeline of projects to provide for future growth. That's great. Simon, thank you very much indeed for hosting that q and a, and I think you've taken all the questions from investors this afternoon. If any further questions do come in, we'll obviously make those available to you post today's event. Olivia, Peter, I know investor feedback is important to the company, and I'll shortly redirect those on the call to give you their feedback. But But I wonder if I may just hand back to you guys just for a few closing comments, after which, as I say, I'll redirect investors for their thoughts and expectations.

33:57 Well, I'd like to thank everyone for joining today. Thank you, Olivier, for presenting it. In reality, we have come a long way. We've got a long way to go, and we've achieved a lot. And it's gonna be exciting ride. We're all invigorated by what's happening. We really charge that, and we've got a lot to prove. We're at the forefront of our industry, and we're gonna remain at that. But there is every sign that we will do so. So thank you very much. Keep watching us. Keep looking at our website. Keep looking at our Twitter, and we would be pleased to feel any question you've got through the through our website. If you approach us on our on our email address, we'll be very happy to communicate with our investors at all relevant times.

34:45 Thank you very much, and thank you for your interest in our company. That's great. Olivia, Peter, thank you very much indeed for your time this afternoon. Can I please ask investors on this call not to close this session as we're now automatically redirect you for the opportunity to provide your feedback in order the management team can better understand your views and expectations? This may take a few moments to complete, but I'm sure will be greatly valued by the company. On behalf of management team of ATOM Energy PLC, we'd like to thank you for attending today's presentation. Good afternoon to you all.