Investor update

May 20, 2024

Thanks for this kind introduction. Also, some may have noted that we've also been able to get EIS/VCT status, which is nice, too. 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. Indeed, our focus is very much on green fertilizers. I will get a little bit into this discussion as soon as I'm able to. Yeah. Maybe I'm going manually. All right. I know it sounds like a grand statement saying the world's largest. Well, the thing is, we will be the first, right? A number of projects have been discussed around the hydrogen economy and what you can do. The 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. Nobody can escape fertilizer. It goes into our bread. It's obviously also one of these sectors which emits the most amount of carbon, more than shipping and aviation combined. Everybody around here has heard about sustainable aviation fuel. 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. The way to make these projects very successful is all about the discipline and the de-risking, 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. We've been in existence for about three years. The engineering itself took about two years, and obviously the idea is that in project two we'll be able to go faster and a little bit cheaper and so on. Clearly, from a management point of view, and I'll get into the next slide, as an equity investor, 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. 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 an offshoot of GE, then moved to oil and gas with Schlumberger, and then financing with Standard Chartered. My previous job was to be the Chief Investment Officer of the International Finance Corporation, which is the World Bank's investment arm. Managing about $7 billion of assets. 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, is to make ammonia, 80% of all ammonia is to make fertilizer. Don't do complicated things. Don't wait for hydrogen cars to be ready. Go and go with the market which exists today. 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 companies successfully, also selling them, which was the case for Imperial, that he started from, I think, $3 million and sold for about two billion and change, but also was the chairman of a number of engineering companies. Because these are large infrastructure projects, it's all about margins, right? We are not here to sell a dotcom dream or a VC dream. It's all about being quite dogged about chasing the margins, making sure that you are de-risking your project. The rest of the team is about having the right people on the ground. Our first project is in Latin America, in Paraguay, and James Spalding, who used to be the head of the electricity sector in Paraguay, also former Minister of Finance, and also the lead of the decarbonization strategy of the country, because this is where the project will be. Then what do we do with our project? We sell fertilizer. 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, one of the world's largest fertilizer companies. He has the expertise to get the product to the market. Finally, Mary-Rose de Valladares, 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 Energies, which was public. 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. You have Baker Hughes, who joined us last year, is one of the largest industrial company to provide hydrogen compressors. There's a technology partnership with them. We have Trafigura, and then finally me. This 3.7%, just so it's clear, as a management, we all chip in into the company. Every single raise that we did, we basically, as a management, invested into the company at the same share price as everybody. Again, from an investor's point of view, I was always very careful that any company we invested in, that the management was fully aligned with its investors all the way through. 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. We have the fact that we need higher yields in a world that there is less and less fertilizer available, or where fertilizer actually have a problem, like 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 reasons why the prices went up so drastically. When we say nitrogen fertilizer, it's basically fertilizers who derive from either natural gas or coal. It's very much hydrocarbon-based fertilizer. If you look at the growth of the population, it is 100% correlated by the supply of nitrogen-based fertilizers. 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, 2.6 gigaton. Importantly, also think about food security. I think, if you would talk to any farmer two years ago, he would tell you that he would stop using fertilizer because he couldn't afford it or it wasn't available. The green fertilizer aspect is not just about being green, it's about having a product available. 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 tons a year of nitrogen fertilizer. Today, we make zero. It's because we had to prioritize natural gas towards energy. Also these were oil plants, which were producing a lot of carbon. It was easier for a number of companies to basically shut down their capacity. That's the other angle, of course, about the demand side. We're talking about 365 million tons a year of what we'll be producing. That's on the demand. In Latin America, it is actually one of the largest import markets at the moment. While our production will be able to be shipped everywhere, the reality is we are able to produce in Latin America and sell in Latin America at a premium. The other advantage coming up is that from 2026, 2027, there will be a carbon border tax in Europe and the U.K. on the import of fertilizer. To give you a sense of scale, one ton of green calcium nitrate fertilizer is equivalent of about 1.7 ton of carbon. This is really the challenge. This is what you can actually address it today. If you look at all of the statements made by food companies like Nestlé and others, but even Marks & Spencer, who came out last year with a partnership with Fertiberia for the supply of green fertilizer in the future. They said that actually, M&S farmers in the UK, 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. Clearly, if you want to get to your Scope 3 goals very quickly at a relatively low cost, going green fertilizer is one of the easiest one. Project number one, which we'll discuss quickly later, to give you a sense, it's the equivalent of a 2.4 GW coal plant. It's clearly a lot bigger than the Drax, if you had to compare it, and about 3 million passenger cars. The way that you make green fertilizer, this is hyper simplifying it, but if you did regular fertilizer using oil and natural gas, you have CH4 carbon, H, hydrogen four, you separate it through steam, you have a whole bunch of hydrogen, and then you go through a regular process. If you want to do green fertilizer, what you take is the molecule of water, H2O. To separate the H and the O, you need a lot of electricity, which means that the only way to make cheap hydrogen is if you have cheap electricity. This is by far the most important thing. 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. 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 markets in the world. 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 becomes basically a bag of fertilizer. Zero difference between a regular bag of fertilizer, which is gray, and a green bag of fertilizer. You can really exchange them. It's very easy to transport everywhere. Most importantly, along that chain, there are no technology risks. The innovation is putting processes which were independent from each other before. 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 MW and then copy-paste. Looking at 10-year+ supply of power. Again, power. It represents over the lifetime of a project, 70% of your cost is directly related to power. Long-term 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 who have done PEM electrolyzers. We've seen that the promises have never been met. We use alkaline electrolyzers, which have been basically in existence since the 1920s. 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 bit over here, but somebody needs to build the port, somebody needs to build the transmission line. Where do you get access to the market? It's all about not needing to have all of this network around you and leveraging what's already existing. From an environmental and social point of view, that's basically almost infrastructure 101. Sometimes, the thing that takes the longest is environmental and social, and if you don't prepare for it from day one, you can suddenly have a project where you would have spent $10s of millions of dollars, if not hundreds for some, which is completely stuck in approvals because you didn't plan ahead. From our point of view, it was always on the priority list, and it's done for our first project. Of course, the offtake agreement. 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. Of course, it's all about the alignment with your host government. 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 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." We are very clear that there is a strong benefit in the region that we operate in, and of course, many times, farming is extremely important if you are in emerging markets. On the right side, you see what's our business development criteria. When we look at asset number 3, 4, 5, you start with a renewable power. That is number 1. You look at the market, and then, of course, you look at what is your place in the market. There's no sense in building more fertilizer facilities in places where you have existing fertilizer facility. It's all about finding these pockets of disconnection. Project number one, which we raised money for the past couple of years, it's what we call the Villeta Project. Now it's 145 MW fertilizer project that will be producing, we say, up to 270,000 tons. I think it's actually 260,500 tons per year of fertilizers. As we discussed, it was about 1.7 ton per ton of CO2 to be displaced. Where we are now? The power purchase agreement is done and dusted. We have bought the land. We have, basically, at the end of Front-End 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 down to 0.5%. Again, as I mentioned earlier, we're always trying to find the margin and ways, the extra thing that we can get, to make sure that we are competitive on the long term and we are the most attractive project around. As far as the work going on today, we are working with Natixis, our financial advisor, and the Inter-American Development Bank. On the project finance, we have received, basically, we are three times oversubscribed on what we call the letters of interest for the debt, because we cater to two things. Number one, it's a climate positive project, and also it's a food security project, right? Indeed, where if you are sitting in the U.K., clearly, seeing my cost inflation by 10% for my food is painful. Guess what? If you are in Paraguay and 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 finance institution. The next milestone that we will deliver before the end of June, it's the offtake agreement, the front-end engineering and design. I think we've mentioned a few times that we're about 97%. We are basically now in the checklist going up. We have about 600 documents that we are going through, that we are QC-ing, and that we are agreeing and releasing. After that will come the EPC contract, which are all key for the large project finance. As I mentioned, the whole idea for us is that the top co, Atome as a PLC, it's about doing the early work, which is not the one 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. Three minutes. Great. Almost done. 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're 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 spent, and do it over there. 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 number three basically will be in Paraguay, where we are negotiating a 300 MW PPA, which we hope to be able to announce again in the coming month. It's all about, again, increasing the capacity. It will be a different product than what we have in Villeta. This one will be more focused towards export. We have been approached for project 4, project 5, project 6, because we are the only one, and we were the first one. Only one listed gives us a lot of visibility where other people are coming to see us. Also, the fact that today we are very busy with what we need to deliver, we have people coming to see us. We are gently telling them, "Not now, it's not the right time." Certainly, our ability to go and copy-paste and copy-paste will come through the FID of Villeta. I think the summary, there's not a lot more to say on this one. Clearly that, yes, we are the first green fertilizer developer listed in the world. Since our creation, only two other companies were created. One called FertigHy in Europe, sponsored by HEINEKEN, looking at Europe, and another one called Atlas Agro, which is private, which had a $325 million investment from Macquarie Fund to do its first projects in the U.S. Clearly, there are fast followers out there, but as far as exposure to the sector and the agri sector, we are still the only one. Also because we have a fair amount of advantage and we are building up the team capacity, we are pretty confident that we'll be able to go and continue faster after that. As I mentioned, as far as the news flow, clearly expect quite a bit before the end of H1. Then hopefully when we get to H2, we'll start talking a bit more about the next project as Villeta gets on the world. Thank you very much.