Transcript Blue Gold & Special Situation Investing

Blue Gold &
Special Situation Investing
By Chris Mayer
Editor & Founder
Mayer’s Special Situations
Globally, the water crisis is here
Half of all hospital beds in the world are
occupied by sufferers of a water-borne
illness.
 Only 20% of the world’s population has
regular access to clean water

China’s Thirst…
2/3rds of its 600 largest cities don’t
have enough water
 Half have polluted groundwater
 Highest liver and stomach cancer rates
in the world

High economic costs, too
$54 billion per year, 20% of GDP
 Top environmental priority
 Beijing – clean up by 2008

Physical versus Economic
Shortages
Cherrapunji, India versus Australia
 Difference between access and an
actual physical shortage.
 Not all about population.
 Water use in the U.S. stopped rising in
1980 (Segerfeldt)
 Efficiency gains – Steel production, for
example.

A Crisis of Governance
Water crisis in the developing countries
stems from under investment, lack of
free enterprise.
 Spillage issues
 Chile example
 Price of water

Water: Source of Conflict
“The wars of the 21st century will be
fought over water.” (Serageldin, WB)
 “During the past 50 years, 507 conflicts
have arisen from disagreements over
water.”

Huge Investments Needed
Long-term neglect
 Currently $70-80 billion in developing
countries.
 World Water Council estimates $180
billion per year is needed over the next
25 years.

Massive Consolidation
Water Pumps
Irrigation Companies
Long-term growth drivers…
Population growth
 Need for productivity improvements
 Fresh water constraints
 Irrigated water makes up 17% of
acreage, contributes 40% to food supply

More drivers…
Depends on farmer income, crop prices
– to a certain extent
 Backdoor play on ethanol
 Replacement market (50% are over 10
years old)
 30% of sales from overseas (China,
India, Brazil, South Africa

Healthy company…
Has some cash, no debt
 Buying back stock – 325,000 shares in
2005
 23% increase in sales
 94% increase in earnings
 Not a single analyst follows the stock

China Exposure & More
Growth in China – also India, Brazil,
Russia
 Broad-based water treatment company
 Energy business
 Paper business
 Bread & butter is WATER

Durable business
“Whether a plant is running at 50% or
99% capacity, it must still run its boilers,
cooling systems, and power
generators.”
 Recurring revenue streams, longstanding customers.
 Pricing power
 Interesting history

Special Situation Investing
What is it?
 Spinoffs, recaps, stubs & lots more…

Walter Industries (WLT)
Real time example
 Play the “stub.”

Thank You!
Read Mayer’s Special Situations for the
latest on all these stocks
 www.agorafinancial.com
