Dear Wealth Daily reader:
You already know I’m bullish on water.
And you know that my regular readers were in water early. But even though we’ve already realized some fantastic gains in the sector, it’s still early days.
Like many other commodities, water is headed for some major supply/demand imbalances.
In fact, here in the US, many water municipal systems are 40 or 50 years old, in some cases older, and ready for replacement or upgrades.
World-wide, however, especially in the developing world, the problems are much more severe. In these areas, the distribution systems aren’t old, they don’t exist.
A lack of clean water has been identified as a leading killer of children in the third world.
The problem is so severe the UN and other world health organizations have begun a major push for investment into water systems to help stem the spread of disease and provide even a bare minimum of clean water.
Although personal use is arguably the single most important, industry uses vastly more water. In fact, industry accounts for about 25% of water use worldwide. The largest water user is agriculture, at nearly 70%.
An excellent example is our position in Ionics Corp, which, when bought by GE, we sold for a gain of 57% inside of a month.
Now, most water stocks are long term plays. But, as the above example illustrates, the industry is ripe for consolidation.
My favorite water play is a desalination company, which operates almost entirely outside of the US. I personally feel that de-sal is one of the biggest growth markets in the entire water industry.
Take a look at this recent press release from GE:
GE announces plans for largest desalination plant in Africa
ALGIERS, Algeria, June 27, 2005 — At a ceremony held in Algiers Saturday, GE Infrastructure, Water & Process Technologies, a unit of General Electric, joined the Algerian government, the Overseas Private Investment Corp., and the Algerian Energy Company (AEC), in announcing plans to build Hamma Water Desalination SpA — Africa’s largest seawater desalination plant. Formed and funded by GE and AEC, the Hamma project is part of GE’s ecomagination effort, which is aimed at building innovative solutions to tough global problems, like water scarcity. The Hamma project will supply — 25% of Algeria’s capital city’s population — with desperately needed drinking water. "Many regions of the world face severe water scarcity, and the issue is getting worse daily said George Oliver, CEO, GE Infrastructure, Water & Process Technologies. "The Hamma project is at the forefront of GE’s ecomagination commitment. We look forward to working with the Algerian Government on this project that will create new sources of water for the people of Algiers and lessen demands currently placed on their limited supply of fresh, usable water."
By supplying 200,000 cubic meters (53 million U.S. gallons) of potable water a day and reducing energy and overall costs, the build-own-operate project will lessen Algeria’s water scarcity issues. Currently, the people of Algeria are plagued with usable water challenges that range from drinking water shortages and irregular rainfall to aging infrastructure that can cause immense losses of water. Because of the scarcity of clean water, the residents of Algiers only receive water one out of every three days. Funded by GE (70%) and AEC (30%), Hamma will be the first private desalination reverse osmosis potable water project in Algeria. The project will also be the largest membrane desalination plant in Africa, as well as one of the largest desalination plants in the entire world. OPIC, which helps U.S. businesses invest in new and emerging overseas markets, also financed $200 million towards the project.
Construction on Hamma is scheduled to begin in July 2005 and is estimated to last 24 months. Hamma joins GE’s expanding ecomagination and water scarcity solutions portfolio, which includes a wide-range of customized water solutions designed to create new sources of usable water for the potable, industrial and agricultural sectors, while lessening impacts on fresh water sources. GE’s largest ecomagination project and the world’s largest membrane-based water reclamation facility is the Sulaibiya facility in Kuwait. This facility purifies municipal wastewater to produce 100 million gallons per day of clean water for industry and agricultural uses. GE now has an installed base of more than 1,100 water treatment plants that can achieve flow rates ranging from 30,000 gallons/day to 100MM gallons/day.
At GE’s company-wide ecomagination launch in May, GE Infrastructure, Water & Process Technologies showcased two environmentally friendly products that meet GE’s ecomagination criteria. The products aid the potable, industrial and agriculture industries in meeting their needs while also achieving regulatory compliance and minimizing environmental impacts. GE, Infrastructure, Water & Process Technologies’ ecomagination products include:
GE’s Water Scarcity Solutions:
By tapping into new sources of water, GE’s Water Scarcity solutions remove saline from brackish and seawater — producing fresh, usable water for drinking, irrigation and industrial uses, which lessens stress placed on limited sources of fresh water as well as dependence placed on environmental factors, like irregular rainfall.
Advanced Membrane and Separation Solutions Technologies:
GE’s Advanced Membrane and Separation Solutions produces customized, clean, usable water that benefits a wide-range of industries. Industry depends on water as its lifeblood. GE’s Advanced Membrane and Separation Solutions Technologies help industries, like the pharmaceutical, manufacturing and beverage, increase productivity, reduce energy and overall costs — all while striking a positive balance between industrial and environmental needs.
GE Infrastructure, Water & Process Technologies (www.gewater.com), a unit of General Electric Company, is an industry leader in solving the world’s most pressing water reuse, industrial, irrigation, municipal, and drinking water needs. Through desalination, advanced membrane, separation solutions, and water reuse and wastewater management and process technologies, GE improves performance and product quality, reducing operating costs, and extending equipment life through a broad range of products and services.
To get an idea of just how bad the water problem is in some areas of the world, consider this quote from the press release:
"Because of the scarcity of clean water, the residents of Algiers only receive water one out of every three days."
Now consider the fact that in many areas around the world, receiving water one out of every three days would be a bonanza.
What’s certain is there are incredible growth opportunities for select water companies, especially those we already hold in the PT water portfolio.
The good news is, this trend is just getting started, so it’s not too late to get in.
Your thirsty correspondent,