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, long-standing 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!

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