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 21 st 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 % 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! Read Mayer ’ s Special Situations for the latest on all these stocks