Re-Post of Feature Article on Blue Gold
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·by Peter Epstein
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Has this happened to you? You’re talking or reading about the next big investment theme and the subject ofWATERcomes up. Or, you watch a documentary on Netflix aboutWATER, [I recommend, "Blue Gold: World Water Wars"]. You scratch your head, trying to find a way to get investment exposure to solutions for the world’s growing water problems. There are multinational water companies likeVeolia Environment, but these are not the kind of stocks that could double, triple or more in a year or two.
There’s also a number of private companies focusing on things like, “solar-powered .” In fact, there are so many that it would be nearly impossible to pick a winner. Simply search on Youtube to see the myriad possibilities.
And then there’s reverse-osmosis and desalination systems to consider. However, pure-play investments in these situations are also limited, (I guess one could invest inITT CorporGE?). Even so, these and other solutions to sever water-related problems have not made much of a dent. Without delving too deep into the challenges these systems face, suffice it to say that they typically are expensive to construct, energy and (frequently metal) intensive, non-portable, inflexible to changing circumstances and relatively expensive to operate.
How Best to Invest in the Water Crisis Theme
Intuitively, we all know that there must be SOME public companies that are worthy of investment and that offer very substantial upside. I think I finally found one. The following company has everything I’m looking for; blue-sky upside, well funded, strongteam, low cash burn, multiple business segments, stable recurring revenues, “green” technologies and highly leveraged to addressing very difficult global water challenges.
Blue Gold Water Technologies,[CNSX:BGO] [Frankfurt: 2GCN]is a newly-public company with high-value solutions to some of the most protracted water-related problems. In many regions of the world, growing populations are, or soon will be, in water crisis. As much as a third of the human race lacks reliable, safe, affordable, convenient access to basic water and sanitation needs. The world is demanding change and answers to the multitude of water challenges that, without question, are growing worse.
Blue Gold Water Offers Viable, Affordable and Efficient Solutions
Blue Gold Water has a remarkable suite of proprietary nano-biotechnology solutions that can transform even the most contaminated waters into pure, safe, drinkable water for a fraction of the cost of conventionally designed systems. The Company has radical, disruptive technologies; the result of relentless research and engineering. Blue Gold Water has partnered with, and has exclusive rights to, certain University of Saskatchewan licensed technologies and materials. The Company’s products do not require expensive infrastructure or specialized processes. The applications are simple to use, yet some of the most powerful and safe on earth.
Blue Gold Water is currently in development of a plant utilizing its proprietary technology for a PGM Mine Tailings, “PGM-MT” processing plant in South Africa. The Company is also in discussions with numerous other precious metal recovery and processing plants in South Africa and around the globe to sign long-term contracts for the use and maintenance of Blue Gold Water’s technologies. Mission: To extract up to 96% of the precious metals that are still contained within mine tailings slurry and process all water for agricultural use.
PGM Mine Tailings Recovery, the Crown Jewel, a Company Maker
In my opinion, the PGM-MT processing plant segment has the greatest upside potential of any segment in the Company. The 1st commercial-scale PGM-MT plant is being deployed in South Africa this summer/fall. Why South Africa? Because that’s where a HUGE amount of the world’s gold, platinum and palladium is mined.
Within six months, investors should have good visibility into how that plant is performing. The deployment is in partnership with a larger, established tailings recovery company in South Africa. The endgame is strong margins from high quality, long-term, recurring revenues. Add to that a free option on higher PGM prices, in years to come.
High Quality, Long-Term, Recurring Revenues = Strong Segment Valuation
A single PGM-MT processing plant could (in my opinion) generate $6-$12 million in revenue per year, (that’s Blue Gold Water’s share). Hopefully, investors will get preliminary guidance on the economics of a PGM-MT plant this summer. Assuming $6 million in annual revenue, each plant would be worth a lot. How much?
Here’s my thinking, again this is just my opinion. Let’s say that by the end of 2014, the PGM-MT plants are debugged and a total of 4 are up and running. In that case, 2015 revenue from this segment alone could be (4 plants x $6mm = $24 million).
Given that this segment would be recovering a steady stream of gold, platinum and palladium for many years, how would it be any different from a gold or silver royalty company? It wouldn’t be. In fact, I argue that Blue Gold Water’s PGM-MT plants would carry less risk than any full-scale mining operation.
Comparison of Blue Gold Water’s PGM-MT Plant Segment With the Royalty Business Model
Royalty companies likeFranco-Nevada, (NYSE:FNV), andSilver Wheaton(NYSE:SLW) are worshiped in the markets. These two trade at 10x-12x multiples of sales. Therefore, on a prospective $24 million of PGM-MT plant revenue in 2015, that implies a valuation of $240-$288 million. For simplicity, I assume 4 plants generate $6 million in annual revenue, in perpetuity.
Majors likeLonmin, Anglo American Platinum and Impala Platinumshould want to acquire Blue Gold Water’s PGM-MT processing plant segment as much or more than a Franco-Nevada or a Silver Wheaton. It’s widely known that the majors in South Africa are experiencing severe labor and power supply problems. Acquiring Blue Gold Water would be a prudent and highly accretive way to increase PGM production, mitigate variability and diminish, “resource nationalism” risk.
Blue-Sky Potential For Multi-Bagger Return, High Risk / High Reward!
My estimate of 4 PGM-MT plants in 2015 is conservative. The Company could have 6 – 10 plants deployed by then. Likewise, my estimate of $6 million of revenue could prove to be conservative, it could be $10 million, [Blue Gold Water's share](especially if precious metal prices increase!). Therefore, 6 plants x $10 million = $60 million of revenue in 2015.
Instead of applying a 10x-12x multiple on that $60 million, to be more conservative I ascribe a 6x multiple, (to leave upside for a potential acquirer). $60 million x a 6x multiple = a prospective $360 million valuation. That’s 10x the current fully-diluted Enterprise Value of about $36 million.
Much More Than a One-Trick Pony
In addition to the PGM Mine Tailings opportunity, the Company has other promising business segments. Importantly, on a company-wide basis, Blue Gold Water is well funded with zero debt and has a low monthly cash burn rate. I really like the fact that the PGM-MT plants clean up highly-toxic industrial waste in tailings ponds. And, I love that the Company has active plans to greatly enhance basic sanitation conditions and promote / facilitate the recycling of process water in multiple industries. These initiatives could truly make a difference in Mexico and other countries over time.
Other Promising Recurring Revenue Business Segments
Blue Gold Water is working with,New World Sanitationin South Africa to introduce their SMARTSAN Sanitation systems. New World Sanitation’s main focus is to design, manufacture and market new products for the sanitation market. The company aims to drastically reduce the impact on water usage in households and enhance the health and hygiene of users. Mission: To adapt its nano-technology, combined with bacteria and a shredding device, for toilet paper and kitchen waste, and to recycle the water for flushing and washing purposes.
Blue Gold Water has signed a ten-year contract withHasars, a sanitary landfill owned and operated byHasars S.A. de C.V, that accepts domestic waste from Zapopan and the surrounding areas. Over the last 18 months, Blue Gold Water has processed more than 400 million liters of water at this site alone. Mission: To take leachate water from the landfill site and process it into agricultural water that can be further processed into distilled drinking water depending on clients needs.
The Company is in discussions with several Tanneries in Mexico. Mission: To take polluted water after the processing of hide and process the water so it can be introduced back into production. Blue Gold Water is in discussions with several Sewage Treatment Plants. Mission: To take sewage and washroom waste water that is contaminated with heavy fats and render the solid waste inert and then process the water for drinking.
Blue Gold Water is in discussions with several Tequila manufacturers in Mexico. Mission: To take the water that has been used in manufacturing Tequila and process it to be recycled back into production. It’s estimated that 10 liters of wastewater are produced for each liter of tequila.
Conclusion
With multiple business segments, at least one of which could be worth in the hundreds of millions, Blue Gold Water Technologies is an up-and-coming star. In June/July there should be a number of updates on the Company’s progress in each of its segments. I’m trying to get the Company to hold an investor conference call this summer. In the meantime, visit www.bluegold.ca/to learn more about this exciting company. Or, feel free to contact me at epstein.peter4@gmail.com to discuss.