“Water is one of the great opportunities of our time.”
Few readers need an introduction to legendary U.S. investor, Jim Rogers. His market insights are eagerly soaked up by investors around the world. One of the investment themes for which Rogers has been particularly outspoken is water.
In large part, this is just an expression of common sense. Everyone knows that water scarcity is becoming an increasingly serious issue, not just in isolated regions, but globally. Everyone knows that industrial and urban pollution is further eroding available supplies of potable water. Everyone knows that rising populations are adding additional strain on these scarce water resources.
If “everyone” already knows this, then why isn’t everyone already investing in water? It is because finding prospective opportunities to invest in water are hard to come by. Projects involving desalinization plants generally require massive capital investments. The large-cap entities required to fund such projects typically don’t offer strong growth potential.
There are several “water ETF’s” on the market, but for many investors this isn’t the answer. Mutual funds, by their very nature, dilute investor returns because they are divided amongst the number of companies contained in the ETF. Also, researching such ETF’s can require becoming familiar with dozens of companies – each of which may be utilizing entirely different water technology.
Clearford Water Systems Inc (TSX: V.CLI, OTCQB: CLIRF, Forum) provides investors with a simpler option to invest in water scarcity. CLI’s business model involves bringing high-efficiency, 21st century solutions to sewage treatment – also known as wastewater.
Sewage collection and treatment may not seem glamourous. However, Clearford’s business model is a direct and indirect play on water scarcity, in several respects.
- Better wastewater treatment reduces pollution and water contamination issues, promoting better management of water resources including beneficial reuse for agriculture and industry.
- CLI’s proprietary, high-efficiency Clearford One™ technology dramatically reduces both the amount of water required to operate a sewage system and the energy needed for pumping and treating wastewater.
- Clearford’s UV Pure Crossfire Technology® provides the highest standard for water disinfection, producing clean water that is reliable enough even for use in schools and hospital settings.
Water management, water treatment, and water usage are all inextricably linked. Water management is the umbrella term, comprising all aspects of our need to utilize water resources more intelligently. Water treatment is one of the areas of water management that holds out the greatest potential for conserving and protecting our vital water resources. Better wastewater treatment and water management makes more water available for human use.
What nation is arguably the global poster child for the need for better water management and wastewater treatment? India. CLI has already made important strides in penetrating this ultimate market for wastewater solutions, but more on that later.
India’s water management crisis is a function of several issues. An article from Quartz Media doesn’t pull any punches: India is facing its worst water crisis in generations.
The text of the article makes it clear that this is not mere hyperbole.
India is now facing a water situation that is significantly worse than any that previous generations have had to face. All Indian water bodies within and near population centres are now grossly polluted with organic and hazardous pollutants. Interstate disputes over river waters are becoming increasingly intense and widespread. Not a single Indian city can provide clean water that can be consumed from the tap on a 24×7 basis.
Surface water conditions are bad. However, the groundwater situation is even worse.
Groundwater extraction is growing and has become increasingly unsustainable. Consequently, in many parts of the country, groundwater levels are declining steadily. In some parts, the levels are declining by more than one metre per year. A lack of proper wastewater treatment from domestic, industrial, and mining sources has meant that groundwater is being progressively contaminated by known and unknown pollutants, increasing the potential health risks to humans and ecosystems. [emphasis mine]
These are precisely the issues that can be addressed by CLI’s Clearford One™ technology. What is Clearford One™?
- ClearDigest™
- ClearConvey™
- ClearRecover™
(click to enlarge)
Each of these three modules of CLI’s technology brings a different wastewater solution to market. ClearDigest™ is the starting point for a superior wastewater treatment system. One of the great inefficiencies of most existing sewage systems today is centralized processing and treatment of sewage. This requires using energy (and water) to pump all of this waste to the central treatment facility.
ClearDigest™ provides a decentralized treatment model: primary sewage is treated passively at the source to remove 60-75% of solid and organic pollutants in wastewater. More resource-intensive final treatment is provided later by the ClearRecover™ module.
The plastic pipes used for ClearConvey™ are only one-third the diameter of pipes used in conventional sewer systems due to the huge reduction in the total volume of wastewater being moved through the system. This efficiency gain is in addition to the reduced energy required for pumping. Clearford’s decentralization technology means greater cost efficiencies in both installing and operating its wastewater treatment system.
Another important aspect to CLI’s business model is the capacity to be able to customize its wastewater solutions to the differing needs of various jurisdictions.
CEO Kevin Loiselle explains how and why the Company plans on tailoring Clearford One™ for the particular needs of Indian communities.
“The challenges of infrastructure deployment in India, or any market, are related to long-term sustainability of water and wastewater solutions. In communities where power and water are scarcely available or service is unreliable, ‘conventional’ approaches fail because the technologies are inherently inappropriate for the application. For example, Clearford One systems in India do not include advanced membrane treatment because it is not practical to expect that electricity, chemicals, and trained operators will be readily available for most projects. The ClearRecover constructed wetland is a suitable treatment alternative that achieves the objectives and that local people can operate indefinitely with just a little training.”
Final stage: wastewater is now sufficiently treated to be safely used in agriculture as a source of water and nutrients
Clearford’s ability to deliver wastewater solutions to this gigantic market is not theoretical. CLI has already successfully rolled out its technology in India. In India’s Gujarat State, the implementation of Clearford One resulted in the first “open defecation free village” in that entire state. That mere fact alone illustrates the severity of India’s wastewater management crisis.
Clearford India is registered in New Delhi, with its primary business office located in Pune. However, penetrating this enormous market requires more than holding out a cost-effective solution. It means building networks and partnerships – with both industry and government.
Already, CLI has forged working relationships with some of India’s major names in industry and infrastructure: Tata Projects, Essel Group, and IL&FS.
India represents almost unlimited blue sky potential. But success isn’t going to materialize overnight. As Clearford deepens its relationships with key actors in India, the Company isn’t standing still. CLI has been busy working to turn Clearford One™ into a profitable business model for its North America operations.
North America represents a different corporate challenge than India. In Canada and the U.S., wastewater treatment is obviously much more advanced. However, both aging infrastructure and new urban development provide CLI with the opportunity to implement its 21st century solutions closer to home.
For North American communities, the objective is to employ the full spectrum of Clearford One™ technology, from Clear Digest right through to the proprietary water treatment provided by UV Pure. Again, the Company has already been busy bringing these solutions to market.
In the community of Fetherston Park near Kemptville, Ontario, the residents of a trailer park were dealing with the problem of aging septic systems. After decades of neglected maintenance and repairs began causing leaking (and polluting), the residents were facing eviction if they didn’t remedy this environmental issue. Clearford One™ was the answer.
In only seven weeks, a ClearRecover® “membrane bioreactor” (MBR) system was installed in Fetherston. Manufacturing and installation was done by Koester Canada, a company with whom CLI had built a strong working relationship.
Around the same time, Clearford was also bidding on an all-inclusive contract to operate and install a Clearford One™ system for the Ontario town of Everett – a project at the municipal level. CLI presented Everett with the most competitive bid for the project, however ultimately the town’s Council declined to accept any of the bids.
To management, this was a signal that the Company needed to fine-tune its business model in order to incorporate greater cost efficiencies into wastewater management for municipal-scale projects. Management’s answer to this issue was to move to a more comprehensive waste management model: supplying not only the infrastructure, but also supplying the expertise and resources to manage the system.
Bringing this full-service/full-control model to market meant that Clearford needed to add additional expertise and resources itself. This meant acquisitions. As CLI surveyed the landscape for a good fit with its own operations, one name immediately leapt to the forefront: Koester Canada.
On November 29, 2017, the Company announced the acquisition of Koester Canada, at a purchase price of C$7.6 million. The primary consideration in completing this acquisition was bringing Koester’s manufacturing and installation expertise in-house. However, Koester Canada brings much more to the table in this deal. It also brings its own client base and robust revenue stream.
In addition to the Koester Canada Design-Build Group, there is a second division: Team Aquatic Operations Group. These divisions are being renamed Clearford-Koester Canada and Clearford Waterworks.
Clearford Waterworks (Team Aquatic) currently operates more than 50 privately owned communal water systems in Ontario. A quarter of these contracts are structured in the form of 5‑7 year term agreements, assuring a steady revenue flow. With this boost to the balance sheet, the Company is expecting total revenues to rise to roughly $10 million for 2018. The goal is financial self-sufficiency by the second half of 2018.
Perhaps more importantly, Koester Canada’s operations solidify the economics of Clearford One™. Now Clearford can provide a full-service wastewater management model that makes it possible for CLI to deliver additional efficiencies for larger-scale projects – like Everett.
CEO Loiselle connects the dots on CLI’s business strategy: making Clearford a financial success with its North American operations as it works towards the tremendous blue sky potential represented by India’s market.
“As Clearford moves forward with its business plan, we are assembling the puzzle pieces through strategic acquisitions and in-house capacity building to offer the comprehensive water solutions and services that the market is seeking. Integration will create opportunities for cross-selling and cost efficiencies in the delivery of solutions, giving Clearford the edge for more competitive bids and greater market penetration.”
Of course there is a whole world out there outside of India, and Clearford is also working to open up more international markets. The Bosques Granada & Cayundá “Phase 2” Clearford One™ project in Colombia has now been completed.
There is a global water crisis. But this also means opportunity, as spelled out by none other than Jim Rogers. Clearford Water Systems is the investment vehicle to transform the problem of water scarcity into shareholder profits.
Appendix:
Clearford in India
Clearford in Columbia
FULL DISCLOSURE: Clearford Water Systems Inc. is a paid client of Stockhouse Publishing.