VEOEY - The Most Precious Resource On Earth Is In Danger

2023-07-17 06:09:06 ET

Summary

• Is the most precious resource gold?
• Is it silver? Oil and gas?
• No. The most precious resource on earth is water. And we are squandering it at a precipitous rate.
• These two companies might be part of the solution.

Imagine you have $1,000,000 in cash, but have not had water in four days. It is virtually impossible to come by. Someone offers you 1000 gallons of water for $1,000,000. which is more precious to you? Another few days or weeks to stay alive? Or being the richest person in the graveyard?

This is what most people in the developed world think of when they think of our “water planet:”

Just look at all that blue. And that is just (mostly) the Atlantic Ocean. The Pacific Ocean is larger than all the continents put together! However, this does not tell the whole story. I am indebted to both the USGS and Woods Hole for the following image. This is also a view of the earth’s water.

All of it.

Since the earth is a sphere – with a thin veneer of water over some of it – the above drawing shows water as a sphere as well. This way we see the amount of water relative to the size of the earth. Three spheres represent Earth's water supply.

The largest sphere -- all of Earth's water – defined by the sphere at the end of the yellow arrow, has a diameter of about 860 miles (about the distance from Salt Lake City to Topeka, Kansas.) This includes all the water in the oceans, ice caps, lakes, and rivers, as well as groundwater, atmospheric water, your thirsty little watermelon and tomato garden, and all the other plants and trees around the globe. This water is all there is, in any form, for just under 8 billion people on the planet.

The second sphere, where I have placed a green arrow, covers and rises above an area roughly the size of the US state of Kentucky. Since 97.5% of our planet’s water is undrinkable salt water (and do not look yet to large-scale desalination as the answer,) this sphere covering Kentucky represents the 2.5% of Earth’s water that is fresh potable water. This is the amount of water left after we remove the undrinkable (without treatment) ocean water. The problem is…almost all of this remaining water – about 98.5% of it -- is locked up as groundwater, water in trees, permafrost, polar ice caps, and glaciers, most of which are not accessible to us.

Look closely and you will see a tiny 3rd sphere at the end of the red arrow hovering over an area roughly the size of suburban Atlanta, Georgia. It has a diameter of just under 35 miles. This little ball, containing all the freshwater in all the world’s surface lakes, reservoirs, streams and rivers, must serve most of humans’, animals’, and plants’ water needs.

This does not include groundwater. Over hundreds of thousands of years, underground water trapped in soil and rock, which we call aquifers, have formed. Groundwater aquifers are only refilled slowly by rainfall and snowmelt at their recharge locations.

Some aquifers have already been pumped at outrageous rates and now they are almost gone. Hydrologists and geologists estimate the process of refilling a typical aquifer takes up to and sometimes longer than 6,000 years to bring them back up to their original levels.

The Water Cycle

How can this be, you ask? After all, most of us somewhere back in grade school learned that the water supply on earth is roughly “fixed.” Except for the occasional icy meteor that burns up once it enters earth’s atmosphere, the occasional volcanic eruption, or geothermal water that escapes into the atmosphere, all the water that is on earth is all there will be. We cannot make water!

If that is so, what is the problem? It all follows a natural cycle.

The problem is that we are now using water more and more profligately -- and there are more and more of us. Yes, Mother Nature makes it clean and potable for us over time . The water we muddied or filled with dangerous chemicals or flushed away gets cleansed and comes back down as rain or snow.

The problem is that this does not happen overnight. Nature has its own timetable and today’s apex predator – we humans – have interrupted that cycle to our detriment.

Back in 1960 when there were just 3,000,000,000 humans on earth we could allow nature to rinse our water clean and know that we had many hundreds of years remaining from the aquifers deep underground.

But today, with 8 billion people, we have increased by more than 250% the amount we are drinking and too often defiling our pure water. Mother Nature does not have the flexibility to meet or doomsday timeline. For that reason, we must take action to purify our wastewater today ourselves.

Is desalination the answer?

There are many fine companies involved in desalination. But large-scale desalination carries with it its own set of problems. Like significant expense and wastage of water to perform the desalination.

As recently as 1970, under the Saudi Arabian desert, there was an aquifer the size of Lake Erie. (When the entire earth was once covered with water, there was plenty of water seeping into the ground. Yes, even under the deserts!) In the 1970s, however, the Saudi king decided his people needed to grow their own wheat rather than buy it elsewhere. After all, there was a massive resource not being used right under their feet. So they pumped. And pumped.

Today, that Lake Erie-sized aquifer is already nearly dry. (And the extra wheat on the world markets drove the price down, as well, making it a double whammy.) Today, the Saudis create massive dead zones in the marine environment by desalinating and pouring the effluent back into the sea. To run the desalination plants, they use roughly 10% of all the oil they pump out of the ground every day! Desalination is expensive .

For a while, the Saudi desert went from this:

To this:

I have spent some time in the Middle East and some of that in Saudi Arabia. When it is 115 degrees in the shade, a large amount of the water being spewed into the air immediately evaporates and is lost until the water cycle brings it back in, what? A few thousand years? This is the very definition of prodigality.

By today, these temporarily fertile fields have declined pretty much right back to this:

Desalination also means tons of minerals and salts dissolved in seawater must be dealt with. You could pump them back into the sea and just ignore the killing fields all around them. A better solution would be to learn how to use these salts and minerals by extracting them with, hopefully, a low enough cost in energy to make their sale cover that energy cost. (One of the more hopeful of these materials dissolved in seawater is lithium, of which there is believed to be far more in the world’s oceans than all the reserves on all the continents worldwide.)

We are whistling past the graveyard

Today the land is sinking underneath much of North America’s “breadbasket,” the mighty Ogallala Aquifer that lies under the eight US states and two Canadian provinces that produce wheat, corn and so much more. The best estimates are that it is sinking in some places as much as three feet per year. When that aquifer is gone, welcome to the new Dust Bowl.

California’s famed Central Valley has sunk in many places as much as 25 feet just since 1955. There was once dirt and rock and various metals and water underground that kept the land above both level and fecund. Remove the water and the land above begins to sink.

California is a perfect example of a state doing everything wrong for political reasons at the expense of future generations. This year alone we had more than 700 inches of snow at my home at Lake Tahoe. All that snow fills the roaring rivers that “would be” sending fresh potable water downstream to be held in dams to provide ample water during droughts. California’s citizens could also have cheap, clean, low- or no-emission hydroelectric power by placing the appropriate turbines at those dams. Because of protests from misguided fringe environmental groups, California has not built a dam in more than 60 years.

Yes, the water cycle ensures that all that pure fresh water rushing to the sea will one day be available to future generations a few hundred or a few thousand years from now. But we need it now. Letting it go straight to the ocean is profligate at best.

Near the coasts, over-pumped aquifers are being intruded by saltwater, which fills in where freshwater is removed. Once these aquifers are contaminated, they cannot be fixed or refilled.

Groundwater aquifers are only refilled slowly by rainfall and snowmelt at their recharge locations. Some aquifers have been percolating for thousands of years, and now they are almost gone. It's going to take at least that long to bring them back up to usable levels.

Here are two approaches to doing much better to save water and use what we have saved more wisely:

1. Wastewater Conversion

If the amount of fresh water is effectively finite, how do we handle the needs of 8 billion people – or more?

Fortunately, there are several companies – and nations and regions – that are beginning to do the right things. Many of these companies deal in wastewater treatment.

Wastewater treatment has two benefits: environmental / protection / health benefits as well as economic benefits through reuse many times over. Currently, we use water once and think nothing of disposing of it.

There is this crazy notion that water is “free” – Or close to it – and therefore it is of no concern if we waste it. “It will always be there” goes that logic. No. It won’t.

The by-products of wastewater like all kinds of nutrients can and should be used for agriculture and energy generation. Wastewater is not waste – it is a resource!

In most of Europe and the US, the same sewage systems collect residential and commercial wastewater, runoff rainwater , and melted snow , both potable water sources. Singapore is a fine example of how this could be done better – and make a massive difference in our water consumption. This city-state collects different grades of water separately and redirects some of it to uses like watering lawns and gardens that require a lower level of quality to still excel. The rest goes to treatment plants for cleaning and reuse in other applications.

Many other ideas currently in use or in pilot programs include recycling those desalinated brines, using low-energy tech to separate industrial waste into irrigation-quality water while collecting the valuable chemical by-products -- and even ways to condense fog into usable water!

Among the companies involved in the wastewater conversion industry, my favorite is the “centuries-old” French multinational Veolia Environnement SA (VEOEY).

This is how the company describes itself:

Veolia Environnement SA designs and provides water, waste, and energy management solutions worldwide. The company is involved in the resource management, production, and delivery of drinking water and industrial process water; collection, treatment, and recycling of wastewater; and design and construction of treatment and network infrastructure. It also provides waste collection, waste material recovery, waste-to-energy, organic waste material recovery, hazardous waste treatment, dismantling and remediation, urban cleaning, and industrial maintenance and cleaning services. In addition, the company engages in the operation and maintenance of heating and cooling networks; development of energy services to reduce the energy consumption and CO2 emissions of buildings; optimization of industrial utilities, such as steam generation, cooling, electricity, compressed air; and energy use related to processes and industrial buildings, as well as produces electricity from biomass. The company was formerly known as Vivendi Environnement and changed its name to Veolia Environnement SA in 2003. Veolia Environnement SA was founded in 1853 and is based in Aubervilliers, France."

I believe Veolia to be undervalued at its current price. This $23 billion company has a rock-solid balance sheet. Comparing it to what Seeking Alpha concludes are its multi-line utility peers…

…VEOEY has particularly impressive numbers in Total Cash and Cash Per Share and reasonable debt relative to its size and cash flow.

While the above are good indicators of value, Veolia rises to the top in comparison with its peers in the growth area as well”

There is a reason my “model” portfolio for Investors Edge® subscribers is called the “Growth & Value Portfolio.” I seek both. In Veolia, I believe I have found that.

2. Better Irrigation Practices

Look above at the image of the Saudi irrigation equipment spewing water into the ground and the air in rather equal amounts. Or at this photo below.

Using water more effectively in agriculture is absolutely critical. It currently comprises more than 70% of all water usage worldwide. Some companies are already looking for ways to do better via more controlled watering. Still other corollaries include a better fertilizer balance in fields, integrated pest management, and improved drainage systems.

Below is an example of a different type of irrigation system, this one sold by a Chinese company:

This is one of the most wasteful of all irrigation systems! Some water is immediately lost in the heat, some plants get overwatered, and others get underwatered.

Now take a look at how it is done in Israel:

Each plant gets the appropriate amount of water delivered by a micro-drip system that uses a fraction of the water the other systems use. It goes directly into the soil, not into the atmosphere.

You cannot buy the company that invented this system directly since it was bought by a different company that now owns 80% of it. But you can own the parent company which is, I believe, a winner in its own right. Since I would like a piece of Terafim, and like the parent company's other products, I will own this one as well.

I have traveled from southern Israel into Jordan and back again. I have also traveled from southern Israel to Egypt’s Sinai and back again. In all cases, I am leaving from and returning to Israel’s Negev desert region. It is all desert. But the portion in Israel has farms like the one above scattered all over it.

It only takes three things to grow most plants: sunshine, water, and decent soil. The sun shines quite regularly in these areas. The soil can be augmented with proper nutrients. And the water is there if used sparingly and intelligently!

The company that made the system above is Netafim. It began in the southern Israeli kibbutz of Hatzerim in 1965. Water engineer and inventor Simcha Blass invented and proved the value of the world's first dripper device back then. The company has since made a name for itself developing water-efficient irrigation systems that deliver water directly to the plant's roots instead of just to the soil around it. From its small beginnings in one kibbutz, Netafim now employs some 5,000 workers in 17 manufacturing plants. It operates in more than 110 markets through 29 subsidiaries.

Today, Netafim itself is a subsidiary of Mexico-based pipes and chemicals company Orbia Advance Corporation ( OTCPK:MXCHY ), which bought an 80 percent stake in the company in February 2018 at a $1.9 billion company valuation. The other 20% is still owned by Kibbutz Hatzerim, clearly a great investment for them!

The company produces drippers, dripper lines, sprinklers, and micro-emitters. Netafim also manufactures and distributes crop management technologies, including monitoring and control systems, dosing systems, and crop management software.

Netafim produces these systems and other water technologies intended to increase yields and improve crop production while preserving the quality and quantity of water and – importantly – the continuing fertility of the soil. These techniques are used for a broad range of field crops, orchards, and vineyards grown under very different topographic and climatic conditions throughout the entire world.

You cannot buy the company directly but you can buy Orbia. (If you are an investor who buys non-US companies, you may know Orbia by its former name, Mexichem.)

Orbia describes itself as follows:

Orbia Advance Corporation, S.A.B. de C.V. provides products and solutions for precision agriculture, building and infrastructure, fluorinated, polymer, and connectivity sectors worldwide. The company offers irrigation systems, agricultural and greenhouse projects, digital farming technologies, and related services; and connectivity solutions, including conduits, cable-in conduit, and other HDPE products and solutions. It also provides water delivering solutions for drinking water supply, sanitation, and urban water resilience; fluorine and downstream products, comprising fluorspar mine and produces intermediates, refrigerants, and propellants for used in automotive, infrastructure, semiconductor, health, medicine, climate control, food cold chain, energy storage, computing, and telecommunications applications; and general and specialty resins, PVC, and compounds and additives for stabilizers and plasticizers, as well as compounds formulated from polyolefin, thermoplastic polyurethane, and thermoplastic elastomer polymers for various applications. The company was formerly known as Mexichem, S.A.B. de C.V. and changed its name to Orbia Advance Corporation, S.A.B. de C.V. in August 2019. Orbia Advance Corporation, S.A.B. de C.V. was founded in 1953 and is headquartered in Mexico City, Mexico."

Orbia is not ranked by SA, but it does provide the following scant information:

If you decide to conduct further due diligence, Orbia’s most recent quarterly webcast is here :

And for heaven’s sake, enter limit orders. Trading in the US shares OTC is “occasional” at best.

What can those of us not in the business do?

We can start by drinking tap water if the area in which we live has quality tap water. More than 98% of the water, as measured by water quality regulators, in the US and Canada is considered "excellent."

Prefer bottled water. When you buy a case of Aquafina bottled water, PepsiCo says thank you. You are buying their highest-margin product. They pay virtually nothing for it and are charging you 10 times or more than what you would pay for your own safe tap water. Dasani? That is Coca-Cola’s highest-margin product. Arrowhead? That is Nestle. They would rather you buy their water than their soft drinks!

The quality of water in bottled water may even be less than you think. The U.S. Environmental Protection Agency (EPA) strictly regulates and supervises the quality of tap water, while the U.S. Food & Drug Administration (FDA) has much lighter restrictions on bottled water. I'm going with what we call "Tahoe Tap" in my neck of the woods!

Good investing and good stewardship,

Unless you are a client of my portfolio management firm, Stanford Wealth Management, I do not know your personal financial situation. Therefore, I offer my opinions above for your due diligence and not as advice to buy or sell specific securities.

For further details see: