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Chile's Growing Desert Is Closing In on the Country's Capital


The world's driest desert is expanding south and sitting in its path is Chile's capital.


Santiago, a city of 7 million people 1,000 kilometers (622 miles) from the Atacama desert, is experiencing its driest year since 1966. Similar to California's situation with the Sierra Nevadas, little to no snow has fallen in the Andes mountains that supply most of Santiago's water.


"Climatic zones are shifting south," University of Chile geography professor Francisco Ferrand said. "Santiago is likely to move to a condition of a desert or semi-desert. What is happening is probably associated with global warming and there's no sign of it slowing."


Santiago need only look 300 kilometers north to see how bad things can get as its drought continues for an eighth year amid record high global temperatures. Farmers in the once-fertile valleys of the Choapa and Limari rivers that lived for generations on agriculture are ripping up orchards, losing livestock and in some cases abandoning homes as wells dry and waterways slow to a trickle.


Near the origin of the Limari river, Paloma reservoir -- Latin America's largest for irrigation -- is all but empty. Sluice gates are shut, the little water that remains doesn't reach the dam and most of the basin is dry, cracked earth. The image is repeated 30 kilometers away where Cogoti reservoir is empty. Closer to Santiago, the Culimo dam is dry.


Around the river valleys, fields are filled with the stumps of once-productive avocado trees and almond groves. Grapevines are a thatch of dried stems.


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A water trading fund managed by listed private equity company Blue Sky Alternative Investments has achieved a return of more than 32 per cent in fiscal 2015 as farmers flock to cheaper land and invest in high-return crops in the areas where the fund has purchased water.


In a private report sent to unitholders the fund's managers said they anticipated the southern Murray Darling Basin would see further appreciation alongside the impact of El Nino and the significant investment that has occurred in the area's irrigated farming including cotton, almonds, walnuts, dairy and citrus."While we have long held the view that Water Entitlements in the southern Murray Darling Basin were fundamentally undervalued, these gains occurred more quickly than we anticipated."


The fund manger said annual crop producers, most especially cotton and rice, were likely to start to rethinking their planting programs for 2015-2016.


"At some point it may become more rewarding to sell their meagre allocated volumes than it is to grow a summer crop. We're not at that point yet, but unless we do start to see some decent winter rainfalls, prices are likely to break higher to commence the process of rationing scarce water volumes going into spring." "Our portfolio is well positioned for this dry scenario as we've aggregated a high proportion of high-reliability water entitlements."


Cotton prices are also well up in Australian dollar terms making such crops very profitable if water is available. In the southern Murray Darling Basin three huge cotton milling gins have been constructed in the last few years as farmers and investors convert many of the existing farms to higher margin cotton production.


Farmers have come to the region because of the relatively cheaper prices of land compared to traditional cotton farming regions of northern NSW such as Moree.

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that water Fund is unlisted ... but there is exposure through BAF (Blue Sky Alternatives Access Fund Limited), and now is some 32% of the listed fund

The Alternatives Fund's investment in the Water Fund increased by 2.97% in June, producing a gain of over 25.0% for the 2014/15 Water Year.


The Water Fund is expected to pay a distribution to the Alternatives Fund in July equivalent to 2.0% of the Water Fund's Net Asset Value to all unitholders as at 30 June 2015.


Blue Sky has long held the view that water entitlements in the southern Murray Darling Basin ('MDB') were fundamentally undervalued, and we continue to anticipate the southern MDB will witness further appreciation.

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Emefcy develops advanced energy efficient wastewater treatment technologies for municipal and industrial plants.

- Emefcy energy efficient systems are cost competitive relative to conventional alternatives with respect to both capital and operating expenses

- The Spiral Aerobic Biofilm Reactor (SABRE) is a self respiring, prefabricated modular unit for biological wastewater treatment. It reduces energy consumption as well as sludge production, relative to conventional aerobic processes.

- The Electrogenic Bioreactor (EBR) uses electricity generating bacteria to treat wastewater, and produces green electricity as a byproduct. (not yet commercially viable - see website)

Water recycling is still a hot environmental issue but last decade's expensive and uneconomic desalination plant boom has taken the shine off the subject. The water treatment technology is there but the energy costs have been prohibitive.


Now a series of global 'long-term play' venture capitalists (long-term venture capitalists are a rare breed) believe they can start a new world water revolution by using modular technology that slashes the cost of energy to convert sewerage and other waste waters, not to drinking water, but to water that can be used on farms, gardens, in air conditioning, toilets and similar non-drinking uses. That slashes the need for top-quality water so less dams and other sources of high-quality water are required.


The technology comes from Israel and most of the capital comes from the US but, to the surprise of the locals Down Under, they have chosen Australia and Melbourne as their corporate base.


Somewhat stunned, conservative Australian institutions have suddenly become exposed to a global water technology play. I must warn you that I am no technology stock expert but shares in Emefcy Group are rising rapidly as local institutions become excited by the vision of the venture capitalists ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ and the vc's enthusiasm is infectious.


The technology arose when Israeli water technologists were working on a major long-term industrial waste technology system. They realised that part of the system ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ an aerated, low energy use membrane filter ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâہ¡ÃƒÆ’‚ could be separated and had great market potential. They set up a pilot plant and it worked. They will complete a full scale plant in Israel in the next few months and a second is planned for a top hotel in the Virgin Islands.


Clearly there are risks in going from pilot plants to full scale plants but the Emefcy people say that the technology operates through identical modules and so can be increased in scale without complications.


The enthusiastic venture capitalists explain to Australian institutions that just as solar panels are decentralising the power system away from the big generators so Emefcy technology will decentralise water processing into smaller towns and large capital city buildings.


But before you get carried away, remember that the company 'back door' listed in Australia and, while it has made substantial investments in plant development, the balance sheet shows that it's cash reserves are only about $10 million.


Emefcy obviously wants to lift its share price so it can raise more capital. Clearly, the current enthusiasm for the shares stems partly because of the global track record of Richard Irving, Eytan Levy, Ross Haghighat, Peter Marks and Robert Vale. And while we can see the potential in western capital cities and rural communities, the really big potential market is China where water recycling is planned on a huge scale.


Clearly, the full-scale plants have to work and the company's claims that they have a two-year technology break on any rivals needs to be right. In addition they are planning a funding system whereby the individual plants will be owned by infrastructure investors looking for a safe return based on contracts from communities, hotel chains etc to buy the industrial water.


The desire of infrastructure investors to achieve a safe return reduces capital outlays and increases the returns from the technologies. In theory, Emefcy can create a global water revolution but remember, at this stage, a commercial size plant is not yet in operation and the company is under capitalised. But increasingly these sort of projects are going to come onto the Australian market because disruptive technology is advancing on many fronts and our stock exchanges allow much easier entry than many others and the market has a high reputation.

Robert Gottliebsen, in his usual breathess plugging style


EMC doing quite well - listed in Dec, hovered around 20c for a while, recently moved quickly this month from 45c to 70c. Don't know much about it, but ....



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Retail brokers have been asked to look at plenty of listed investment companies over the past three years. Every fund says their pitch is unique but, in reality, most are either Australian equities or global equities funds.


Stockbrokers Taylor Collison and Morgans are out in the market with something genuinely different. The brokers are seeking to raise $99 million for alternative asset manager, Duxton Capital. Duxton Capital has $870 million under management, with the bulk of that money in agricultural investments.


The firm was spun-off from Deutsche Bank in 2009, as the Deutsche Bank Complex Asset team, in a move headed by Duxton chief executive officer Ed Peter and Stephen Duerden.


Brokers Taylor Collison and Morgans, as lead manager and co-manager respectively, started introducing Duxton to their broker networks and clients this week.


The pitch is all about getting access to Australia's $11 billion water market. Duxton said the portfolio would be focused on the Murray Darling Basin region, which accounts for two-thirds of Australia's water usage.


The new fund will start with a $38 million portfolio, which will be leased to related party primary producers and generate a gross initial yield of 5.9 per cent, according to a flyer sent to potential investors.


Duxton is seeking to have the funds raised by the end of August, with trading on the ASX expected on September 21. The brokers are selling securities for $1.10 each, with an attached option exercisable at $1.10 before May 2018.



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Duxton Water Limited http://www.duxtonwater.com.au/


Issue Price $1.10 per ordinary share


Security code D2O .............. (heavy, huh?)


Capital to be Raised Max $149,600,000


Expected offer close date 31 August 2016


The majority of Duxton Water's returns are expected to be generated via Water Entitlement leases with primary producers. These leases are structured in a similar manner to commercial leases where the asset title is held by the lessor and fixed annual rent is paid by the lessee. As such, Duxton Water presents investors with an asset that produces regular and predictable revenue streams and is uncorrelated with traditional asset classes. The Water Entitlements may potentially generate capital appreciation as they are held over a long term horizon.

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Quest Water (QWTR-OTC) announced it plans to build and operate a commercial water bottling facility in Havana, Cuba utilizing the atmosphere.


The atmospheric water bottling facility will be the first known water supply and bottling plant in the western hemisphere obtaining its water source through the extraction of atmospheric humidity.

The planned facility expects to commence with an output capacity of 1.1 million liters of water per month.

The planned facilityÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢s state-of-the-art bottling equipment will allow the operations with a production rate estimated at approximately 12,000 bottles per hour in the 500ml format.

This equates to 96,000 bottles per day or 88,000 cases of 24, 500ml bottles per month.

These systems can produce approximately 40,000 liters of water per day based on the average climatic conditions in Havana.

The bottling facility will also utilize 100% biodegradable bottles that break down completely within six months after use with no residual effects to the environment.

The United NationsÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¾Ãƒâہ¡ÃƒÆ’‚¢ World Health Organization estimates that more than 3 billion cases of illness and 5 million deaths - the majority children - can be attributed annually to unsafe water.


The death rate for children alone is estimated at one every twenty seconds. Those numbers may rise in the early years of this century; world population surpassed seven billion in 2011.


It is expected to top eight billion by 2028. Most of the increases are expected to be in developing countries, increasing pressure on already inadequate water resources.





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So far in the 2016-17 water year, dams have been filling and rivers such as the Murrumbidgee have flooded. Water allocations that traded between $200 and $300 per megalitre last year, reflecting the lack of water availability in that particular season, are now trading at between $50 and $100 per megalitre.


But there have still been major water transactions occurring, and capital raisings have gone ahead for new funds looking to buy into Australia's water market. Australia's water entitlement market is now worth more than $30 billion, and groups such as the Blue Sky Water Fund have enjoyed strong returns. Since inception in 2012, Blue Sky has returned 100 per cent, and managing director Kim Morison says the record rains and politics are only a temporary setback for the market. "While wet weather may take the wind out of our sails today, it also builds up the wave behind us," Mr Morison says. "There is an abundance of supply right now and demand for water this year is down on last year at this point in time because irrigators have not commenced irrigating their fields."


However he says that the return of hot summer conditions will likely stimulate demand and a recovery in water allocation prices. Water allocations are how much water an entitlement holder is allowed to take in any one season. Allocations depend on the temporary flows of water. Blue Sky owns the entitlements and both leases out and trades the allocations it receives for its entitlement.


Colliers International's water valuer Alex Delves says water entitlement values ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ the ones which water funds are likely to own ÃÆâ€â„¢ÃƒÆ’ƒâہ¡ÃƒÆ’‚¢ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â€š¬Ã…¡Ãƒâ€šÃ‚¬ÃƒÆ’…¡Ãƒâہ¡ÃƒÆ’‚¬ÃƒÆ’¢Ã¢Ã¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã‚¡ÃƒÆ’‚¬Ãƒâ€Â¦ÃƒÆ’¢Ã¢Ã¢â‚¬Å¡Ã‚¬Ãƒâ€¦Ã¢â‚¬Å“ are not as volatile as water allocation prices. "Over time, water use has and will transition from lower-value to higher-value agriculture." During 2015-16 we saw strong growth in values for water entitlements across a number of classes driven by these long-term factors. "Whilst this trend has undoubtedly eased in the new water year, there remains a high level of interest in entitlements across the basin."


Last month, Australia's largest listed agricultural property fund, Rural Funds Group, paid $34million to access water entitlements from ACT water utility Icon Water in one of the biggest water deals in the Murrumbidgee River irrigation area.


Other large transactions have occurred in the last 12 months, including the Chris Corrigan and Peter Scanlan-backed Aware Water company, which purchased at least $100 million worth of water entitlements from the Summit Water.


The other significant transaction that have occurred include listed group Webster's $116 million purchase of AgReserves Australia's farms, for which more than 50 per cent of the cost was for the water entitlements.


Last month, the billionaire Besen family joined with National Australia Bank, The Nature Conservancy and several private investors to raise up to $100 million for a fund called the Murray-Darling Basin Balanced Water Fund.


In August, Duxton Asset Management, Ed Peter, launched Duxton Water (D2O) on the ASX as a water entitlements play across the Murray Darling Basin.


How well they succeed will depend on the volatile climatic conditions Australia is so famous for. "If rainfall across the Murray Darling Basin reduces over summer, allocation prices are likely to increase," Mr Delves says, "However if a wet summer is experienced, then we are in for continued low volumes of allocation trade and lower prices." Regardless, he says the value of water entitlements is prone to increase over time as annual water use is progressively directed to higher-value agricultural outputs such as nuts.


Another key factor will be political involvement. Of the 35,000 gigalitres (35 trillion litres) in the Murray Darling Basin, only 11 trillion is used for irrigation. However there is still a push to have more water returned to the environment. "There will be plenty more politics to come," Blue Sky's Mr Morison says, "I don't think there will be a large impact on the environment if you take 450 gigalitres, but it would certainly have a big impact on the economic and social side of communities."

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