Desalination Market Moving to Reverse Osmosis and Larger Flow Control Expenditures

Nearly 80 percent of the investment in desalination this year will be for membrane treatment as opposed to thermal.

The $8 billion which will be spent on membrane systems represents a large market for suppliers of valves, pumps and filtration equipment. This is the conclusion reached by the McIlvaine Company by aggregating forecasts in a number of its water related reports.

The investment in the membrane portion will be $2.7 billion. This includes the replacement membranes and modules as well as the new equipment using microfiltration, ultrafiltration and reverse osmosis. The salt is removed in the reverse osmosis system but either microfiltration or ultrafiltration is used to pre-filter the seawater.

The U.S. market is poised to accelerate as cities want a more secure water supply. San Diego has purchased a system from IDE which will be the largest in North America. It will process more than 100 MGD of seawater and produce more than 50 MGD of drinking water. Desalination became attractive to San Diego based on reduced operating cost.

Early desalination membranes removed about 98.4 percent of the salt and required an extra pass through a second array of filters. According to IDE, they cost about $500 each and lasted three years. Today s filters extract 99.8 percent of salt, cost $350 and can last seven to eight years, making large-scale desalination feasible. Power-saving devices employ leftover brine to spin turbines which, in turn, run pumps cutting energy use by 45 percent.

Of the $5.3 billion, which will be spent for the balance of the membrane systems, pumps, valves and piping represent a big portion. Pumps to move the pure water through the reverse osmosis membranes are major components of desalination systems. Pitting, crevice corrosion and stress corrosion cracking are major challenges in processing seawater and brackish water. Pump companies such as Sulzer and Flowserve address these issues with a range of materials, including super austenitic stainless steels, duplex stainless steels, bronze alloys, nickel alloys, and Ni-Resist metals along with engineered polymers. Flowserve maintains its own steel, nickel and light reactive alloy foundries.

Reverse osmosis requires high pressures and, therefore, high energy consumption. However, because of some novel pump designs, much of this energy can be and is being recaptured Energy Recovery has a type of pump called the PX Pressure Exchanger which captures hydraulic energy from the high-pressure reject stream of seawater reverse osmosis processes and transfers this energy to low-pressure feedwater with an efficiency of over 98 percent. Because the PX device itself consumes no electrical power, the overall energy consumption of the seawater reverse osmosis process is drastically reduced.

Special valves are needed to contend with the corrosion and pressures. Pentair supplies butterfly and check valves meeting all the requirements. Victaulic has acquired the desalination business of MTS Valves & Technology, which designs and manufactures plug valves for the global desalination market. Victaulic offers a complete line of grooved couplings, fittings and valves for high-pressure desalination and reverse osmosis applications.

Cartridges, sand filters and automatic backwash filters are typically used for pre-filtration. The choice is critical. Plugging problems have caused major problems when the wrong combinations are chosen.

The performance of the systems is dependent on accurate measurement of flow and water quality as well as control of the variables to ensure high water purity at minimum energy consumption. Companies such as ABB, Emerson and Yokogawa provide integrated solutions.

Ralated Article:Chinese Pharmaceutical Industry is Hot Market for Flow Control and Treatment

The Chinese flow control and treatment market is growing at double-digit rates and will reach just under $1 billion annually by 2017. This the aggregated forecast in a number of McIlvaine Market reports.

China accounts for 20 percent of the world s population but only 1.5 percent of the global drug market.

The domestic pharmaceutical market is highly fragmented and inefficient with nearly 6,000 domestic pharmaceutical manufacturers. Entry to the WTO has brought a stronger patent system. Medical insurance is now more widespread and pharmaceutical-related regulations have been stiffened.

China s domestic companies account for 70 percent of the market, and the top ten companies about 20 percent. Major international pharmaceutical companies have targeted China as the biggest growth market. They have also recognized the talent pool in China and are setting up research facilities in the country.

The Chinese drug market is projected to grow 22 percent a year, reaching about $200 billion in 2017. Flow control and treatment will represent 0.5 percent of the expenditures. Liquid cartridges will be the leading treatment product and valves will be the leading flow control revenue generator.

The hidden edge of junior mining companies

Rick Rule, Chairman of Sprott Global Resource Investments Ltd., has invested in natural resource projects for nearly four decades. I asked him what I needed to know about investing in junior exploration projects.

“That’s a very large subject,” Rick began, “but the first thing you should know is that the minerals exploration business is frequently mistaken for an asset-based business, but it’s really a knowledge-based business.”

What’s does this mean? The problem with investing in natural resource projects, says Rick, is that there’s a very low chance of success for any individual property. “When I was in university, some forty years ago, the experts claimed that roughly one in three thousand mineralized anomalies (exploration targets) would become a mine,” Rick explained. “With those odds of success, any particular property has a pretty slim chance of being worth something. The way people are successful in this business is by identifying the opportunities with the best characteristics – and having the ability to quickly figure out what’s in the ground.”

“Analysts and investors who participate in the sector would be well-advised to recognize that the entities whose shares we buy are similar to the small research entities in the research and development space in the technology industries,” Rick concludes.   

Most analysts and investors don’t recognize this fact, and their mistake often results in poor investment performance in the sector. “The argument that these are asset-based businesses is responsible for most of the capital lost in public junior minerals equity markets. The equation offered up by junior capital markets is that investors take a one in three thousand chance in order to receive a ten to one return. That isn’t much better than the odds of success buying lottery tickets. But understanding the industry can, and does, improve the odds substantially.”

“The junior exploration industry today can be seen partly in the context of a broader economic trend today – outsourcing.” He continues: “The major mining companies today are increasingly financially driven, and the variability of returns from exploration, as well as the valuation and reporting challenges that accompany exploration efforts discourage major mining companies from being exploration focused. Their competitive advantages lie in scale, financial stability, engineering and construction capabilities, and production technologies, and less to the entrepreneurial acumen required for exploration success.”

Major mining companies prefer to avoid the exploration side, Rick says, because companies generally must pursue multiple fruitless endeavors before, if ever, attaining success – and this period of failures is punished by shareholders. This has led to increasing collaboration between juniors and majors, and the majors focus on the acquisition of successful juniors as a focus growth strategy.

What allows juniors to pursue exploration, which the majors avoid? Rick believes that the reason lies with a hidden advantage enjoyed by the juniors.

“They have an effective sub-zero cost of capital,” Rick says. “On the whole, the exploration industry loses between $2 billion to $10 billion per year, subtracting annual expenditures against income from corporate and property acquisitions, production income, or portfolio transactions.”

“Exploration on the whole is a capital destroying business,” Rick continues. “It costs more than you get out of it – and yet, it raises billions of dollars of fresh equity every year. Its cost of capital is thus arguably sub-zero – a fact that majors cannot ignore.”

But can this be sustained? How long can an industry which destroys billions in capital yearly survive?

“In order to play down the low odds of exploration success, juniors have begun to emphasize ‘market success’ instead – the value of their paper instead of that of their projects. One manifestation of this attitude is the juniors’ habit of recycling exploration targets that have failed in the past but can be counted on to yield decent confirmation holes. Another is their tendency to acquire hyper-marginal deposits and promote the ‘in situ’ value of the resources, without regard to the capital costs of developing these resources, the operating costs, or the net present value of operating cash flows that might occur in three decades time.”

So don’t let promoters swindle you into lousy stock positions, Rick advises. “The industry has been quite successful, during ‘bull market’ cycles, at causing allegedly sophisticated investors to focus on exciting but meaningless criterion. Successful investing and speculating in the sector is truly about discriminating amongst choices. If your broker convinces you to buy the entire sector indiscriminately, they will have lived up to their moniker: you will become ‘broker’ and ‘broker.’”

Rick Rule founded Global Resource Investments in 1994. Global provides brokerage and investment banking services to high net worth individuals, institutional investors, and corporate entities worldwide. In 2011, Global was acquired by Sprott, Inc., a public company based in Toronto, Canada, which has in excess of $9 billion in assets under administration in the resource and commodity sectors.

CEDA Issues Information Paper on Ecosystem Services

The latest in the series of information papers issued by the Central Dredging Association (CEDA) is entitled Ecosystem Services and Dredging and Marine Construction.

It has been produced by the CEDA Working Group on Ecosystem Services (WGES) under the remit of the Environment Commission (CEC).

Members of WEGS are scientists and practitioners with a broad range of expertise, representing knowledge institutes, government, manufacturers, ports and contractors.

The concept of ecosystem services (ES) enables a value to be assigned to natural resources that makes it possible to link the environment to human well-being.

This has important implications for the planning and management of dredging and marine construction projects. In short, the ES concept is a tool for decision-making about sustainable development.

The paper explains that there are four basic groups of ecosystem services: provisioning services (food, and water, for example), regulating services (such as flood control and air purification), supporting services (eg navigation) and cultural services (including recreation). Each service is delivered by a set of structures and processes called an ecosystem function. This may be changed in order to deliver a benefit to human well-being, for example by dredging a navigation channel, and, in doing so, creates a pressure.

The ES concept is intended to help project designers create a sustainable balance between pressures and services in ecosystems. The aim is not merely to minimise damage (pressure) but also to look for opportunities to improve the environment. As dredging and marine construction often takes place in and around sensitive, and sometimes degraded, environments, such as coastal waters, rivers, mudflats and sandbanks, the ES concept is of considerable value if used at the earliest stage of project planning.

The paper sets out how individual ecosystem services are affected by dredging. For example, for water quality, dredging may cause a short-term decrease in local water quality and, by altering the morphology of the system, lead to a loss of habitat and species. However, dredging of contaminated sediments decreases the contaminants in the system. Also, if reedbeds are created then water quality will be enhanced.

The paper recommends that a multi-disciplinary project team be set up to assess the ecosystem services, to assign values to those services and pressures, and to design the project. It includes two case studies showing how this has been achieved in practice in the Scheldt estuary and in estuaries in the east of England. Other interesting initiatives include the use of ‘eco-concrete’, which encourages colonisation of marine structures by small organisms, and seabed landscaping after aggregates dredging, which again promotes biodiversity.

This new CEDA information paper shows how, by applying the ecosystem services concept, the dredging and marine construction sector can deliver benefits both for society and for the natural environment.

The CEDA Information Paper Ecosystem Services and Dredging and Marine Construction can be downloaded from the CEDA website www.dredging.org. Select Publications & Resources and click Downloads or just type ‘ecosystem services in the search window.

Coal of Africa: Funding model that works

Ex-CE emphasises the importance of finding a balance between NGOs' cause and economic development

Do a thorough due diligence so you know what you are getting into and never forget commodity markets can go down - that's the advice from former Coal of Africa (CoAL) CE John Wallington to executives running junior mining and exploration companies.

Wallington has now stepped down after three years doing what was described as "the worst job in SA mining" - running CoAL, where all hell broke loose the minute he walked through the door in May 2010.

In short order the company's flagship project, the Vele coking coal mine near Musina in Limpopo, was shut down by the department of environmental affairs and a string of operating and corporate problems emerged at the group's Nucoal and Mooiplaats thermal coal mines in Mpumalanga. Both mines are now closed and the litigation continues.

Wallington - one of the country's top coal mining executives, with about 30 years of experience, including running Anglo American's coal division - says the deteriorating situation at CoAL resembled the classic management quip that "when you are up to your arse in crocodiles it can be difficult to remember the original objective was to drain the swamp".

He took over from previous MD Simon Farrell."What attracted me to the job," he says, "was the incredible potential of the coking coal deposits that CoAL controlled in Limpopo - and that potential remains. I believe at least three world-class coking coal mines will be developed in Limpopo over the next 10-20 years on the resources that CoAL owns. Those mines will create massive wealth for the company and the nation.

"But with the closure of Vele I was pushed into a continuous fire-fighting role. I was in the media in one way or another every day during my first six months in the job. We got into so much trouble so quickly there was no time to think. That situation and the growing litigation were huge distractions for the management team."

Wallington adds: "With hindsight, I clearly did not carry out a good enough due diligence. But a lot of the issues at Mooiplaats were not immediately apparent. The skeletons came rattling out of the closets only in the course of the next year." Wallington eventually got Vele back on track. The mine's environmental permits were restored after 17 months of what he describes as "doing everything by the book".

"That was our commitment to the department - that we would do everything by the book to comply with the National Environmental Management Act. That was a positive outcome because it shows what can be achieved by sticking to the regulations. You can create good relationships by working through the proper channels. "Looking at the bigger picture, I think government needs to decide clearly where companies can mine and where they cannot. I think the Vele saga has been a catalyst in focusing attention on this and moving developments in the right direction, if you look at the biodiversity guidelines that have now come out."

By contrast, Wallington is critical of a number of the environmental nongovernmental organisations making up the Save Mapungubwe Coalition with which he dealt over Vele. "I went right out of my way to engage with them," he says, "which has not been the conventional approach from the mining industry to such organisations. I was disappointed because, in my view, the path these NGOs followed is not sustainable. If they do not find a way to engage honestly in finding a balance between their cause and economic development then I believe they will become increasingly irrelevant."

It was while all this was going on that the commodity markets starting turning down, landing Wallington with the additional challenges of keeping CoAL financially afloat and dealing with increasingly irate shareholders.

He says the fundamental problem is that the funding model for juniors and exploration companies works only in a rising market. "Investors are happy to put money in when the market is going up but, when it's going down, that's another story.

"When Vele started out, the coking coal price was above US$200/t and there was an investment hunger to find coking coal mines outside Australia. Had the price stayed at $250/t I think CoAL would have been okay, but at $150/t it's a different picture," he says. With Vele delayed and the Woestalleen and Mooiplaats mines not generating the cash they were supposed to, CoAL had to go back to its shareholders and bankers repeatedly for more funds.

One criticism of Wallington voiced by an industry insider is that he did not handle dealing with the shareholders that well. "That was a nightmare," Wallington says. "The key problems were the original overpromotion of the project and the plethora of litigation issues as a consequence of the poor execution of the acquisition of the thermal coal assets.

"CoAL has not been alone in this, as you can see by the recent rash of big writedowns on projects by nearly all the world's major resource groups. As they say, even turkeys can fly in a strong wind but, when the wind stops, they come crashing down.

"There's a huge problem in going back to your financial backers because they do not like being told that they overpaid in the first place for the assets." The end result was that the company was continually starved of capital, with its backers putting up just enough to keep it going but not prepared to kick in sufficient funds to allow substantial changes and getting increasingly irritated by the situation.

Former chairman Richard Linnell sent out an e-mail in August last year after his resignation in which he attributed his departure to "frustration" by the major shareholders. Linnell said this was "demonstrated by their coupling of this recent fundraising to a call for significant board changes".

Wallington points out that his initial focus on CoAL's potential, coupled with overoptimism on the commodity markets, also hit him personally because nonperforming share options and bonuses did not measure up to expectation."After the first six months I seriously contemplated leaving but decided to stay and see through my contract because of my commitment to the CoAL team, which was as good as any I have worked with in my 30 years in the industry.

"I decided not to renew the contract because I had lost some of the desire and passion for the job and it was in the best interests of both parties to move on."The company is now being run by chairman David Brown while an executive search for a new CE is carried out. Wallington is looking at various options and could soon be back in a full-time CE role. That's a very different position from 2009, when, after leaving Anglo American, he said he was happy "dabbling in various projects" and famously commented that "you can never say never but it seems highly unlikely I will be back in a full-time role".

Resgen signs 20-year coal offtake deal with Valu Investments

ASX- and JSE-listed Resource Generation (Resgen) has entered into a 20-year export coal offtake agreement with Valu Investments, a special purpose vehicle that will be jointly owned by entrepreneur Jaimin Vyas and Indian energy infrastructure company IL&FS Energy Development Company.

Under the terms of the agreement, Valu would initially buy one-million tonnes of export coal a year from Resgen’s Boikarabelo mine, in South Africa. Once Stage 2 production at the mine is started, this volume would increase to two-million tonnes a year.

Coal prices would be set by reference to an internationally recognised index at the time of each shipment.

Further, Valu has agreed to conduct feasibility studies for the proposed development of both a 200 MW and a larger 1 200 MW coal-fired power station adjacent to the Boikarabelo mine.

Resgen granted Valu the right to own, build and operate both coal-fired power stations as an independent power projects.

Brazil steel demand to fall on slower economic growth: S&P

The steel industry in Brazil is currently in a slump due to sluggish domestic economic growth, which has hit demand in the region, Standard & Poor's said in a report released Tuesday.

S&P, like Platts, is owned by McGraw Hill Financial.

"We expect a modest recovery in Brazil's GDP in 2013, which may reach 2.5%, but this growth comes with greater downside risks," the ratings agency added.

While infrastructure construction remains strong with the upcoming Olympics in 2016 and the football World Cup in 2014, other sectors, such as the auto industry, capital goods and housing construction, are lagging, S&P said.

Delays in regional oil and gas industry projects have also caused problems for steel producer companies that have invested heavily in anticipation of rising orders.

"Although steel prices continue to trend down given the global overcapacity, domestic competition has decreased as higher import tariffs and depreciation in the Brazilian real have discouraged imports since the last quarter of 2012," S&P said.

Major Brazilian iron ore producer Vale is weathering the weaker economy and continues to show capital discipline and prudent growth, it said.

"However, if demand from China deteriorates -- resulting in iron ore prices below $100/mt for a prolonged period -- the resulting lower cash flows could weaken Vale's credit metrics," S&P said.

Vale currently maintains one of the world's lowest cash costs for producing iron ore at $45-55/mt, which should guarantee its profitability even during a prolonged period of low prices, S&P added.

China's aluminum imports down 37% in H1

China saw its imports of unwrought aluminum and aluminum products plunge 37% year on year to 386,770 tons in the first half of this year, according to statistics released by the General Administration of Customs.

The Administration said that China imported 1.13 million tons of waste copper in the first half of this year, 7.9% less than in the same period of last year.

Last month, the country imported 65,560 tons of unwrought aluminum and aluminum products, down 9.77% from a month earlier.

Meanwhile, its import of waste copper decreased 10% month on month to 180,000 tons in Jun.

The Ralated Article: China's Baosteel keeps August prices unchanged 

China's Baoshan Iron & Steel Co Ltd, the country's biggest listed steelmaker, will keep prices for its main products steady in August, it said in a statement on Thursday.

Wuhan Iron & Steel, another leading Chinese steelmaker, raised prices for its main products by 50-100 yuan($8-16) a tonne for August in response to the recent rebound in steel prices, traders said. ($1 = 6.1341 Chinese yuan)